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Apple iPhone in China:

Can Apple cash in on


the Worlds Biggest
Mobile market ?

Group -2
Aseem Garg
Ashank Suresh
Arpita Garg
Juhi Bhatt
Utkarsh Vardhan
Arush Bhatnagar
Introduction

People who can afford the technology < people who cannot afford the
technology.

The rich want the latest accessory.

China Unicom.

Competition Nokia & Motorola.

Grey Market.
Telecom Operators in China

In 1987,Ministry of Posts and Telecommunications (MPT) launched mobile services in China


Since 1994, China Unicom also offered mobile services (GSM) technology
After -1994, China Telecom, the operating arm of MPT was separated. Since then, China
Telecom offered GSM mobile services.
After -1998, China Unicom offered GSM and CDMA services.
After -1998, China Telecom's mobile service was transferred to China Mobile. Since then, China
Mobile and China Unicom both offered mobile services in China. It created a duopoly structure.
In 2008, Chinese telecommunications industry comprised of three state-owned enterprises
namely China Mobile, China Telecom and China Unicom offering mobile services in Chinese
mobile market.
Evolution
1987 - Ministry of Post and Telecommunication (MPT) first launched
mobile services in china.
1994 United Telecommunications Corporation ( China Unicom)
was launched to compete with MPT. China Telecom, the operational
arm of MPT, came into market with unique features of fixed-line,
paging and satellite services.
1998- MPT was being replaced with Ministry of Information Industry.
China Telecom was being split to form China Mobile Communications
Corporation.
2008 Formation of 3 full service state owned operators. 3G
services were launched.
Foreign players vs Local players

During the initial years (1987-1998) the market was dominated by foreign players Nokia,
Motorola, Sony Ericson Lenovo etc.
Motorola held 80% of the share in Chinese mobile handset market. Remaining 20% was
being held by Siemens, Phillips, Alcatel. (1996-2000)
1998, saw the introduction of local players Ningbo Bird, Konka, TCL, Haier, ZTE, Capital,
Kejian etc which dominated the mobile market.
In no time, the new players gained market share. From 2002-2003, the domestic brands grew
from 24% to 37%.
After 2003, Chinese brands like Konka, TCL and Ningbo Bird started losing their market
shares.
By 2007, foreign brands Nokia, Motorola and Samsung collectively held 61.4% of the
market share.
Competition strategies
In order to compete with local players, foreign players adopted the
following strategies-
1. Reduced price of mobiles
2. New features
3. Customer centric phones
4. Expanded to rural markets by strengthening distribution channels.
5. Subsequently, the shares of local players fell.
Customer Preferences
Features and multimedia functions

Price Conscious

Frequency of buying

Brand Image

3G servies
Critical success
factors of Chinese
market
Critical success factors of Chinese mobile
market .
Offering wireless Lack of intensive competition .
telecommunication services .
3g services / smartphones (
price strategy fashionable , innovative ,
multimedia functions )
diverse product portfolio (Exhibit 6)
(Annexure 2a )
Encouragement by the
80% market share with Nokia , government by issuing GSM &
Ericsson & Motorola CDMA .
Lack of brand loyalty among Consumer preference
customers (Annexure 1) (Annexure 2b )

customer centric approach .


Brand image .

Ability to retain the customers


quality oriented (Annexure -1)

enhanced features . Innovative product .

Lack of brand loyalty


Apple competing with existing players .
Opportunities .

Existence through grey market .


Innovative design , features .
(Exhibit 8)
Quality .
Huge market .
Diversification of sales channels
.
Challenges .
price strategy of competitors . Late entry to the market
Consumer preference (Exhibit Market share (Exhibit-9 )
6)
Emerging local brands
Competition (Exhibit 9)
Government support with local
Grey market brands
Wi-fi ban
Lack of cultish image in china .
What is a Grey Market?
An unofficial market for goods that have been
obtained from unofficial suppliers.

SITUATION IN CHINA

Chinese grey market :- Fake mobile handsets


(Unrecognized by the government)

Fake handsets produced by unlicensed vendors


who benefit by evading tax. (Exhibit VIII)
Threats facing Legitimate mobile phones in
China
Grey Market mobile phones were comparable and at times better in
features, functionality and design from the legitimate handsets.
Advanced features Comparable features
Wi-fi 2-megapixel VGA camera
Windows Operating System Shape and design
Bluetooth

China consumers are price conscious and and at the same time show
equal interest in advanced mobile phone features. (Exhibit VI)
Led to an increase in export of grey handsets in global mobile phone
market.
37million units in 2005 101million units in 2008
Threats faced by Apple iPhone

Smuggling: Unofficial mobile phone


sellers smuggle mobile phone before
their entry in the market.
Apple iPhone was sold unofficially in the
Chinese mobile market.
Apple iPhone became popular as a
stylish gadget due to its cutting edge
technology and creates interest in
the consumers which led to unofficial
distribution of Apple iPhone.
Counterfeit iPhone store in China
How Grey market can help Apple iPhone

Without official sale 1.5million iPhones were already


in use in China

Grey market can help Apple build upon a consumer


base and convert challenge into opportunity.

