Apple Inc.: Internationalization Strategy for China
Background
The world is growing in many different aspects, yet is becoming smaller as well. Due to the technological advances of the 21st century, it is now easier than ever to connect and share everything, from knowledge to resources. Globalization is truly a phenomenon that best describes the shifts currently occurring in the world. The borders between nations and cultures are blurred. Surely, this has a great impact on the business environment as companies seek to take advantage of the newfound opportunities to expand. The following report provides an overview of Apple Inc.’s internationalization strategy applied to enter and succeed in the Chinese market. In the recent decades, the economic rise of Asia, particularly China, has made it an exceptionally promising market that corporations want to penetrate. The purpose of this report is to demonstrate how Apple Inc. has utilized its strengths to make strategic internationalization choices to enter China. In addition, the assessment of such choice is going to be presented in order to offer potential alternative strategic directions Apple Inc. could have or still can use.
Apple Inc. operates in a wide range of industries, setting an example for other global enterprise to venture into new markets. The focus of this report, in particular, will be the industry of consumer electronics. It is rather challenging to describe the nature of the industry’s competitiveness since electronics is a much more diverse industry than the majority of others. Production costs are less central in the process of determining a nation’s or an organization’s ability to compete because of the focus on technological innovation. Due to the rapid pace of technological changes in the consumer electronics industry, usual indicators of competitiveness are of little to no importance. The primary players in the consumer electronics industry include Apple Inc., Huawei Technologies, Xiaomi, Sony Group, Samsung Electronics, and many others. All of these companies are Apple Inc.’s competitors – global corporations using a wide range of local and international suppliers. The consumer electronics industry is dominated by ultra-powerful enterprises, one of which is Apple Inc.
The Nature of the Industry’s Competitiveness
The nature of the consumer electronics industry’s competitiveness lies in the complex development dynamics. Markovic et al. (2018) indicate that the main components of the industry’s competitiveness include product innovation and process innovation. As for Apple Inc.’s competitiveness in the business environment it operates in, it should be analyzed using the Porter’s Five Forces Model. The following subsection clearly underlined each of the Model’s components, including threat of new entrants, bargaining power of suppliers, threat of substitutes, bargaining power of buyers, and, finally, intensity of rivalry.
Threat of New Entrants
Apple Inc. internal and external economies of scale allow it to secure a long-term advantage over its competitors. Decades of operational experience in the industry and a strategic location in Northern California ensures that the company’s supply costs are low, while the number of competent industry experts willing to contribute to the enterprise’s success is high. Thus, there is a high barrier to entry into the industry, at least at the same level as Apple Inc. Furthermore, what makes the barrier to entry high in the consumer electronics industry is a wide range of regulatory policies, limited access to distribution channels beside “personal” ones such as an official web-site, as well as high research and development (R&D) costs. All of this makes the threat of new entrants moderate to low.
Bargaining Power of Suppliers
The bargaining power of supplier in Apple’s case is relatively weak. Firstly, there is a high ratio of companies in consumer electronics to firms providing suppliers for producing said consumer electronics. Secondly, Apple’s global influence on the industry and the supply chain protects it from any supplier manipulations. The force behind suppliers’ bargains power is nothing but a minor issue to Apple Inc.
Threat of Substitutes
It is evident that Apple Inc. is a multinational leader in consumer electronics, computer hardware and software, as well as cloud technology. Therefore, the chances of many substitutes threatening Apple’s reign are slim. Although there is a large amount of consumer electronics ventures and the amount of start-ups only continues to grow, substitution often performs poorly and has no brand loyalty. As a result, despite the availability, consumer propensity to support substitutes remains exceptionally low. Hence, it is safe to conclude that the threat of substitution is low.
Bargaining Power of Buyers
As for the bargaining power of customers, it is rather strong. Edward Ferguson (2019), Panmore Institute’s contributor, cites “low switching cost, (…) high buyer information” as the primary factors as to why the power of buyers is high. Despite that, the fact that individual customers make small purchases over the course of a year or a couple of years weakens their bargaining power a bit.
Intensity of Rivalry
In regards to competitive rivalry, it is apparent that, in the industry saturated with technological advancements and new-age innovation originating anywhere from a large corporation to a month-old start-up, competition is high. Firms in consumer electronics are highly aggressive, while the differentiation of products is low (Ferguson, 2019). In addition, it is extremely easy for consumers to switch to another brand, which leads to a low switching cost, contributing to the intensity of rivalry within the industry.
