Posted: May 25th, 2022

Technological & regulatory environment of China

Global Marketing Strategies and Management Techniques of Apple Inc.

The central objective of this report is to perform an environmental analysis of a country in which our selected company shall aim to establish a market for its products and services. The company chosen for the purposes of this report is Apple Inc. The country selected for the analysis is The People’s Republic of China. The aim of this report is to assist the management of Apple Inc. In assessing whether the country presents a viable business opportunity or not. The product chosen for this purpose is the Apple iPhone 4S.

The Apple iPhone 4S is said to be the best technology that the company has come up with in the iPhone product line. With the dual-core A-5 chip, 8 megapixel iSight camera, io5 and iCloud functions coupled with a speech recognition personal assistant dubbed Siri, it is one the most dynamic and hi-tec gadgets available. It is ideal for the youth population that requires all applications and gadgets be packed into one. China with an estimated population of 1,343,239,923 (July 2012 est.) (Anon., 2012) is one of the perfect target markets for this product.

The report takes into considerations the economic, political, legal and regulatory environment that prevails in China and what potential marketing implications it would have on the Apple iPhone 4S. Also taken into account are the social, technological, cultural factors of the nation in order to assess the outcomes of these factors on the marketing and distribution of the product. An analysis of the internal environment of Apple Inc. has also been conducted to see how the culture of the company mixes and adapts to the new overseas markets.

Another feature of this report is the SWOT (Strength, Weakness, Opportunities and Threats) Analysis that has been taken on to determine the level of competition that Apple Inc. shall face in China. The greatest competitor that Apple Inc. shall encounter will be the cheap local copies of the iPhone that are likely to be available within a very short time span of the launch of the product in the country.

Introduction:

Purpose:

The motive of this report is to highlight the factors that need to be considered by a company when launching a product or a service in an overseas market. In this case, an evaluation of the political, environmental, social, economical, technological and regulatory environment of China has been undertaken with regard to the marketing and management of the product Apple iPhone 4S, of Apple Inc.

Scope:

While investigating the factors that make up the economical, political, social, technological and other regulatory environment of China, it was important to consider the outcome of the different factors on the overall environment and the implications they would have on the marketing of the Apple iPhone 4S in the country. Also kept in mind was the presence of potential competitors of the Apple such as Nokia and HTC with own line of Smartphones as well as cheap local copies of the iPhone itself. An appraisal of the internal environment of the Apple Inc. was also undertaken in order to ensure adaptability with the new foreign market as well as other internal cultural issues of the company were considered.

Limitations:

This report is limited to the environmental analysis of China. For Apple Inc., the corporate value chain and competitive strength assessment models have been used . It does not take into account other models.

Background:

The company chosen for the purposes of this report is Apple Inc. It’s a company that has been crowned the most admired company in the world by Fortune magazine four years in a row from 2008-2012 (Anon., 2012). It excels in the design and production of personal computers, softwares, communication devices, servers, portable music players and related accessories and softwares, network solutions and other services. Its most famous products include the iPod, iPhone and iPad along with Macintosh processor-based personal computers with the iTunes media browser and iOS mobile operating system softwares. Apple Inc. operates through 357 retail store located in 10 different countries including Canada, United Kingdom, Japan and Germany. It also has its own online store (Anon., n.d.). Its worldwide annual revenue by 2010 was U.S.$65 billion and had grown to U.S.$108 billion by the end of 2011 (Anon., 2012), making it the largest technology company in the world with regard to revenue and profits (Anon., 2010) along with maintaining about U.S.$82 billion in cash reserves (Nuttall, 2011). Currently, it is bigger than Microsoft and Google combined!

Known as the fifth generation iPhone, the Apple iPhone 4S is a touch screen style smartphone that retains most of the attributes of its predecessor iPhone 4 (Mies, 2011) with additional new features that include a dual-core A-5 chip, an eight megapixel camera, and the newest addition to the iPhone applications family, Siri, a voice controlled personal assistant packed with a cloud storage and computing service called iCloud.

The target audience for this new gadget is chosen to be the People’s Republic of China, with a population of an estimated 1,343,239,923 individuals as of July 2012 and a basic age structure comprising of 73.6% of individuals of ages between 15- to 64-year-olds; China presents itself as a thriving potential market for the product Apple iPhone 4S.

Environmental Analysis:

There are many factors in the macro-economic environment that influence the decisions of management teams of a certain product within an organization. Trade barriers, government policy changes, changes in demographics, changes in the taxation laws and rates and the invention of new laws are all examples of macroeconomic changes. In China, with its huge populations and a mobile penetration rate of only 35% (Anon., n.d.), there is huge potential for market growth in the favor of Apple.