Experts opinion 1: Unofficial entry of iPhones in


China will hamper the demand of Apple iPhones.

Z. John Zhang (Marketing professor at Wharton):


Apple can use its grey market presence to their
advantage.
We know you love the product.
APPLE HISTORY

Founded on April 1 , 1976


Founders were Steve Jobs , steve wozniak & ronald wayne
Over 400 retails outlets
Products in includes :
Mac , iphone , ipad , ipod etc
Apple went public In on 12 December 1980
Apple started out with just personal computers
The first apple store was opened on may 19 , 2001
COMPANY GLOBAL STRATEGIES
GLOBAL STRATEGIES
Inflation In U.S (expanded globally )
Expanded through Asian Market .
Apple strategy has been to innovate new products
Get to the market first and collect MONOPOLISTIC PRICE
Marketing Strategy
When copies catch up Apple introduces new products .
Why was Apple introduced in china ?
Slow sales in US and parts of Europe because of 2008 global
recession (page 11, para 1 of the case study)
Even its entry into Asian markets like India, which was offering huge
potential for mobile Telecommunications, was a failure because of the
high price of iPhone .
Growth opportunity offered by Chinese smartphone market (Exhibit
XI of the case study) the
worlds largest mobile phone market.
Because of the above reasons,Apple forayed into Chinese mobile
market with its iPhone 3G and iPhone 3GS
Apple Introduced in China
On 28th August 2009 Apple officially entered in to China Market .

China Unicom signed a 3 year non exclusive licence agreement


with Apple .

China Unicom purchased 5 million mobile units of 3G and 3GS


model worth $1.46 Billion .

Chinese smartphone market was primarily controlled by Nokia and


Motorola ( 89.15% ) Nokia (low class middle class high class )
average cost was low .

I-Phone in China market was offered at a price of (6,999 Yuan )


$1024 to Chinese customer .
Will Apple Succeed ?
Threats
Stiff competition in Chinese smartphone segment .
Nokia was the biggest overseas rival .
Consumers were Price consciousness .
Chinese consumer preferences .

40% MARKET SHARE AS PER Q4 2009


38%
35%

30%

25%

20% 20%

15%

10%

5% 5% 5% 4.50% 5%
4% 3.50% 2.60% 2.20%
0%
NOKIA SAMSUNG SONY ERICSON MOTOROLA ZTE KYOCERA RIM SHARP APPLE OTHERS
Turn
Presence of Grey market in China .
Premium pricing for larger profits (Sold at $1024 per unit).
Introduction of Wi-Fi (Since Apples deal with China Unicom is an non
exclusive agreement, the company can enter in to agreements with other
mobile carriers ,to further improve its sales.) .
Increased the competition among the Service Providers .

MARKET SHARE AS PER Q1 2017


45.00%
42%
40.00%
35.00%
30.00%
25.00%
20.00% 20.70%

15.00%
13.70%
10.00% 9% 8% 7%
5.00%
0.00%
SAMSUNG APPLE HUAWEI OPPO VIVO OTHERS
Current Scenario

Shopkeeper "iPhones can barely help you make a living now."

Parallel trade down to less than 50% from 80% - 90% previously.

Competition Huawei, OPPO, Vivo, Xiaomi.

Apple ranks fourth in terms of market ranking.

10% drop in third-quarter Greater China revenue.


Market Share
Sales
Reasons for drop in revenue

Fall in number of mainland tourists to Hong Kong.

Decline in iPhone shipments (according to Canalys).

China's currency (Yuan RMB) when compared to that of United States


(USD).
Apple Introduced in China
On 28th August 2009 Apple officially entered in to China Market .

China Unicom signed a 3 year non exclusive licence agreement


with Apple .

China Unicom purchased 5 million mobile units of 3G and 3GS


model worth $1.46 Billion .

Chinese smartphone market was primarily controlled by Nokia and


Motorola ( 89.15% ) Nokia (low class middle class high class )
average cost was low .

I-Phone in China market was offered at a price of (6,999 Yuan )


$1024 to Chinese customer .
RMB vs Dollar
THE BIGGER PICTURE

THE FUTURE OF APPLE IN CHINA ?


Outlook for Apple

Increasing preference for Chinese mobile brands.

The new iPhone should give Apple a much needed boost.