The Nature of Apple Inc.’s Resources and Capabilities
In order to examine Apple Inc.’s resources and capabilities, the SWOT framework will be first used. To start with, internal aspects of the business will be discussed, referring to strengths and weaknesses. Apple Inc.’s primary strengths include high-quality design and production, brand recognition, established leading position in the market, R&D investments, customer loyalty, and a highly reliable supply chain infrastructure. Indeed, the brand of Apple is the most valuable worldwide as, according to the most recent data, the estimated brand value has reached $263.4 billion (Statista, 2021). In 2020, the company became the first one in history to reach a market capitalization of $2 trillion (Bursztynsky, 2020). Statista expert Lionel Sujay Vailshery (2021) reports that the company has spent “a record 21.91 billion U.S. dollars on research and development in its 2021 fiscal year, increasing by about three billion from its 2020 total” (para. 1). These figures serve as the evidence of the strengths Apple Inc. The enterprise’s weaknesses include high prices, incompatibility of its product selection with the products of any other company, and decrease in innovation.
As for external aspects, they include threats and opportunities, which Apple Inc. has. In regards to opportunities, one of the most prominent ones is Apple Inc.’s increasing prioritization of research and development as a way of fostering innovation and securing a competitive advantage. Furthermore, Apple’s opportunities might include product diversification and increased focus on sustainability and green technological advances. Some of the enterprise’s most obvious threats are growing competition in the Asian market, intellectual property infringements, and supply chain disruptions caused by the trade war and COVID-19 pandemic.
Apple’s resources and capabilities can be grouped into two categories: tangible and intangible. The list of tangible resources and capabilities includes a wide range of assets accumulated over the course of more than 40 years of successful operations. However, the ones worth mentioning are Apple Inc.’s worldwide retail stores, financial assets, headquarters in Cupertino, various patents, as well as outsourced manufacture and assembly facilities. As for the intangible resources, it is crucial to highlight R&D personnel, brand recognition, customer loyalty, and strategic partnerships. Another crucial intangible resource Apple Inc. has is a distinctive corporate culture developed on the basis of a clearly defined mission, vision, values, and objectives. As a result of having and utilizing these resources, the company manages to maintain a competitive advantage. Its tangible resources lead to efficient outsourced manufacturing (facilities), local market penetration (stores), and technological dominance (patents). In the other hand, intangible resources allow Apple Inc. to produce truly innovative products, optimize operations, and lure customers into considering a purchase of Apple electronics.
Apple Inc.’s core competencies ensure that the company perseveres through various challenges and emerges superior no matter the circumstances. Such core competencies as a globally recognized and admired brand, ecosystem that promotes innovation, access to individual user data, an established global network of distribution facilitate long-term competence advantages. For example, a valuable and globally recognized brand such as Apple is challenging, if not impossible, to imitate, which secures the company’s position as a dominant force in the market. An ecosystem that promotes innovation requires certain inner organizational in terms of culture and practices, as well as transformative leadership, all of which is exceptionally valuable and hard to imitate. Since Apple Inc. has a range of such systems developed to nurture the spirit of innovation, it enjoys a higher rate of innovation that competitors of similar size in the industry. It is evident that each of the other core competencies identified in this report helps to streamlining Apple’s strategic objectives as well, allowing the enterprise to continue to reach millions of its customers worldwide. The primary benefit of these distinctive capabilities Apple Inc. has, and others do not, is a wide array of long-term competitive advantages, which allow to ensure the enterprise’s growth is sustainable, while the profits remain high.
Entry Modes to China
Doing business in China is exceptionally difficult. The primary reason as to why is the fact that the Chinese government continuously challenges foreign companies and forces them to accept ultimatums, especially if they operate in the technology industry (Nasr, 2015). Local competition in mainland China and a variety of regions outside the mainland territory that the Chinese authorities control is cut-throat. A uniquely Chinese brand of authoritarian capitalism makes it a matter of life or death for natives to succeed in business. In addition to this, the consensus is that Chinese organizations are quick to steal intellectual property in order to gain some sort of competitive advantage (Batabyal, 2020). Despite that, China is one of the global leaders in attracting foreign capital. The 2020 World Investment report indicates that China has attracted an astonishing figure of $141 billion in foreign investment in 2019 alone, which exceeds gross domestic products (GDPs) of entire nations (United Nations, 2020). This poses a conundrum: if doing business in China is so difficult, then why foreign investment continues to flow into the nation’s economy?
