China’s Potential for Apple’s Business Growth
One of the fast evolving technological trends is the smartphone features and technology companies are now required to be more innovative with the kind of features that they incorporate in their phones. Clients are more demanding and in order to buy their loyalty, smartphone companies have to constantly improve features on their products and sell them reasonably. For business people, smartphones that allow for syncing of personal data between different tech gadgets such as tablets and personal computers are more convenient as they facilitate access of information anywhere and at any time. Cloud computing is yet another trend that has been on high demand amongst business associates. This allows for storage of data in online servers and allows clients to access this information from anywhere at their own convenience provided they are connected to the internet. Apple has been one of the popular brands because apart from providing all these syncing features, they have also installed cloud computing services in their devices, making them very appealing and worth investing in.
As a country China presents Apple with a large market considering its unmatched demographics and the fact that it has the world’s largest mobile phone carrier. There is also great opportunity for Apple to expand by establishing itself in China and capturing the ever-growing middle-class populace that has made China the world’s largest emerging market. The facts that China is now liberalizing its once closed markets and has more educated people who are interested in technological gadgets, provides Apple with an opportunity to expand into its territory and capture this market especially given its potential.
Even though Samsung is the most popular smartphone provider in China, Chinese-based ZTE and Huawei provide stiff competition to the South Korean smartphone giant. Yet Apple can still exploit opportunities within this market. In fact, the company can compete effectively in the computing services by offering Mac, iMac and iCloud services because only Lenovo provides computing services as a homegrown smartphone service.
This White Paper will carry out assessment on China’s potential for Apple’s business growth, especially focusing on China’s history, governance and economic environment in order to better understand the country’s market. The paper will also examine technology trends in the world and analyze the technological market share in China in order to evaluate the potential for Apple Inc. in the Chinese territory.
China: Brief History
Clear records show that China’s rich history dates back to the Shang Dynasty that ruled between 1700-1046 BC and was responsible for uniting the country’s north central region. This dynasty later grew into the Zhou dynasty which replaced it (BBC). The dynasties kept changing hands until the Kublai Khan-led Mongol rule was established between 1271 and 1368. In 1368, the Ming Dynasty unseated the Mongol rule was and oversaw the finishing of Great Wall of China. The Ming Dynasty ruled for 276 years and was overthrown by the Manchu Dynasty. It was during the rule of the Manchu Dynasty that the annexation of China into Mongolia, Tibet and Xinjiang occurred. The popularity of this dynasty began to decline at the onset of the 19th Century.
The Chinese Communist Party began rising between 1911 and 1912. This was a period tainted by revolts amongst the Chinese people who wanted and fought for a united republic. The Chinese rule came to a sudden halt when neighboring Japan captured most parts of China and occupied it between 1931 and 1945. It was not until the end of World War II that the Japanese ended their occupation of China following their defeat. Led by Mao Zedong, the Communist Party was unified with the National Party’s Kuomintang, a move that resulted in the defeat of the Japanese occupancy of China in a defining moment in 1937. The Japanese departure also coincided with the end of the Chinese civil war that was marked by Mao’s victory in 1949 and the secession of Kai-shek to form the Republic of China, which is commonly known as Taiwan (Lawrence and Martin 1).
Zedong who is often referred to as China’s founding father, was, upon his death, succeeded by Deng Xiaoping in 1977. Deng Xiaoping introduced new policies into the country that resulted in opening up of China to foreign investments and international relations and this brought in economic prosperity and ended China’s economic woes. In addition to the new economic policies, the leader also introduced the one-child policy in China. To date, he is feted as having spearheaded the Chinese rapid economic growth. Despite the economic growth that has placed China second amongst the world economies, the country has had its fair share of problems both internally and with foreign countries. For instance, the annexation intentions of Tibet is still seen as a threat internally. China’s diplomatic rows with US over cyber attacks were also publicized but their relations have since improved. The arrest of Chinese crew in Japan have also caused constant rows between the two countries. Even though China has opened up to foreign investors and risen to become the world’s manufacturing hub, the country’s regimes and rules have often been criticized as being authoritarian (Kennedy and Cheng’ 7).
