Apple May Need to Create a New iPhone Just for China

Apple Store China Office Buildings Credit: THINK A / Shutterstock
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With almost a fifth of the world’s population living in China, there’s no doubt about the importance of the Chinese market to Apple’s bottom line. In fact, it was the expansion of the iPhone in China that was Tim Cook’s biggest coup in his days as the newly-minted CEO of Apple, signifying one of the company’s largest expansions of the mobile device beyond its western borders. Although the ride with China hasn’t always been smooth, Apple has generally had good success with the iPhone in that country, growing it to more than $50 billion in revenue and Apple’s second-largest market.

At least until recently. Reports earlier this year highlighted that Apple has a “China problem” brewing, and the company revised its guidances in January — the first time the company has done so since long before Steve Jobs retook the helm — to reflect a slower holiday quarter in iPhone sales overall, highlighting weakening sales in China as part of the issue. Of course, the economy in China itself hasn’t been great lately, as it’s been suffering its worst economic downturn since 1990, and the current trade war brewing between the U.S. and China hasn’t helped that much either.

No matter the reasons, however, Apple is clearly having struggles in the Chinese market, especially with its latest iPhone models, which have been priced at a tier that makes them far less affordable to many of the working class in China.

In response to this, some former Apple executives and analysts are suggesting it may be time for Apple to take a more radical approach to selling the iPhone in China by moving away from its “one-size-fits-all-markets approach” to the iPhone and actually designing an iPhone that’s specifically tailored to the Chinese market.

In a new report in the Wall Street Journal, former Apple personnel also blame Apple’s senior management and culture of secrecy for weakening its position in the country, pointing to a U.S.-centric perspective that has hampered the iPhone’s ability to fit well into the local Chinese market and the more varied needs of Chinese users.

They’re not adapting quick enough. These apps and systems are how people communicate in China, and if you don’t have seamless integration, the Chinese manufacturers have an edge.

Carl Smit, former Apple retail executive in Asia

Apple has of course made some concessions to the Chinese market over the years. When Apple announced the Dual-SIM feature in last fall’s iPhone lineup, the company specifically released a different model in mainland China that could take two physical SIM cards rather than relying on an eSIM for the second one. Apple’s gold-colored iPhone models have also largely been viewed as a concession to Chinese consumers.

Despite this, however, as one of the few major non-Asian smartphone makers, Apple faces fierce competition from others who may have a better read on what Chinese consumers are looking for in a smartphone. Analysts believe that creating an iPhone specifically designed with the interests of Chinese users in mind would better position it against Chinese rivals such as Huawei and Xiaomi.

According to the WSJ, Apple’s team in China has actually been pushing for more adaptability to the Chinese market for several years now, suggesting as far back as 2012 that Apple really needed a Dual-SIM model — a feature now found on 93% of competing smartphones sold in China — to appeal to the Chinese market. However, members of that team who have since left Apple indicated that the company’s product executives “were a black box” and the team in China never received any direct feedback, simply continuing to see new iPhones unveiled year after year that were missing the features that were gaining traction from other smartphone makers.

According to one former engineer, Apple chose to prioritize other issues that it believed were important in China, such as improving antenna performance, adding that “They didn’t expect SIM to become a competitive differential.”

Other analysts, however, suggest that the idea of creating a more specifically Chinese model of iPhone has its downsides as well. Not only would such a strategy be a sharp turn from Apple’s normal approach of focusing on only a few models, thereby adding costs and complexity, but as one analysts notes, it could have the potential to backfire if the Chinese iPhone was seen as less prestigious than the mainstream models sold elsewhere in the world.

Apple has also been hampered by its slow pace at adapting to the very different approach of Chinese users to software apps. For example, WeChat has become so pervasive in China that it’s almost become a defacto mobile operating system, reducing the software-level distinctions between iOS and Android for many Chinese users.

That said, Apple has taken steps to ensure that it remains in touch with Chinese consumer needs, appointing Isabel Ge Mahe to a new position of Vice President and Managing Director of Greater China in 2017, reporting directly to Apple CEO Tim Cook and COO Jeff Williams, and making her the first Apple executive to have any oversight in the country.

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