The answer may lie in the simple math behind profitability. The more consumers an organization can attract, the more profit it makes. The sheer size of China’s population is enough to convince enterprises to face the challenges entry into and operations in China imply. China’s population is more than a billion of potential customers with a relatively high annual per capita income of households, which is reported to be around 43,834 yuan (Textor, 2021). While China’s market size is not the only reason as to why businesses choose to tolerate anti-business-friendly regulations of the Communist-led Chinese authorities, it is certainly the main one.
Apple Inc.’s success story of entering the Chinese market is unique and distinctive. While a lot can be said about the failures of some enterprises to enter China (e.g., eBay, MySpace, Google, etc.) and the victories of others (e.g., Starbucks, KFC, 7-Eleven, etc.), none of these attempts are the same as Apple’s. Prior to 2008, Apple Inc. has been distributing its products via a network of domestic licensed retailers throughout China. In fact, Apple had not been initially favored by the Chinese, which was reflected in constant senior leadership changes in the company’s Chinese office. If assessing Apple’s overall international strategy, China has not been of much importance until the late 2000s – early 2010s. When Apple Inc. finally decided to start taking the Chinese market seriously, it made the decision to apply the same mode of entry for China as utilized for a range of other international markets. As a result of Apple nog customizing its entry strategy for China specifically, the exclusive launch of iPhone 3 in mainland China has backfired. The sales were a lot lower than expected. Hence, it is evident that the initial strategic decisions of Apple Inc. in relation to China were a failure.
The Chine consumer did not fall under the spell of Apple, which seemed to be true for the rest of the world, due to three primary reasons. Firstly, Apple Inc. failed to be price-sensitive and consider the local economy, which resulted in the price for the new Apple advice to be unreasonably high. Secondly, disregard for competition was another cause of the sales being extremely low. Finally, the controversies related to the suicides of Foxconn factory workers contributed to a negative attitude towards the company.
However, Apple Inc. has made some changes and released the next iPhone differently, which led to skyrocketing sales. Apple frenzy has swept China weeks in advance of the release, resulting in hundreds of thousands of pre-orders. An indicator of how much of an obsession with the brand the Chinese consumers developed was the incident of those in line breaking a window at Apple’s flagman store in Beijing in 2011 (Kan, 2011). Despite the sudden surge in popularity, the success of Apple’s devices in China is nothing short of a calculated effort.
There are a number of strategic choices Apple has made to ensure such success. It has analyzed its target market and deduced that the Chinese love luxury. There is no point of marketing products at “democratic” prices in China, a nation where social status seems to be the new currency. Apple Inc. ensured that its products are marketed as luxury, highlighting their premium quality. The success of Apple in China is also in part due to the fact Apple is able to learn from the mistakes of others. While Samsung offers a wide range of models all at once, Apple masterfully crafts its image of exclusivity by offering one device or only a limited selection at a time (Nasr, 2015). If other corporations excessively highlight how distinctive and different China is in advertising and marketing campaigns, Apple ensures the consumers are connected to a broader, global community.
In addition, Apple Inc. recognized that there was a difference in the purchasing behaviors of those from China and those from the U.S. While the company was used to flashy TV advertisements and half-time Super Bowl million-dollar deals, the same marketing scheme would not work in China. Instead of TV sets, Chinese consumers would trust their friends and acquaintances. This made it important for Apple to invest in fostering customer loyalty as a way of securing the company’s devices a place in people’s recommendations to one another. All of these strategic transformations Apple Inc. was devoted to during the era of its re-emergence in mainland China resulted in Apple becoming a household name.
The mode of entry Apple Inc. had selected focused on customer loyalty and an image of prestige and exclusivity. In the nation populated by more than a billion of people, with socialist ideas instilled in them since birth, every person wants to feel like an individual. Apple learned to masterfully use such nuances of the Chinese consumer to offer products, which were not explicitly for the “mainstream” population. The company’s end goal in relation to the entry into China was not to sell as many devices as possible. Instead, the objective was to create an allure of luxury and prestige, promoting a minority to desire and be able to afford Apple’s products. However, considering China’s size, such a minority amounted to millions of people.