China’s Political Governance
China’s political governance has remained under the Chinese Communist Party or simply The Party for the past 63 years (Lawrence and Martin 1).Following Xiaoping’s exit, the political system has remained neither hierarchic nor monolithic because leaders with vested interests in different issues are able to present them within varied governance structures.
Two of the most important decision making bodies in the political governance of China are the Politburo and the Standing Committee.The Politburo consists of 25 members who make decisions regarding the societal and state affairs hence run the Chinese government in general. The Standing Committee only has seven members. The Chinese Communist Party draws its force and power from the military or People’s Liberation Army and the armed police (as shown in figure one which displays the relationship between the Party and other institutions). It is a central force that controls all activities in the country.
The State Council and the National People’s Congress are other arms of the party that greatly influence the day-to-day operations of the country as a whole. While the State Council is in charge of daily operations of China, the National People’s Congress oversees its activities and propagates the policies of the Party as well as its ideologies.Additionally, it monitors the Presidency as well as the activities of the Supreme Court (Lawrence and Martin 4). The Chinese political governance system is often described as “multi-party cooperation and political consultation led by the Communist Party of China” (Lawrence and Martin 4) because it allows other political parties to operate in the country albeit with a pledge of allegiance and cooperation with the Chinese Communist Party. The Chinese People’s Political Consultative Conference is yet another important faction in the government because the Party consults this body with regard to policy matters.
China’s Economic Environment
China’s economic progress are linked back to Mao Zedong’s economic reforms that led to an annual growth of 6.7% between 1953 and 1978 (Morrison 3). This growth however increased in pace following Xiaoping’s regime in 1979, and doubled to annual growth of 10% (see figure 2).
China’s rapid growth has been attributed to a confluence of two factors namely the large capital investment by foreign firms and equal domestic savings as well as fast productivity growth. This fast progress has seen China top the list of fastest growing world economies, beating other economic giants of the G20 group such as the United States, France, Germany, UK and Japan. In addition to being the only communist member of the G20 group, China also ranks first in the BRIC group which is composed of the largest emerging economies in the world and includes Brazil, Russia, India and China itself (Figure 3 gives a list of GDP growth among major global economies between 2008-2012).
Foreign direct investment has been linked to China’s rapid economic growth. The economic reforms put in place by the country exponentially increased FDI in-flow and led to the creation of employment opportunities for 15.9% of the country’s workforce within urban areas (Morrison 13). These employment opportunities have increased consumption of education amongst China’s workforce and led to rising demand in technological gadgets for enhancing the quality of life as well as prestige reasons. Combined with government initiatives and investments in research and development, China’s urban workforce has been the recipient of increased incomes and this has led to an increase in the population of the middle class citizens in the country.
Technology Environment and Trend
The government has also played a huge role in the technological growth of China as a market and producer. For instance, the Chinese companies involved in production of technological gadgets have mainly been sponsored by the state while some are owned by the state. This is has been done to ensure effective propagation of the ideologies and principles of the Party. In addition, the state has done this to subsidize production of technological gadgets and make the firms more competitive.
In terms of computing products and services, Chinese-based Lenovo takes up the lead with a market share of 9.8%. The company manufactures computers for both personal and corporate use. The smartphone market on the other hand, is largely captured by Samsung which holds 18.5 percent market share with a wide array of low-end, mid-range and high-end smartphones that have flooded the Chinese market, with the low-end brands largely attracting majority of the Chinese populace (Reuters). Despite these trends and figures, it is important to note that the rising middle class which has higher incomes has shown a tendency to look to the West for better quality and high-end brands that make a statement of class and sophistication (Savitz).
