Good Apple Inc’s Corporate Strategy In China Essay Example
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Apple Inc is the largest publicly traded corporation in the world by market capitalization. It was founded in April 1, 1976. It has 364 retail stores in 13 different countries. In year 2011, it had revenue of USD 108 billion with an estimated value of USD 626 billion. In China, Apple Inc has done well so far and according to its current CEO, there is a tremendous opportunity for companies that understand China. 20 percent of total company’s revenue lies in China with a growth of 9 percent annually. Apple Inc captures 78.3% of market share of tablet PC in China and thus the largest share holder as compared to the competitors like Samsung and others (Xing and Detert, 2010).
In order to get considerable success in China, certain business needs to be known about that region. Firstly there is speed and flexibility of Chinese workforce in which US employers find tough to compete, there are around 230,000 employees working 6 days a week. Second important factor is the cheaper available material because material is all made in China and that is why it is cheaper and faster, lesser waste and less risks and challenges are involved. Third aspect is cheaper production cost and thus there is more money in consumer’s pocket. This excess amount of money is put back to their economy. Consumer value has $6.5 billion extra in Chinese economy that can be further utilized for the economic development (Alleb, Qian and Qian, 2005).
Apple Inc’s revenue in China is seen increasing in the year 2012. There are government incentives as well such as, 15 percent tax exemption and Chinese tax treaties are growing. With the ever increasing demand for research and development, salaries are cheaper and relocation allowances are given. China has a 5 year plan of promoting R&D. there are 600,000 engineering graduates in China every year (Xing and Detert, 2010).
Innovative and high tech products need to enter in the market at the time of higher growth or when the market is at start-up stage. In mature industries however, previous researches convey that strength should be in operation and execution and it is better to enter at earlier stage of product life cycle or not at all. An important to note here is that US based company Apple Inc, manufactures its products from China. China imports material and produce final assembled product which is then exported to US. The reduced assembling cost is beneficial to overcome deficit in US (Xing and Detert, 2010).
Every country has its own set of barriers and regulations related to market entry of foreign companies due to globalization. In China, previous research has shown that it has more market entry opportunities and more barriers to exit. It means a company willingly enters Chinese market but due to high exit barriers, the gross exit rate is very less. China has weaker informal institutional structures which are compensated by informal institutions. Three areas of formal institutions that is property rights, access to finance and labor regulations are overcome by informal institutional mechanism. On the other hand, China has better infrastructure as compared to other BRIC nations. Microfinance, access to illegal credit, support from state-owned banks, deficiency of enforcement in labor regulations, weak property rights and contract enforcement are strengthened by state/government. Historically, in China informal institutions are playing more role than formal institutions, moreover informal are hard to change whereas formal institutions changes rapidly. Thus, Apple Inc faces problems while entering in Chinese market due to weak formal structure of the country. It has been observed that in China the informal relations ha s contributed a lot in resource allocation. Weak formal institutions foster negative image in investor and it is termed risky. But personal connections reduce uncertainty to invest in China and thus Apple Inc had selected a company in China as a distributor and not any government package was taken into consideration. Relationships with local companies play an important role in two ways, firstly by complementing law reducing institutional risk and increasing profitability as more risk leads to higher returns. Bureaucratic politics is very common in Chinese economy as well and economic reforms have made these conflicts more visible. New market entrants will experience this repulsion as well (Dittmer, 1995).
Understanding Chinese culture, norms and language and developing strategies likewise is a major issue faced by companies entering this region. Although the forces of governmental laws and regulations are weak but informal structures fulfill the requirement. Apple Inc was no more an exception; the company had to develop strong regional linkages informally before entering in the world’s largest growing economy of China. Thus market entry of Apple Inc was influenced by informal structure more than formal laws and regulations. Although government has set its own technological rules which are creating hurdles for new entrants especially in the field of innovation and technology. But this barrier could be overcome by the company due to its strong strategic sense in dealing with number of different markets. Apple has a strong competitor named Samsung that is producing Android smart phones which are good in quality as well. So Samsung has also captured a part of Apple’s market share in China (Estrin and Prevezer, 2011).