To summarize, prior to 2008, Apple Inc. only used omni distribution channels to sell its products via a network of authorized resellers. However, with the releases of White iPhone and iPhone 4, the company decided to directly penetrate one of the largest markets in the world. In order to accomplish this, Apple has to change its strategy based on its past mistakes as well as the insights about the Chinese consumers the enterprise’s team gathered. Apple Inc.’s senior leadership acknowledged that many people in China would not be able to afford Apple devices, considering their monthly income. Instead of changing the price point to appeal to the Chinese, the company decided to focus on those who can afford its products.
This strategic re-entry into the market was highly effective. It increased sales and brand recognition in the Chinese market tremendously. This strategy ensured that the Apple logo would be cemented in the minds of millions of Chinese consumers as a status symbol. In addition, it proclaimed China to be equal to anyone else, highlighting there would be no exceptions, thus demonstrating that the Chinese were actually worthy of such luxury as well.
When discussing business operations in China, it is extremely important to mention how companies might navigate the regulatory environment of the country. After all, for technology and electronics enterprises, compromising with the local Chinese government can often be challenging due to the pressure initiated by the authorities in regards to censorship and data security. In order to succeed in the Chinese government, Apple formed a strategic relationship with the Chinese authorities. Despite that, the company still had to bend to the will of the Chinese Communist Party at times. For instance, in 2017, Apple removed Virtual Private Network (VPN) apps from the Chinese AppStore (Choudhury, 2017). VPN allowed the Chinese users to bypass censorship bans on certain web-sites and access them using a different IP address. In 2018, the company transferred iCloud account of users from China “into a state-run data center in China, raising concerns that this could open a backdoor for the Chinese government to access users’ iCloud data” (Hu, 2018). These compromises contributed to the success of Apple’s operations in mainland China by safeguarding the relationship between one of the biggest global corporations and one of the most influential governments.
Apple consciously entered the Chinese market with a clear understanding of who the Chinese consumers were and what regulations they were governed by. In the end, Apple Inc. achieved what it set out to do by offering the Chinese an aspirational symbol of luxury and social acceptance. Furthermore, managing to learn from the mistakes and achievements of other business trying to enter China, Apple Inc. invested in forming a somewhat close relationship with the Chinese authorities. While the company certainly did not compromise on price and quality in China, it definitely had to compromise to some extent to navigate the country’ unfavorable, politically-charged business environment.
The Influence of Culture and Ethics on Apple’s Competitive Strategies
Global marketing communication and strategic initiatives of multinational corporations are increasingly centered around cultural distinctions between various regions. Globalization has only reinforced the notion of a unique cultural identity as people recognize the need to separate themselves from others and find acceptance in their own designated “group.” Thus, it has become exceptionally important for companies to understand and take advantage of appealing to even the most subtle cultural differences. Apple’s global internationalization strategy reflects the fact the enterprise tries to cater to each nation separately. However, no where this strategy is more noticeable than in China. Firstly, it is imperative to note how challenging it might be for foreign businesses to enter the Asian market. If the team of the business is not diverse enough, there is no reliable way to ensure the company’s strategic moves reflect the culture of China. Enterprises usually need to hire or outsource a team of professionals responsible exclusively for gathering and analyzing the insights about a particular market and its consumers. This report will demonstrate how exactly the Chinese culture has influenced Apple’s strategy of entering and dominating the region.
Apple Inc. is and always has been a company with a cross-cultural strategy. It might be easy to assume that Apple simply does not care about cultural distinctions. After all, there is consistency in product design, quality, marketing, and visual presentation, at least for the most part. In addition, the company chooses not to take part in price wars, which seem to be so important to their competitors. Even in a new market, Apple devices are priced higher than most of the alternatives. This might be regarded as an example of implementing a blue ocean strategy. Differentiation seems to be the primary focus of its competitive efforts, which is why prices are irrelevant. The message and marketing behind Apple products tips the scales in favor of the brand, allowing the enterprise to create communities of loyal fans around the world.
However, Apple’s strategy is more nuanced than simply doing the same for each region. The company acknowledges and actively seeks to utilize cultural differences in its marketing efforts and operations. An evident example of that is Apple Inc.’s journey of success in China. The enterprise has managed to expertly utilize the insights about the Chinese, their culture, and purchasing behavior. As a result, China has turned from an Apple-hater into a crazed fan, generating billions of dollars of profit annually.
