The dragon takes a bite out of Apple

Apple, once the golden delicious of consumer electronics brands, has had the shine taken off it a bit lately. There have been red faces at Cupertino, California, where chief executive Tim Cook had to make a humiliating admission and apology after two weeks of attacks by state-owned Chinese media over its repair and warranty policies.

He said he was “aware that a lack of communications… led to the perception Apple’s attitude was arrogant and that we do not care and attach importance to consumer feedback”, going on to say: “We express our sincere apologies for any concerns or misunderstandings this gave consumers.”

Of course, it’s more complicated than that. Analyst Shaun Rein, MD of the China Market Research Group, told the BBC that among Apple consumers in China there was largely confusion over the whole affair, as Apple generally isn’t that bad, rather the government was hitting out at an external target to distract from internal problems such as pollution from state-owned enterprises. But Rein reasoned that “by apologising publicly, Apple has opened its brand up to future criticism and may have helped foster a perception that its service in China and its relationships with Chinese consumers are lacking.” So Cook had taken the wrong tactic, apologising rather than just explaining, which would hurt Apple in the long run, more than it would the Chinese government.

Even the Wall Street Journal says, “some amount of damage has been done to Apple’s image there, which could reduce its share of the world’s largest smartphone market.”

But, with much of the rest of the world seeing slowdown or recessionary decline, perhaps it is understandable that Apple tries to tread carefully and not offend in this market which is poised to overtake the US as the second largest global economy by 2020.

And Apple has previous problems there, being fined twice in 2012 in China for copyright infringements over publishing unlicensed books by Chinese authors on its online sales site. Earlier in the year it was involved in a legal dispute over ownership of the iPad name in the Chinese market, resulting in Apple’s iPads being pulled off the shelves in some parts of China and the American firm agreeing in July to pay $60m to settle the dispute.

But it’s not just Apple that faces problems in dealing with China. As some Australian business people have found themselves jailed in “murky circumstances” according to the Sydney Morning Herald, it warns on the eve of Prime Minister Julia Gillard preparing to lead a high-powered delegation to a Chinese business forum, of “concerns of a deteriorating Chinese legal environment coupled with rising nationalism and protectionism.”

Sweden’s Volvo has encountered problems in China with their reps on the ground inflating sales figures and negative reaction to the price of some of its models compared to competition from makes such as BMW. Additionally, Volvo wants to sell 200,000 cars a year in China by 2015 and, to do this, is sinking $11 billion in opening a factory in China this year, yet brandchannel.com’s verdict is: “overall, the brand’s efforts in China have floundered like a dying herring.”

A survey of 325 businesses by the American Chamber of Commerce in China published last month showed concerns over the country’s investment environment, a slowing of economic growth, market barriers, government restrictions, double-digit percentage growth in salaries and benefits for workers over the past two years, rising cost of land and raw materials, even cyber security. Just over a quarter reported that data had been accessed or stolen and while there was no direct indication that the breaches originated within China, numerous reports have pointed to extensive Chinese commercial hacking, some of it allegedly government directed.

Google learned a painful lesson when it attempted to compete in China by providing uncensored search results, had to change tack in 2006 when launchings its google.cn site, which was subject to censorship from China’s Internet police, then, following blocking of several sites, withdrawing from China in April 2010, after a serious cyber attack against the company was traced to a source inside China. Google’s site still functions there, but reportedly with just a fraction of market share.

Cisco, H-P, many western firms have reported problems in China, but while its economy continues to grow and it continues to present such a mass market opportunity, there will doubtless be other captains of industry like Tim Cook forced to eat humble apple pie . AW