It has become increasingly difficult for Apple to build its profit margins based solely in the United States and Europe, which have long served as its two largest markets for total iPhone sales and purchases of Mac-related desktops or accessories. To continually expand its horizons for profits and new market opportunities, Apple is now investing heavily in China.
The company announced a deal with China Mobile to sell the iPhone, has ramped up production facilities in the country, and has dedicated new Vice President of Retail Angela Ahrendts to expanding its fleet of Apple Stores to every corner of the country. The big question is whether or not this commitment to China can produce results and endure in the future. The answer is decidedly, “maybe.”
iPhone Sales Show Promise for Market Share Growth
There was plenty of pent-up demand for Apple’s iPhone among the nearly 1 billion China Mobile customers when the two companies came to a sales agreement in late 2013. A few months later, sales began, and China Mobile announced that it had sold 1 million iPhones in just one month. American mobile service companies see those kinds of numbers only in their dreams. The company’s CEO estimated that between 5 and 35 million iPhone activations would take place at the carrier’s stores through the end of 2014. As a result, Apple’s shares were up 23 percent year-over-year in April 2014, and have charted a few new records in the time since then.
Retail Expansion Would Allow for a Long-Term Expansion of Service
Angela Ahrendts’ is one of the newest executive hires at Apple, and has been welcomed as a driving force of change in the way the company approaches the retail side. As CEO of Burberry, she led penetration into major Chinese markets and drove up demand for Burberry’s unique brand of London-based luxury goods and style cues. At Apple, Ahrendts is expected to oversee an expansion of Apple retail stores in China, from 10 in 2014 to perhaps more than 30 by the end of 2016. Her reclassification of retail markets by sales volume, instead of by locality, should also help keep store shelves full in China as demand increases and incomes rise.
Manufacturing Might Be a Weak Area for Apple in China
Finally, the other key part of Apple’s business in China is its extensive manufacturing operations. Manufacturing, however, has become a bit more complex in recent years. After dealing with worker abuse allegations throughout the 2000s and in 2011, Apple became more transparent with the way it treats workers who create its products. Since then, however, Apple has shifted Mac Pro assembly to the United States, they’ve opened a sapphire glass production plant stateside, and have announced that further products will be assembled in the U.S. rather than in China. Labor costs are going up in China as a whole, as well, and this might cause Apple to rethink strategic locations for manufacturing of its broader product line.
A Lasting Relationship Depends on How Apple Handles Consumers
China is a market with an emerging middle class that wants the finer things in life: A personal automobile, a spacious home, and consumer electronics like the iPhone, iPad, MacBook Pro, and others. If Apple manages retail stores and sales agreements properly, it can likely create the kind of healthy, ongoing relationship with consumers and corporations that it enjoys in the United States. While manufacturing might change in dramatic ways going forward, that’s not necessarily key to Apple’s revenues or its approach to the marketplace.
Although this relationship might have seemed hot and heavy in the beginning, it’s tough to tell what course the partnership will take. There is potential for serious growth, however, any misstep could cause a schism between the seemingly harmonious China-Apple relationship.