Apple Inc. clearly understand the appeal of China as one of the world’s fastest growing smart phone markets. Yet, it always acknowledges the value of its own brand identity. This is why a simple trick of pricing Apple devices lower in China or offering cheaper alternatives would not work. Appealing to the Chinese consumer would then mean sabotaging its own reputation. Therefore, Apple Inc. had to find a compromise to succeed in China, and not to damage one of its distinctive competitive assets: brand identity. Thus, the company made a choice of not changing the price point after the initial failure of iPhone 3 in mainland China but instead presenting such a high price with a clear and distinct message.
Owning an iPhone was equal to asserting one’s high social status. Imported luxury goods are exceptionally popular among the Chinese consumers as they desire to demonstrate their place in the social hierarchy. Based on the transaction data provided by UnionPay, McKinsey & Company (2019) reports that “China delivered more than half the global growth in luxury spending between 2012–18, and is expected to deliver 65 percent of the world’s additional spending heading into 2025” (p. 4). The explosion of the number of upper-middle-class households in China partially leads to such a prediction. As the amount of people having a high enough disposable income to afford luxury products increased, so does the profit of luxury companies in China.
The upper-middle-class explosion, however, is not the only reason as to why Chinese consumers might prefer a product with a higher price point. Luxury is often used as cultural code in the Chinese society. Apart from a product such as an iPhone being a status symbol, it is used as a reflection of the owner’s cultural capital. Luxury is a way for the Chinese to demonstrate they belong to an elite class. This phenomenon is beyond what most Americans might consider “showing off.” In a predominately socialist society, the Chinese brand of capitalism and its economic implications, such as the expansion of the upper-middle class, finally allowed the Chinese to be different and visibly separate themselves from others. Apple Inc. masterfully used such a cultural shift in order to craft its pricing and marketing strategies in the region. After all, in its essence, Apple is indeed a luxury brand. According to Andjelic (2015), Apple possesses all the markings of a luxury powerhouse, including “a tightly controlled narrative, considered design and metered supply, especially around launches and in certain emerging markets” (para. 3). In China, Apple Inc. has simply presented its devices to the Chinese consumers for what they are: luxury products.
The intention of Apple to broaden its appeal in Asia was always apparent. However, taking into consideration the cultural distinctions between its domestic consumers and those from China, Apple decided “to wait for the Chinese market to come to them, rather than the other way around” (Schiavenza, 2013, para. 10). It facilitated direct channels to purchase its products and simply shared its story, hoping that it would resonate with the Chinese. The entrepreneurial spirit, hard work, and success of Steve Jobs deeply resonate with a new generation of the Chinese. From a historical point of view, they have only recently gotten an opportunity to prove themselves and engage in business operations as a result of a more lenient take on capitalism adopted by the government led by Deng Xiaoping in an effort to build up China’s economic prowess. Thus, a new iPhone is in part the cultural code for entrepreneurial success, which so many Chinese citizens admire and want to achieve themselves. Therefore, it is apparent that Apple’s brand of luxury in China is different from a typical picture of a luxury smart phone – hand-made and encrusted with precious stones.
Apple Inc. has comfortably positioned itself as an ethically-conscious company, playing a role of somewhat of a moral compass guiding the technology industry towards positive shift in regards to ethics in business operations. Being an ethical brand seems to be the newest trend as consumers grow more aware of the impact their support of accents in business can have on the environment, economy, or society as a whole. Apple Inc. successfully aligns its values and mission with a broader ethical strategy. For example, the enterprise expressed its public support for gay marriage by issuing an official statement in support of ruling that California’s Proposition 8 is unconstitutional (Heisler, 2013). Furthermore, in regards to LGBTQ+ rights, Apple removed a hateful “Gay Cure” application from AppStore, taking a stance on homosexuality (Heisler, 2013). In addition, Apple’s reputation is gay-friendly as indicated by the results of multiple consumer surveys. The company’s corporate culture only proves its commitment to harvesting diversity and supporting people no matter their sexuality. Heisler (2013) mentions that the brand was given “a perfect score with respect to its treatment of LGBT employees and overall workplace equality” in 2012 (para. 16). Tim Cook, himself gay, and Steve Jobs have rightfully been considered as LGBT-community supporters.