Political Factors:

Political factors refer to the policies that the government comes up with every now and then. It is the degree of government intervention in the economy and how much it distorts the market forces. Governmental moves such as subsidizing certain firms, provision of certain goods and services and major priorities of the government have a huge impact on many vital areas of the marketing strategy and how the management team conducts itself and the product team. In the given case, the Chinese government rigidly controls mobile phone companies in China and exerts authoritarian control over its citizens. Apple will need to be very cautious when stepping into this country.

China is a Communist nation which means that the major industries and companies are state-owned and operated. With strict censorship rules, it is possible that Apple may have to disable its Wi-Fi feature in order to comply with the Communist Party’s rigid internal control guidelines (Elgan, 2008). The PRC government has been variously described as communist and socialist, but also as authoritarian, with heavy restrictions remaining in many areas, most notably on the Internet, the press, freedom of assembly, reproductive rights, and freedom of religion (Anon., 2011).Currently, the Chinese government exercises heavy control over the mobile phone industry. There are only two mobile service providers in China: China Unicom and China Mobile. Both of these companies are not only owned by the state but are also heavily affected by changes in the government policy from time to time.

Economic Factors:

The economic environment of a country is the amalgamation of economic factors that make up the economy of that nation. Factors that affect the economic environment of a country include interest rate changes, changes in the exchange rates, inflation rates, economic growth rates, government intervention, and changes in trade policies and monetary and fiscal policies etc.

According to the 2012 statistics, it has the world’s second largest economy, after the United States of America, by both purchasing power parity (PPP) and nominal GDP (Altucher, 2010). With regard to nominal GDP, it is worth U.S.$7.47 trillion (Anon., 2012) while its PPP GDP reached a staggering U.S.$11.316 trillion (Anon., n.d.).China is the world’s fastest-growing major economy (Anon., 2012). According to the IMF, China’s annual average GDP growth between 2001 and 2010 was 10.5%, and the Chinese economy is predicted to grow at an average annual rate of 9.5% between 2011 and 2015. Between 2007 and 2011, China’s economic growth rate was equivalent to all of the G7 countries’ growth combined (Walker, 2011).

The income factor, with respect to the economic environment of a country, is the most vital indicator that suggests about the existence of the potential for most products and services. It is used primarily as an indicator to evaluate the purchasing power parity (PPP) of a country. This furthermore becomes the most important factor that helps a business to make decisions regarding the questions to opt for investing in the said country or not. Likewise, China’s remarkable rise in PPP in recent times puts Apple Inc. In a very good position, providing it a huge opportunity to raise its revenues by penetrating the Chinese market. The availability of quality infrastructure within China makes it even simpler for Apple Inc. The sales it made in 2010 in China constituted only about 4.5% of its total fiscal revenue that year. But the quarterly revenue (for the second quarter) for the fiscal year 2012, that amounts to $7.9 billion, has revealed that China alone now holds about 20% of Apple Inc.’s total revenue. The combined revenue for the two quarters of 2012 reportedly has been around $12.4 billion from sales that have been made within China. This amount is expected to double by the end of the fiscal year 2012. This would report an almost 100% increase of revenue generated by Apple Inc. from China as compared to the revenue of $13.3 billion for the whole of the 2011 fiscal year (Gupta, 2012). The following chart shows how much progress Apple Inc. has made from each of the geographic regions. The Asia-Pacific section has shown a massive growth in just one year, signifying the success Apple products have achieved in China. Evidently, the global revenue and net profit for Apple Inc. For only the second quarter in 2012 has been $39.2 billion and $11.6 billion, increasing by a margin of 59% and 93% from a year earlier, respectively.

The market size of a country can usually be identified by the population size living there. This also indicates the potential for a market to have potential demand available for products that are generally affordable and possess universal appeal. There seems to be a strong increase in demand for Apple products, mainly the iPhone 4S and the iPad 2, in the last year. This is marked by the quadrupling of sales of the iPhone and around a 60% growth for Mac in the period, where reportedly, the company has made daily revenue of around $87.3 million each day throughout the year in China (Reporter, 2012).

At the moment Apple Inc. has not yet secured a contract for the iPhone with China Mobile within China, but it seems to be putting all effort to get one such deal. China Mobile alone is the world’s largest mobile operator with respect to the number of users it has, which is almost equal to around 660 million. With China being the most populated country on the planet, not seeming to give up that status any time sooner, this number can go well above from where it stands presently. The current prospect to acquire such a deal seems very much favorable for the American company in terms of product sales and revenue. Any potential deal with this giant operator would boost Apple Inc.’s sales in a huge manner within the state of China. This could make it simpler for Apple Inc. To penetrate within the Chinese market and giving it the opportunity to build, increase and strengthen its hold by enhancing its overall market share.

