The opportunity of the Chinese market is widely known (e.g. world's largest middle-class, fastest growing major economy etc.) but the corresponding complexities are less well-known. Apple's experience shows the costs of doing business that arise from dealing with these complexities are significant and sometimes somewhat unpredictable.

I am using "complexities" somewhat loosely to refer to issues that range as widely as retail difficulties arising from differing demand elasticities, 羊毛党((This roughly refers to organized efforts to take advantage of deals and discounts offered by a company, sometimes in a manner that might be inconsistent with the offer.)) and organized fraud, responding to state-linked cyber-attacks and adverse publicity campaigns, and adopting precautionary measures that blur the line between compliance and public relations.

I have spun off three case studies that fall under such "complexities" and are worthy of further analysis, which will be dealt in subsequent parts of this essay series.

There are two themes that recur throughout both this part and subsequent parts of this essay series.

First, the Chinese state is not monolithic, but rather comprises many entities with different interests, objectives, and time horizons. So it is not at all unexpected that Apple simultaneously:

In contrast, I believe it is helpful to model Apple as a largely unitary agent that is acting to maximize its long-term profits.

Second, as this essay series relies on publicly available information, it is not meant ot be a full accounting of such "costs of doing business". While I try to provide as much context as possible, should be obvious, many of these interactions concern parties, including Apple, who have an incentive to keep these behind-the-scenes interactions secret. This is only what rises to the surface and thus necessarily incomplete.

Retail Difficulties

While Apple for the most part applies its same general pricing and retail strategy in China, there are some modifications worth noting.