Apple Inc. is one of the most valuable companies in the world. Its global revenue surpassed $215 billion in 2014, and in August 2018 Apple became the world's first trillion dollar public company. As of 2020, over 100 million of the US's 250 million smart phone users had an iPhone [1]. In the US, this success has come from beating out early competitors (Nokia and Blackberry) and fostering brand loyalty through providing cutting edge, beautiful products and a unique customer experience.
In China, however, Apple does not have nearly the same footprint. Although 20% of Apple's revenues come from China, the company has not realized the growth it expected. When evaluating Apple against Porter's 5 Forces of Strategy, their struggles in China start to take shape. For the purpose of this blog, I'll focus on two threats.
Threat of Entry
Many new cell phone brands have been home grown in China. These brands include Oppo, OnePlus, Meizu, Poco, Realme, and Vivo. Although an average consumer in the US likely hasn't heard of Oppo, or seen one of their smartphones, Oppo accounts for 10% of all premium smartphone sales in Q2 of 2018 [2]. One reason for the emergence of these new brands in China is their access to distribution channels. As Porter outlines, the treat of entry decreases with this access [3]. Homegrown brands in China have a natural advantage as they are at the epicenter of manufacturing chains and China has one of the best transportation infrastructures in the world. The Chinese brands also have access to raw materials and smartphone component manufacturers which makes it easy for them to assemble their phones.
The Threat of Substitutes
Apple is more than a hardware company, consumers buy into the Apple ecosystem when they purchase Apple products. This is an important factor of the Apple strategy. In Q2 2020, Apple generated $13.35 billion in services revenue from iTunes, software, digital content, AppleCare, Apple Pay and licensing [4]. Chinese consumers have other options for these services. For example, WeChat, a Tencent product, has permeated the market and can be used for voice calls, video calls, and messaging, for money transfer, for sharing photos, as an electronic ID, and as a tool to access public services. Chinese customers are therefore less likely to invest in Apple software and services.
Beyond Porter's 5 Forces, Apple is disadvantaged in the Chinese market due to the price point of Apple products and their status as a luxury brand. As Greenberg, Hirt, and Smit outline in their article, The global forces inspiring a new narrative of progress, "As middle-wage workers are displaced, many are forced to “trade down,” reducing their income and putting pressure on existing lower-wage workers. There is also widening earnings disparity" [5]. This observation is also true of China where Apple products are not affordable for the average middle-class person.
Apple may never experience the growth and market share they have in the US in the Chinese market as they are faced with more forces against them abroad than in the US.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.