Social and Cultural Factors:

Social and Cultural factors comprise basically of the social trends that impact a firm’s products and services along with the availability and willingness of the individuals to work. One of the major aspects of a culture is the language. Apple Inc. has been a pioneer in making products that attract the customers to a huge extent due to its unique features that are powerful yet simple and easy to function. One such feature in the iPhone 4S is the support that the Chinese language has available here. With Apple already possessing a successful version of the Pin-Yang (the character set of Mandarin) keyboard feature within its software in the iPhone 4S, the opportunity to expand its grip over the Chinese market is a massive one. The iPhone 4S can be adapted to provide services in Chinese. Even Siri, the latest edition in the iPhone series, has the compatibility to understand and respond to the commands provided in the Chinese language. With all these functions already present within the software that Apple Inc. has built for its products, the transition would be quite simpler and attractive for Chinese customers in moving to join the Apple family.

The culture of a country, furthermore, is the representation of values, emotions and attitudes common to the public there. It can be defined as ‘the collective programming of the mind that distinguishes the members of one category of people from those of another.’ (Hofstede, 1984). Culture is a complex and a dynamic concept that can significantly impact upon the marketing of a product. In Apple’s case it is important to consider the Hofstede’s Culture Analysis of China. The following model displays how the culture is China represented.

It is evident from the model that China is going through a major overhaul and is experiencing a speedy development. In accordance to the current demographics, gross as well as disposable income has increased in the country over the past decade and is expected to maintain its growth trend up till 2015.With the existence of ample amount of manpower, China has become the powerhouse of manufactured goods globally, mostly due to its diversifying and growing culture. This makes China a very good market for Apple to penetrate in and take advantage of the existing conditions. But one of the main aspects of the Chinese culture is the fact that they value proper communication and prefer long lasting relationships in business. Gaining an understanding of this culture would hugely benefit Apple Inc. In expanding its market to China in a successful manner.

China might represent itself as the world’s factory, where Apple products are also manufactured; it does ask proper treatment to its people within its cultural values. They death by suicide of a Foxconn employee due to losing a prototype iPhone set (Moses, 2009) might affect Apple’s image in the country and could overall affect its sales. Other than that, Apple Inc. seems to pay only $10 a day to the labor force that is involved in the manufacturing process of Apple products in China. This can become a setback for Apple itself, which represents lack of respect shown by Apple to the Chinese culture. Apple could revamp its strategy in this scenario to avoid such problems.

Technological Factors:

Technological factors encompass those factors and trends that relate to the innovations and inventions. The rapid technological advances have contributed to the knowledge and development of new products/services, markets or in the marketing process. In addition, it also provides opportunities to improve existing products/services, customer service, promotional techniques, and pricing through new cost effective and efficient production and distribution methods, which can impact on the performance of marketing related activities.

Technology plays a very significant role in the transformation of the global environment. A major aspect of the factors affecting the technological environment is e-commerce. E-commerce enables a business to cross national boundaries and overcome the geographical barriers. With e-commerce, a product/service can have a global presence.

The Technological environment in China is fairly advanced with cheap locally produced gadgets of all sorts available to the public through the government. Sales of iPhone can be easily conducted via e-commerce. That is, the product can be ordered online and can be shipped to the customer in his country of residence or desire. With the added features of iPhone 4S, Apple has created opportunities for mobile purchase of movie tickets and food, other smart phone software applications (e.g. GPS) and location-based advertising. While the web has provided businesses with the opportunity to offer virtual products (e.g. music, software, movies) which consumers can purchase regardless of location.

With the advent of the cloud computing age, Apple can use its products such as iCloud over most of its hardware products such as the iPad, Mac and iPhone to integrate and create demand for online music and many other applications over the Apple Store. With the Chinese language being the most spoken language all over the globe, it brings with itself an opportunity to enter a huge music industry. This gives Apple a huge chance to enter this Asian music industry and develop its services such as the iTunes into a diversified market store to purchase music from. This way it will be providing access to customers in its potential market with music in their own language, helping Apple raise its reputation immensely in the new market.

Legal Factors:

Legal issues and other laws that directly affect the products/services marketing makes up its legal environment. China has been the forefront of piracy in the global age and can be held responsible for its weak laws against piracy and copyright issues. In the case of technology such as an iPhone, there are copyrights issues (in which protection is given to the inventor from cheap copies using their brand name and image to their advantage) involved along with the laws applying intellectual property as the iOS operating system in the iPhone 4 qualifies as an intellectual property. It is very common in China that cheap locally produced copies of the smartphone are released within weeks of its launch but they will differ significantly in looks and performance due to the protection received by the Apple iPhone 4S team under the copyrights act that had been issued to them long time ago. One such example is the ‘Hiphone’ that was launched as a copy of the iPhone 4S, long before even it was released (Reporter, 2011). This creates a problem for Apple Inc. from a legal perspective.

