Apple's iPhone in China: CanApple Cash in on the World's BiggestMobileMarket?

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Themes: Strategy
Pub Date : 2009
Countries : India
Industry : Telecommunications

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Apple's iPhone in China: CanApple Cash in on the World's BiggestMobileMarket?


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On August 28th 2009, agreeing to subsidise the device, China Unicom entered into a 3-year non-exclusive license agreement with Apple. China Unicom purchased 5millionmobile units - iPhone 3G and iPhone 3GSmodels -worth $1.46 billion27 from Apple. Apple is expecting to make good profits from its deal with China Mobile, as smart phone market in China is showing a promising growth.

Chinese smart phone market is primarily controlled by Nokia and Motorola, with a collective market share of 89.15%28 in Q3 2008. Nokia's success in smartphone segment came from its effective pricing strategy, which catered to all consumer segments. According to the article, "Nokia and Motorola Dominate Chinese Smartphone Market", "Covering all levels in mobile phone products, Nokia's smart phones cover low-class, middle-class and high-class, with products' prices from several hundred Yuan to six thousand Yuan. The fall in average prices allow smart phones to become the market mainstream, so Nokia lays its solid dominant position in middle-and low-end market."29

Analysts, however, are sceptical about iPhone's sales in China as the price of the product is quoted very high. Without service contract, iPhone 3GS is being offered at 6,999Yuan30 ($1,024) to Chinese customers. On the contrary, when iPhone is offered with service plan for 2 years, it would cost nearly $3,120 whereas, the average cost of smartphone in China is $350. Moreover, complying with the Chinese government's rules, Apple launched its iPhone disabling the wireless internet function (Wi-Fi).

Apple's iPhone in China: Will it Succeed?

After a long delay, Apple, made its entry into the Chinese handsetmarket. The company, however, is challenged on many aspects in Chinese mobile market. Firstly, Apple has to fight against the stiff competition in Chinese smartphone segment. So far, the biggest rival for Apple in many overseas markets is Nokia. DavidWolf, president of WolfGroupAsia, a Beijing-based advisory firm, opined, "Apple is entering China at a level of competition that's never been seen before. If they think they can come here and ride the wave they’ve enjoyed the last 2 1/2 years [in the West], then they’re going to get a rude awakening."31 On the other hand, Edward Synder, an analyst for San Francisco based Charter Equity Research32 , said, "Apple's brand is strongest at home, where the competition is weaker."33

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27]Oliver Sam, "Apple sells 5 million iPhones to China Unicom", http://www.appleinsider.com/articles/09/08/13/apple_sells_5_million_iphones_to_china_unicom.html, August 13th 2009
28]"Nokia and Motorola Dominate Chinese Smartphone Market", http://www.cellular-news.com/story/35172.php, December 15th 2008
29]Ibid.
30]Chao Loretta, "High Price for iPhone in China Will Test the Appetite for Apple", http://online.wsj.com/article/SB10001424052748703363704574503302512451942.html, October 29th 2009
31]Pierson David, "iPhone fever probably won't spread in China", http://www.latimes.com/business/la-fi-china-iphone16-2009oct16,0,1021033.story, October 16th 2009
32]Charter Equity Research is an equity research firm in the area of telecommunications
33]Chao Loretta, "Apple, Facing Competition, Readies iPhone for Launch in Giant China Market", http://online.wsj.com/article/SB125129375627560585.html, August 27th 2009