My work: China takes a bite out of Apple

Posted: January 2nd, 2015 | Tags: , , , , , , | No Comments »

An Apple store on East Nanjing Road in downtown Shanghai, courtesy of Flickr user SimonQ錫濛譙

Business has turned ugly for multinationals and foreign businesses in general operating in China. After the financial crisis, many looked to China for salvation but the business climate for them has soured in the past couple of years. They have become an easy target for authorities looking to send a message to various industries, with a number of foreign firms such as GlaxoSmithKline and Danone swept up in a far-reaching anti-corruption campaign that is increasingly defining Xi Jinping’s presidency to date. Other firms to have received tough treatment include Apple, whose humiliating apology in 2013 for offering inadequate warranties I wrote about for Al Jazeera English.

China takes a bite out of Apple

Sunlight streamed into an Apple store on Huaihai Road in Shanghai on a warm Sunday afternoon, lighting up the faces of dozens of customers inside.

In the busy two-floor store, blue-shirted “geniuses” buzzed around the consumers who have played a key role in Apple’s recent success. China is the company’s second-largest market after the United States, with sales in the final three months of last year topping $6.83bn.

Yet recent weeks have not been kind to Apple in China. In March, the country’s largest state-run media outlets blasted the iPhone maker in a sustained, seemingly coordinated campaign that was only defused when Apple chief Tim Cook apologised publicly over “warranty confusion”.

The concerted attack spooked the foreign business community in China, at a time when the booming Chinese economy is providing a growth market for overseas companies. It also underscores the pitfalls of doing business in China, where a number of global firms have been taken to task by state media in recent years.

“I think Apple faces a serious problem, because three years ago, Google faced the same problem,” said Shi Beichen, a prominent Chinese technology blogger.

When CCTV and People’s Daily go after somebody like this, there’s a lot of political motivation. If you’re a foreigner doing business in China, it’s not enough just to come here and make money, you’re supposed to share your business with Chinese and do something that contributes to China. That’s just the way it works around here – James McGregor

Bobbing for Apple

Apple’s woes began in mid-March when China Central Television (CCTV), the state broadcaster, aired an annual primetime special about consumer rights.

The two-hour “315” show, as it is known in China because it is broadcast on World Consumer Rights Day (March 15), accused Apple of skirting warranty policies and providing inferior after-sales support for Chinese customers compared with other countries.

“In some ways, it just looked like an over-the-top attack against a foreign company that has failed to spend enough time cultivating the government, and doing business partnerships that make money for China instead of just the company,” said James McGregor, a seasoned China watcher and senior counsellor for public relations firm APCO Worldwide in Beijing.

CCTV’s expose was mocked by thousands of Chinese internet users, who derided the perceived unfair treatment of Apple and criticised the broadcaster for turning a blind eye to the failings of state-owned companies.

The broadcaster’s motives were also questioned, when it became apparent that the company had enlisted celebrities to attack Apple through online social media platforms.

Next to take a swipe was the People’s Daily newspaper. The official mouthpiece of the Chinese Communist Party condemned Apple as “greedy” and “incomparably arrogant” in articles published on consecutive days in the final week of March. Cook’s Chinese-language apology came days later, on April 1.

“At first, I figured there was no legitimacy behind the campaign, to be honest with you,” said McGregor. “I’ve since talked to some people in the retailing business who say, in fact, even the foreign retailers [in China] were sick of Apple, that they were very arrogant, and they didn’t have good customer service. So I don’t think this was woven out of whole cloth.”

Ulterior motives

Speculation has mounted over reasons for the attacks. “I think there’s a lot of things swirling together here,” said McGregor. “It starts with dissatisfaction with Apple’s customer service and, from what people say, a real attitude and arrogance by the company in the way they operated here.”

“But when CCTV and People’s Daily go after somebody like this, there’s a lot of political motivation. If you’re a foreigner doing business in China, it’s not enough just to come here and make money, you’re supposed to share your business with Chinese and do something that contributes to China. That’s just the way it works around here.”

That may spell trouble for foreign businesses that are becoming dependent on China. An annual survey of US businesses by the American Chamber of Commerce in China showed that more than 70 percent were operating in the country to serve local consumers.

More than one-quarter said the greatest risk facing their China business was increased Chinese protectionism. “Inconsistent regulatory interpretation and unclear laws” ranked as the second-biggest business challenge.

Apple is not the first foreign firm to have been singled out for consumer rights abuses by government-controlled media. Walmart, Carrefour, Hewlett Packard and KFC have all come under the spotlight in recent years.

Google closed its China-based search engine three years ago, after a public spat with Beijing that began shortly after CCTV accused the US search giant of spreading pornography.

“Google decided to move their servers to Hong Kong, and not in the mainland,” said Shi Beichen, the technology blogger.

In the case of Apple, the state-sponsored media blitz may stem from foreign dominance of China’s smartphone market – the largest in the world. South Korea’s Samsung led sales last year with a 17.7 percent market share, followed by Chinese giant Lenovo with 13.2 percent and Apple at 11 percent.

The Chinese government has also been irked by the popularity of Google’s Android mobile operating system in China. “Our country’s mobile operating system research and development is too dependent on Android,” China’s Ministry of Industry and Information Technology said in a research paper published last month.

Android is the dominant smartphone platform in China, running on 86 percent of handsets shipped in the country during the final quarter of 2012.

“China would rather not have foreigners have such a big piece of the market so I’m sure they’re happy if [the attacks] helps push for local brands,” said McGregor.

Censorship at core

Beijing’s obsession with censorship has also fed another theory. “The government wants to control the content of [Apple’s iTunes] app store. They don’t know who downloaded apps because Apple won’t provide the information,” said Shi.

There are signs already that Apple is bending to Beijing’s will. The Shanghai-based developer of a bookstore app said last week that Apple removed the app from China due to “content that is illegal” in the country.

Apple did not disclose the offending material, but the app’s developer Hao Peiqiang said it provides access to three books by dissident author Wang Lixiong that are banned in China.

“[The] removal of the app is a signal. Before, when the app store removed an app, it was by government rules. But [Apple] removed this app themselves. They decided. They coordinated with the government,” said Shi.

Although Chinese internet users have rallied to Apple’s defence, industry analysts believe the tech giant’s reputation has been dented in China.

“We have concerns about the impact of this propaganda on Apple’s China market share. We believe the undermining of Apple’s brand value can have a more insipid and long-lasting impact,” said Citi analyst Glen Yeung in a research report to clients last month.

Conversations with customers outside the company’s store on Huaihai Road also suggest some damage has been done.

“I think it’s unfair and I don’t know why this phenomenon exists. Why do we have to have different after-sales service than other countries?” said Kay Wei, a 21-year-old student.

“If they apologised, then we should really see some action,” said a Chinese investment banker who declined to be named. “As a responsible company, they should have come out and said that from the very beginning.”

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