1 May 2020 | By DF
This is a 9-part essay series on Apple’s Success in China. Part 1 introduces the essay series. Part 2 explains Apple’s product-zeitgeist fit in China. Part 3 looks at product localization. Part 4 looks at Apple’s services in China and relationship with Tencent. Part 5 looks at the complexities of operating in China. Part 6 and Part 7 look at Apple’s compliance efforts in respect of the App Store and iCloud respectively. Part 8 looks at Apple’s investment in DiDi. Part 9 concludes with lessons from Apple’s experience in China.
As of May 2020, the two largest economies in the world are the United States and China and the shortlist of the most valuable companies in the world is dominated by technology companies. Yet, of these companies, only one derives significant revenues from both countries: Apple Inc.
Much has already been written about Apple Inc. (hereafter simply “Apple”) and its strategies, such as its high degree of vertical integration, approach to innovation, unique organizational structure, and supply chain management. In contrast, Apple's success in China is relatively under-theorized and poorly understood. This essay series intends to rectify this.
Now is an opportune time to investigate this subject.
At the time of writing, the smartphone industry has entered the maturation phase of the technology life cycle. Of the 5.3 billion people on earth aged over 15, around 5 billion have a mobile phone and about 4 billion people have a smartphone. The platform wars have ended, with Google’s Android winning in terms of number of users and Apple’s iOS winning in terms of adoption by high-end users. As such, the current market structure is likely to persist for the foreseeable future, at least until the next generation of technological disruption, if it happens. Unlike Google,((Google’s Android operating system is widely used in China but Google is unable to directly benefit from this usage as its services are generally unavailable within China.)) Apple’s victory extends to China, with an installed base of around 19.5%. Due to the size of the Chinese smartphone market, in absolute terms, this is a larger installed base than in Apple’s home market, the United States.
We are also currently in an era in which US-China relations are highly unstable. This has implications for technology copmanies feature heavily, both as objects of policy decisions((See e.g. the US sanctions against Huawei and industrial policy to bring TSMC's manufacturing to the US, or China's attempts to develop their own semiconductor industry)) as well as decision-makers facing difficult trade-offs. I would not go so far as to claim that "every tech company is going to have to make a choice between the US and China" or that "[t]here is a fundamental clash of values between the West and China" (link). But the relatively low-level discussion in this essay series allows the reader to form better judgments regarding such higher-level conclusions.
As such, this essay series is much more than a narrow examination of a multinational company’s attempt to sell gadgets in a particular country. Rather, it is a prism through which we can understand some of the most decisive questions of our time. Will globalization and free trade prevail against the winds of nationalism and protectionism? How will wary governments contend for control and power with mega-cap technology companies with unprecedented access to and influence over user data and user behaviour? Apple is perhaps the ideal bellwether for those interested in the answers to these questions.
Part 2 gives color to the extent of Apple's success in China and explains Apple's success in China as the result of its business model and the iPhone's "product-zeitgeist fit" in the Chinese market.
Part 3 looks at Apple's product localization efforts for the Chinese market, both in terms of hardware and software, and argue that they cannot explain Apple's success in China。
Part 4 surveys Apple's services in China and discusses Apple's "frenemy" relationship with Tencent in detail.
Part 5-8 looks at Apple's interactions with the Chinese state. Part 5 gives an overview of the range of such interactions and the challenges they pose. Part 6 focuses on the iOS App Store and Part 7 focuses on iCloud, whose operation in China deviates significantly from Apple's approaches in other countries. Part 8 elaborates on Apple's investment in DiDi, a decision that is at odds with Apple's own M&A history.
Finally, Part 9 concludes by abstracting from Apple's particular experiences and compiling a list of lessons for non-Chinese (technology) companies looking to replicate Apple's success.
For the time-constrained, below is a list of the conclusions of this essay series: