China has gained immense importance for all consumer brands that are facing stagnant growth in European and American markets. The country not only has a huge population, but rising consumer spending as well. On top of that there is low penetration when it comes to high end consumer goods.
Despite these attractive features, the role of the Chinese Government is the deciding factor. Recent developments show that Apple Inc. (NASDAQ:AAPL) has kneeled down to Chinese authorities and has decided to change its consumer practices due to increased state pressure. Google Inc (NASDAQ:GOOG) has already given up on this market after initially complying with the local government. Apple management will have to draw a line somewhere in its dealings with Chinese government, but for the time being investors can hope for a continued Apple Inc. (NASDAQ:AAPL) presence in China.
The Exposé
During its annual corporate malpractice exposé, Chinese sate-run television singled out Yum! Brands, Inc. (NYSE:YUM). The company’s Chinese sales suffered heavily from the expose because consumers avoided KFC on fears of antibiotic use in its chicken. The most recent exposé targeted Apple Inc. (NASDAQ:AAPL) for its ‘biased’ warranty practices in China. The broadcast criticized Apple for discriminating against the Chinese consumer by adopting different practices in China. The company was warned that if it did not change its policies and treated Chinese consumers on the same footing as the rest of the world, it could face legal action.
In an unprecedented move, Apple Inc. (NASDAQ:AAPL) CEO Tim Cook has publicly apologized to Chinese consumers. Apple published a letter on its Chinese website, singed by Cook, apologizing to Chinese consumers for any misunderstandings about the company not giving them top priority. Chinese state media had tried to brand Apple Inc. (NASDAQ:AAPL) as arrogant and unresponsive to Chinese consumers, and the apology will play a major role in repairing any damage.
This bold move will go a long way in removing all doubts in the minds of Chinese consumer and ensure Apple’s positive brand perception in China. The company has also pledged that it will increase its staff, authorized re-sellers in China, and improved its iPhone 4 and 4s after sales service.
Apple Complies?
It seems that the apology letter is just the start of a changing relationship between Apple and China. In an uncharacteristic move, the company has removed an app from its store that offered some content banned in China. The app provided Chinese consumers access to books by Wang Lixiong, an author banned in China. The company claims that it is only complying with its rules and regulations, which prohibit developers from releasing applications that break local laws. It is highly likely that special instructions have been given to all Apple Inc. (NASDAQ:AAPL)’s China representatives to avoid any confrontation with Chinese authorities.
Bottom Line
These recent developments show that Apple will go to any lengths to safeguard its Chinese presence, and this should be good news for investors. However, it also shows the power of Chinese government and it ability to bully major foreign corporations.
Google Inc (NASDAQ:GOOG) has already closed down its operations in China due to increasing interference from the government. The company still has a significant market share of the huge, high-growth Chinese market but can easily dominate if political differences are resolved.
A lot of major manufacturers of consumer goods are relying on China for future growth, but the dominant behavior of the Chinese Government can be a game changer. It is high time that companies such as Apple, Yum! Brands, Inc. (NYSE:YUM), and Volkswagen look towards other Asian and South American markets for growth.
The article Will Apple Survive in China? originally appeared on Fool.com and is written by Mohsin Saeed.
