What's Apple's Strategy in China?
David Gray/Reuters On March 22, before the foreign media or Apple themselves seemed to have grasped the seriousness of the CCTV attacks on the Californian behemoth, I wrote a post on Danwei.com that concluded:
"The signs are clear that regulators and establishment media would both be happy for foreign mobile phone handsets and operating systems to lose market share. This should be remembered by anyone betting on Apple as a China play, including CEO Tim Cook who earlier this year told Xinhua News Agency that he believes China will become Apple's largest market."
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The second sentence explains why Apple nee! ded to apologize: China is the major part of their growth plans, and they need to do everything they can to stop hostile attitudes towards their company and products from the Chinese government and official media. I don't think Chinese consumers are very upset about the problems CCTV exposed, but the government could very easily make Apple's China dreams impossible to realize
If Apple does not act contrite, there are thousands of other issues that CCTV or other state actors could attack them on, starting with the apps and content on their iTunes store: To this day the iTunes is the greatest Trojan horse of foreign content that any foreign media or tech company has managed to sneak into the People's Republic without serious scrutiny.
Despite the apology, I expect Apple will continue to meet hostility from official organs in the coming years -- their government and public relations teams are going to have to earn their keep.
Whilst the current row over Apple's warranty policy may well owe more to the government's and Apple competitors' desire to curb the company's success in the Chinese market, the charges of arrogance are not completely unfounded: there is history here.
When in 2011, a consortium of Chinese civil society organisations exposed appalling labor and environmental conditions in the factories that made iPads and iPhones, following a seven month investigation, Apple refused to acknowledge the reports or to respond to the charges. Chinese civil society activists had been trying to raise these issues with Apple since 2010, without a response. The attitude at Apple headquarters seemed to be that any criticism was down to jealous c! ompetitors and that the company was too big to worry either about its w! orkers or its environmental impact. It is, of course, quite possible that a different conversation was going on inside the company, but as far as the public was concerned, Apple stuck to the line that it did not disclose who its suppliers were, allegedly for commercial reasons. As one Chinese activist put it, if a factory is making iPhones, it would seem to be a reasonable bet that it was an Apple supplier. Still, Apple would not budge:
The investigators claim that, despite the information provided by the NGOs on environmental problems at as many as 27 suspected Apple suppliers, the U.S. firm did not respond to a single pollution incident in its 2011 Supplier Responsibility Report. Its only nod to questions from environmental groups was to admit that Wintek, where workers suffered n-hexane poisoning when cleaning iPhone touch-screens, was a supplier.Apple's attitude was reminiscent of the Nike response, long ago, to the revelations of child exploitation in their supply chain: this basically said that these were not their factories and they did not accept responsibility for what happened inside them. Nike paid a heavy price in reputational terms for that, and they have since had to work hard to rebuild their image. Apple did not seem to have noticed that standards of disclosure had risen since then. As the Chinese activists noted:
The latest NGO report accuses Apple of failing to respond openly to questions and ... while this type of behavior used to be standard among international companies ... practices have changed as greater transparency in China has increased access to environmental data. Many companies now use that information to prevent pollution from their global manufacturing base.Non-disclosure remained Apple's policy until the death of Steve J! obs. Since then, Tim Cook has taken a more open position and an invitation to Chinese NGO in October 2011 to discuss Apple's factory conditions was a breakthrough. But it came more than a decade after most multinationals realised that refusing to discuss conditions and abuses in their supply chains was unacceptable, unethical and finally, bad for business as it calls into question the social license to operate. It had taken Apple the best part of two years to respond. In the current, different dispute, Apple may find it has fewer friends that it might have had, if it had woken up earlier
By all indications, Apple's apology is enough to satisfy most Chinese consumers, even if the letter is less than perfectly sincere. It's also undoubtedly the right move for the company to make, bec! ause the apology's target audience is in fact wider than the consumers to which it is formally addressed.
As with so many events in contemporary China, the country's social Web gives the best available gauge of what citizens -- and, in this case, consumers -- think of all the high-level wrangling. For analytical purposes here, it does not hurt that there is substantial overlap between Apple consumers and heavy Internet users; a recent search for "Apple" on Sina Weibo, a major micro-blogging platform, calls up 297 million recent mentions.Most of those are not about fruit.
Chinese state media seemed to land the first punch it took at Apple in mid-March, when a widely-watched consumer protection television show on CCTV accused Apple of discriminating against Chinese customers, and Web users responded by calling for a boycot! t of the company . But the campaign faltered quickly thereafter wh! en one prominent Web commenter accidentally revealed that his own Apple critique had been pre-written, and the time of its posting pre-ordained. Chinese social media users are a cynical and usually savvy group, and once they sensed they were being manipulated, the media offensive against Apple lost some of its momentum.
That is partly why Apple was able to issue an apology that was less than fulsome. On one hand, the apology letter focused on the company's failure to communicate, not its conduct, and it wasn't lost on some of the more nationalistic commentators that the apology was published on April 1st, as April Fool's Day is widely "celebrated" in China. On the other hand, China is a target-rich environment for crusaders against corporate malfeasance, and Apple's relatively minor infractions register lightly among more press! ing concerns like food safety. In addition, the government has recently thought out loud about requiring red-hot social network Weixin to charge a potentially ruinous fee , which has struck many as a shameless effort to protect the government-owned telecom companies against even domestic competition. These rumbles reinforce the perception that the playing field in China tilts toward state-owned enterprises, making it harder to demonize Apple with a straight face.
But in issuing its apology, Apple nonetheless made the right decision for its shareholders. China and the U.S. stand alone as Apple's two major markets, and while China is still far behind the U.S. in terms of Apple's net sales, the growth of Chinese r! evenue has been explosive . Apple cannot afford to fight a war on ! multiple fronts -- legal, regulatory, and media -- with a determined Chinese government. And while Apple may have emerged from this latest PR battle bruised but standing, Chinese authorities could likely win a PR war of attrition. A constant drumbeat of state media criticism, keyed to play up nationalist sentiment against an "arrogant" American company, would inevitably dull the sheen that still distinguishes Apple products.
A public apology is one way that Apple can begin to bury the hatchet, at least with the public. But while Apple's letter is addressed to consumers, it also speaks to Chinese authorities, who surely want something more than just words and tweaks to Apple's warranty program.In all likelihood, Apple is working furiously behind the scenes to ascertain what decision-makers really want, and to determine whether Apple is willing and able to provide it. The apology signals that Apple is serious about finding common ground.
A versi! on of this post appears at ChinaFile, an Atlantic partner site.
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