Surely, LGBTQ+ support is only one of the many examples of the enterprise adopting its ethical stance into strategic decisions and business operations. The company’s support for democracy, human rights, and gender equality are some of the other examples of Apple Inc.’s approach to ethics. However, when it comes to China in particular, Apple seems to be facing an ethical dilemma. The Chinese government is clearly authoritative, which allows it to dictate how businesses operate within the nation’s borders.
Instead of sticking to its moral position, protecting gay fights or rights to privacy, the company chooses to abandon its values in favor of profit. Clarke and Boersma (2018) define Apple’s morality as arm-length since the company constantly shifts the responsibility into others. While Apple itself may not support slave-like working conditions, it indirectly does so by allowing its suppliers to subject workers to extremely low wages and unsafe working conditions. As a result, Apple’s brand of morality leads to a degree of labor flexibility “that creates a race to the bottom, threatening the most basic labour standards and environmental standards in developing countries” (Clarke and Boersma, 2018, para. 19). In China, Apple continuously contradicts itself by removing VPN apps or excluding any mentions of the LGBTQ+ community in advertising. Apple Inc.’s strategy of selective morality seems to be successful as sales in China rise, while the U.S. barely notices the aforementioned ethical inconsistencies.
Apple Inc.’s Internationalization Venture and Strategic Choices
Despite all the odds, Apple Inc. has proven it possible to not only enter the Chinese market smoothly but succeed in it as well. As mentioned earlier, China is a tricky business environment to navigate due to the regulatory ultimatums often posed by the Chinese Communist Party. Surely, prior to 2011, Apple has not demonstrated much of an achievement in conquering China. Choosing to distribute through a network of authorized resellers and then failing to hit expected sales goals after the opening of a flagman store in Beijing was just the beginning for the brand’s rise in China. As of 2021, China contributes a mind-blowingly large sum to Apple’s global sales. This has been achieved using a series of carefully crafted and masterfully adopted strategies, which endured Apple’s venture into China was as smooth as possible.
A major part of Apple’s strategic approach in China is the decision not to compromise when it comes to pricing. Although some might have considered it a failing strategy, it has immensely contributed to the company’s success in the market. Offering a premium-quality product supported by strong storytelling created a true Apple craze in China. Apple products started to be considered as luxury with a set of implications to follow. The public now regarded Apple products as cultural codes for prestige, exclusivity, and high social standing, all of which are exceptionally desirable in the nation slowly moving away from the socialist constructs. The outcome of such strategic choices have been striking, with the sales in the Chinese market rising annually. Apple Inc. has managed to create a truly loyal fanbase in China, which now includes dozens of millions of people.
However, it is questionable how sustainable this strategy can possibly be in the long run. While not necessarily a strategic failure, the focus on marketing Apple as luxury has been a bit short-sighted. Apple Inc. has started to lose its ground as a luxurious device available only to the elite. According to Lung (2020), the release of iPhone 12 demonstrated the inadequacy of Apple’s strategic model for modern-day Chinese consumers. Apple has been a subject of much criticism and comparison to other brands mainly due to the improved quality and enhanced features local smart phone brands can provide. Lung (2020) reports that the latest observation of the Chinese users’ online activity and discussions indicates that “excitement for a new iPhone is dwindling, and the luxury social status tied to it has been holding less weight” (para. 9). Those who once worshipped Apple can no longer take its updates seriously since the technology sector in China has evolved so much in the recent years, there seems to be no way for Western companies to catch up.
Another strategic decision Apple has made was to start building a close relationship with the Chinese authorities. One of the reasons why so many companies failed in China was their inability to compromise when it came to the demands of the Chinese government. On the other hand, Apple Inc.’s senior leadership recognized the importance of fostering such a relationship with China as a way of bypassing certain regulations or simply securing its spot at rare, yet existing, meetings of the Chinese Communist party leaders and representatives of some of the most influential corporations. Each company is inseparable from the legal environment it operates in. In the case of entering new markets, however, it is even more important to learn of the differences in regulatory systems and apply the insights gathered to ensure the enterprise’s operations and strategy are optimized. Apple Inc. has done just that and internationalized using an excellent legal compromise strategy. Despite that, the company still had to make some controversial decisions to satisfy the demands of the Chinese government and guarantee no rift in the existing China-Apple relations. For instance, the decision was made to remove VPN applications from the Chinese AppStore. VPN apps are often used in China to access web-sites and data online, which the Chinese Communist Party have officially censored.