One more issue that has been faced by Apple in China is that there are fake Apple Stores also launching all across China that completely resemble any original Apple Store, selling counterfeit Apple products. This negatively impacts the future of Apple in China. But nevertheless, Apple has opted to take steps against such issues by hiring John Theirault, an ex-FBI officer, to crack down such counterfeit products.

One more issue for Apple is that China’s General Administration of Press and Publication and National Copyright Administration said that some applications software sold by the company’s stores violate copyright infringe laws and they expect the company to fix the problem. Apple would have to deal with this issue as well in China. Moreover, the iPad logo is the other major concern for Apple in the country. China’s Proview Technology in Shenzhen has sued Apple, saying it is the rightful owner of the iPad trademark. Legally, Apple faces a tough challenge but one which is not achievable to succeed in China.

Other Contemporary Factors:

Other factors that have presented a challenge for marketers in recent times are climate and weather conditions, environmentalism, health issues and an overall ethical stance on a given situation. Climate can affect the different patterns of consumption and behavior, and this may determine the types of product/service that are more appropriate in a given country climate.

It is important to consider the ethical approach to marketing certain products. For example, advertising and promotion may involve ethical issues in misrepresentation and personal selling where the ethical issue can be bribery. Bribery has been a major concern within the Chinese industry. It is worth noting that ethical issues not only involve bribery and corruption, but also include the exploiting of workers and disregarding of local labor regulations. Apple Inc. has already come under scrutiny regarding the issue providing adequate environmental friendly environment to the workers who manufacture its products in China (Anon., n.d.). Moreover, China’s pollution laws have been an issue for Apple Inc., who is blamed to have used materials in the iPhone and iPad batteries which are deemed environmentally hazardous in China. Apple might have to address such issues to be successful in China.

There is an increasing global market segment that values environmentalism. This segment seeks products/services that are environmentally friendly and has given rise to numerous marketing opportunities. These opportunities can be realized through the development of new products/services that contain environmentally friendly inputs or cater to the environmentally conscious (e.g. ecotourism). Marketers may also have to alter their existing marketing activities to conform to this growing trend.

Corporate Value Chain & Competitive Strength Assessment:

One way to determine the strengths and weaknesses of an entity is applying the ‘Corporate Value Chain’ approach. In this model, the entity’s activities can be used to determine how well it can do in a specified market. Apple manufactures most of its products in China, which makes it quite easy to start penetrating in the market here. With the inbound logistics, operations and the outbound logistics already in place for Apple Inc. within the Chinese market, Apple Inc. only has to go through the process of marketing and selling its products and establishing after-sale service centers.

Marketing becomes quite simple for Apple Inc. basically because of its global brand reputation, which tends to grow day by day mostly because of the innovation it provides within its products. The brand loyal segment of the population is witnessing a huge increase in number all over the globe. This gives Apple a competitive edge over its rivals, such as Google and Microsoft. With the existence of numerous Apple Stores, there is also the presence of opportunity to customers to interact with new products. People can also avail after sales services from these stores.

China has abundance of labor available and that can be effectively used by Apple for human resource purposes. The presence of a firm infrastructure and cheap procurement options in China, Apple can easily gain success. Technology wise, Apple has been a pioneer and its innovative products represent that. In a negative way, Apple products have massively increased expectations and that has backfired too, where products like the Mini Mac and the Apple TV have disappointed customers.

When considering a ‘Competitive Strength Assessment’ model, the competitive strengths and weaknesses can be determined with other competitors based on the key success factors (KSF). Apple has been an entity that is design and innovation oriented from the beginning. Its Research and Development department has performed superbly as compared to its competitors. Apple’s developments such as the iOS have been unique give it advantage over its competitors. Areas where Apple might have faltered is that Apple products are relatively expensive than its competitors. The cost to maintain an Apple product has been high and there arise numerous compatibility issues for its products, which is probably the biggest setback in a market that is becoming more and more open source oriented.

Conclusion:

China has a growing market infused with rapid industrial development and economic growth. As the world’s third largest trading nation after the United States and Germany, China will provide Apple Inc. with a very fruitful market where it can succeed easily, given Apple’s reputation and brand image. The environmental assessment, along with the competitive assessment and value chain appraisal must be carefully considered and only then it should be decided whether to opt to enter the Chinese market.

Bibliography

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