In the recent past, China has surpassed the United States to top the list of the largest smartphone market in the world and currently accounts for an estimated 27% of total smartphone shipments in the world (Savitz). This demand is expected to grow even further as the smartphone euphoria spreads amongst the Chinese people and projections indicate the country’s continued lead in smartphone shipment (see figure 4 for world smartphone shipment).
The Chinese smartphone market has experienced many changes especially following the government’s issuance of 3G and 4G licenses to mobile phone carriers. This move has increased the popularity of smartphones as it has enhanced their use and efficiency. There have also been more subsidies offered by Chinese carriers including China Mobile, China Unicom and China Telecom. Such carriers have given more people the opportunity to purchase high-end smartphones by offering them contracts as opposed initial arrangements where consumers had to purchase such products off the shelves without an carrier contracts or subsidies. All the carriers have 3G network licenses and are in the process of rolling out 4G licenses.
Cloud computing is yet another technological area that has been experiencing immense growth in the Chinese market following the support of the cloud computing infrastructure by the Chinese government (Larson). Cloud-computing services expansion has been spurred further by its affordability as well as ease of data storage. This has resulted in adoption of cloud computing services by corporate and manufacturing companies including government agencies, petrochemicals firms, financial and healthcare institutions. It is expected that by 2015 the Chinese cloud-computing market will have grown to an estimated $122 billion (Larson).
The potential of China’s cloud computing can thus be described as massive especially given the fact it holds the largest population of internet users worldwide. However, there are different obstacles to capturing this market and effectively offering cloud computing services in Chinese territory. Internet speeds in mainland China are rather low at 3.14 Mbps compared to 14.14 Mbps in Hong Kong China. Additionally, other barriers come in the form of internet censorship that is perpetrated by the government through the Great Firewall and which contributes to slow internet speeds within China.
The need and demand for cloud computing is fast growing in China especially taking into account that the cloud-computing services are now being used by the government as instruments for gathering intelligence. Most multinationals are also investing their resources in the cloud but using foreign firms which have secured systems for providing quality services (Larson). Another impetus for cloud computing growth is based on the estimate that China will have 500 million smartphones in use by 2013. Cloud computing services will thus grow given the fact that these devices come with in-built software and applications that utilize cloud-based services.
Even though it has high potential, China’s technology market is very price-sensitive because most consumers are poor peasants from rural China. The urban market however is vibrant with a growing middle class and large numbers of college students who are conscious of technological gadgets and trends. The middle class has a more expensive taste and demand for high end products and brands. Nevertheless, China’s large population is incentive enough for potential investors within the technological areas. Such investors must take note of the key local players in the market who are highly innovative and maximize on their government’s subsidies and preferential treatment. Even though Apple Inc. has high quality products that are of superior class, their high costs will potentially act as an impediment to capturing the highly price sensitive Chinese market and populace at large. This paper has carefully examined the Chinese technological market with the aim of providing information for expansion plans by Apple Inc. in China. Despite the fact that Apple has already established a niche in the Chinese market, it still has potential to grow in other areas besides smartphones and tablets.
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Kennedy, Scott & Cheng, Shuaihua Eds. The Growing Role of Chinese in Global Governance. Shanghai: Research Center for Chinese Politics & Business, Indiana University, 2012. Web. 1 0ctober 2013
Larson, Christina. “Will Cloud Computing in China be a Boon or Peril for Business.” Businessweek, 2013 September 10. Web. 1 0ctober 2013
Lawrence, Susan, V. & Martin Michael, F. Understanding China’s Political System. Congressional Research Service, 2013. Web. 1 0ctober 2013
Morrison, Wayne, M. China’s Economic Rise: History, Trends, Challenges, and Implications for the United States. Congressional Research Service, 2013. Web. 1 0ctober 2013
Reuters. “China’s smartphone shipment to exceed 450 million in 2014: IDC.” Reuters, 2013 September 24. Web. 1 0ctober 2013
Savitz, Eric. “China Now the Largest Smartphone Market.” Forbes, 2012 August 30. Web. 1 0ctober 201