The attempts to appeal to the Chinese government go beyond this. Apple Inc. oftentimes rejects its own values and breaks the promises it passionately makes when addressing the American public. The company’s fear of being banned from the Chinese market and losing billions of dollars of annual profit operating in this market implies is reflected into its strategic decisions not to support the notion of democracy or LGBTQ+ rights when it comes to its operations within the Chinese borders. Such a strategy seems to be effective for Apple Inc. It appeals to the Chinese consumer, while managing to keep a somewhat friendly relationship with the Chinese government. Surprisingly enough, American consumers are blissfully unaware of Apple’s unwillingness to reinforce its own moral values in the Chinese market. According to the most recent Reuters (2021) report, Apple Inc. “posted a staggering 83% annual sales growth in China in its fiscal fourth quarter, remaining the phone of choice for big spenders in the world’s second-largest economy after Huawei’s (HWT.UL) troubles” (para. 1). With the overall global sales growth at Apple, it is apparent that inconsistencies in its ethical messages to different markets do not factor into its financial success that much.
Despite that, it is important to mention one of the biggest failures in Apple’s recent history, which relates directly to the ethics of its brand. Apple has faced immense criticism over the working conditions its suppliers reinforce. For example, the company was ware of the fact that “Suyin Electronics, one of its Chinese-based suppliers, relied on child labor on multiple occasions, but still took three years to fully cut ties” (Sonnemaker, 2021, para. 1). There have been protests over how poor working conditions at some of Apple’s subsidiary supply companies are. In addition, a scandal surrounding forced Uyghur labor at Apple’s factories has recently erupted. The tragedy of Foxconn suicides is still a topic of passionate discussions in the media around the world.
Thus, Apple’s strategy to shift responsibility into others does not always work. However, the public outcry negatively affects only Apple as a brand. When it comes to actual profits, “Foxconn’s operating margins have declined steadily (..), from 3.7 percent in the first quarter of 2007 to a mere 1.5 percent in the third quarter of 2012” (Chan et al., 2013, p. 105). In comparison, operating margins of Apple Inc. “peaked at 39.3 percent in early 2012 from initial levels of 18.7 percent in 2007” (Chan et al., 2013, p. 105). This is the evidence that tarnishes in the brand reputation do not always translate in profit loss.
Possible Alternative Strategic Approaches
In regards to the possible alterations Apple Inc. could make in regards to its strategic approach to internationalization in China, there are a couple of suggestions. Firstly, the company should prioritize working conditions and labor standards when crafting its operational strategies. Cost and profit forecasts have to be drafted realistically in order to not put too much pressure in the suppliers, which often forces them to employ stricter and more inhumane rules at worksites. Secondly, Apple should rethink its focus on luxury when it comes to the Chinese market. It is evident that the new, younger generation of the Chinese with disposable income move way from the traditional constraints of the Chinese society. The rapid pace of globalization has caused them to regard certain products under a different light. Thus, iPhones and MacBooks have started to become more of a given, rather than a luxury they once were, implying a certain status and privileges.
Instead of treating its devices as cultural codes for luxury in the Chinese market, Apple Inc. should start strategically marketing them as cultural codes for a certain modern mindset. Those who use Apple products are cool, tolerant, open-minded, and entrepreneurial. Purchasing from an enterprise that is a bit rebellious and challenges the ignorance of the traditional Chinese society will surely be appealing to the Chinese youth. These ideas resonate with young people in China and ensure their loyalty to the brand. Thus, Apple Inc. has to compromise with the demands of the Chinese government, yet push its agenda a bit more. A perfect strategic solution perfectly incapacitated the brand’s values and reinforces the notions of acceptance, inclusion, diversity, and freedom.
It is apparent that Apple Inc. has to prioritize ethics in its internationalization efforts. Although the incorporation of morality has been one of the biggest trends in business over the past decade, the case of Apple Inc. is a bit different. The enterprise already has the ethical framework for strategic decision-making, as well as clearly defined values and principles. Despite that, there is still a long way to go in terms of fighting for said values and demonstrating a firm stance on controversial issues. In order to resolve the ethical dilemma Apple Inc. finds itself facing in China, it is imperative for Apple to differentiate itself from competitors by carving out a unique spot for Apple. Through compromise and careful strategizing, it is possible for Apple Inc. to follow its own moral compass without being chased by the pressures of complying with the Chinese authorities.
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