Apple and China Mobile
Apple Inc has joined hands with state owned China Mobile Limited for entering the risky market of China and getting huge customer base. Since 2009, China Unicom is currently distributing Apple phones but as the company is focusing on capturing greater sales volume therefore it should join China Mobile as it has around 600 million subscribers as compared to China Unicom which has about 200 million subscribers. China Mobile is the world’s largest carrier. The company has so far opened four stores in the region but still China is an ever increasing market for Apple. There is about four times more customer traffic in Chinese stores than in American stores (Sigurdson, 2004). Along with advantages come challenges, one of the biggest challenges that company faces in China is the availability of copy of Apple phones and tablet PCs at very less prices comparative to the original one (Burrows, 2008). There is huge gray and black market from where users can easily purchase less priced modified phones and fake tablets as well. Secondly, there is unusual wireless internet technology enforced by government technical requirements (Alleb, Qian and Qian, 2005).
Apple’s Success in China
The reason of success in China is the strong corporate strategy of Apple where they stood for convincing other party. Secondly, it had a strong product and thus Apple Inc did not go for reducing its prices in China rather it will wait to gain bigger amounts of revenue with the rise in high-end purchasers. By the mid of 2016, the company has decided to increase sales of iphone 6 and 6plus and open 25 more retailer outlets. The reason for the success prospects of Apple Inc in China is due to the smart decision made by the company by having a deal with China Mobile in 2013, that allowed the giant corporation to strongly root in world’s largest growing economy of China. The company has experienced a growth of 46 percent over year and now hoping to replicate success of US in China.
Since last five years, Apple Inc has done well in China with revenue amplifying from US$1 billion to US$ 38 billion. However, the share of company seems to be decreasing in the month of February , 2015 (-1.5% reported by Fortune). In order to remain competitiveness in Chinese market, the American icon Apple Inc need to be competitive in pricing. The China based companies such as Xiaomi are capturing the market share due to its lesser prices. But Apple holds the position of a luxury brand in emerging markets like China. The company will be facing immense competition due to the existence of low priced Android phone brands, which are increasing their share rapidly. China store exhibits the highest rate of growth as compared to others (that is 80% annual growth) and company has huge growth prospects in near future as well. Over the last five years as Apple has extended carrier partnerships, points of sale, and other relationships to launch a strong foothold in the rapidly growing market of China, but price competitiveness remains the issue of concern for the company. The economy of China has a lot of corruption that parties demand personal benefits and government may set rules (taxes) on foreign companies recognizing their willingness to invest in China. To overcome this problem higher risk premium can be kept and linked with growth prospects.
Allen, F., J. Qian and M. Qian (2005). Law, finance, and economic growth in China. Journal of Financial Economics, 77.p. 57–116.
Burrows, P. (2008). Inside the iPhone gray market. Business week.
Dittmer, L. (1995). Chinese informal politics. The China Journal, (34), 1-34.
Estrin, S., & Prevezer, M. (2011). The role of informal institutions in corporate governance: Brazil, Russia, India, and China compared. Asia Pacific journal of management, 28(1), 41-67.
Keig, D. L. (2013). Formal and Informal Institutional Influences on Multinational Enterprise Social Responsibility: Two Empirical Studies.
Sigurdson, J. (2004). Industry and policy perspectives: technological superpower China. R&D Management. 34(4). p. 345-347.
Xing, Y. and Detert, N. (2010). How the iphone widens the United States trade deficit with the People’s republic of China. ADBI working paper 257. Tokyo: Asian Development Bank Institute.
Xu, C. (2011). The Fundamental Institutions of China's Reforms and Development. Journal of Economic Literature. 49( 4). p. 1076–151
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