China Mobile Eats Apple for (i)Breakfast

Related entries: Business Issues, Corporate News, General, News, Strategy

News of China Mobile’s rejection of Apple’s iPhone advances has received a lot of coverage – and it has lots of good ingredients for a story: An iconic western brand is trying to bring its latest headline-grabbing gizmo to China, where there are now over 539 million mobile phone users (including quite a few who could happily pay for a smart new toy) and the world’s biggest mobile phone company (and local market leader), China Mobile.

However, all is not well. The negotiations between the firms have reportedly broken down over Apple’s insistence on revenue sharing. China Mobile simply walked away. BusinessWeek explains why the strategy that worked in the US and elsewhere, has not resulted in sweet success in China:

    “China Mobile has 70% of the Chinese cellular market and likely had 2007 profits of $11.4 billion, up 28% over the previous year, according to an estimate by Macquarie Bank. The company does that without having to bother with handset sales in China, where the U.S. model of operators buying phones from vendors and then selling them to consumers isn’t popular.”

    …It’s not surprising, therefore, that China Mobile wasn’t willing to go along with the sort of deal that Apple has cut with less formidable partners such as AT&T.

    …So where does that now leave Apple? In the short term, without a lot of options. There’s only one other company, state-controlled China Unicom, that’s allowed to offer cellular service today in the country.”[Note: though that may change soon]

One assumes Apple was aware of the dominance and success of China Mobile, and of the difference in market structure. But perhaps they felt that, as a global leader, they could play by their own rules in China just like in other markets. Unfortunately that is not a safe assumption to make in China where business models can rarely be successfully cut and pasted into the market.

The FT provides some insight into how the negotiations went, and on the post-event PR trick (a la Wahaha) that helps put the foreign firm in a bad light from the view of an often nationalistic local audience:

    “…Chinese media yesterday quoted Gao Nianshu, general manager of China Mobile’s data department, saying that Apple had given the impression it wanted to control the value chain and had pushed for up to 30 per cent of revenues generated by locally sold iPhones.

    “Of course we could not agree,” Mr Gao told a gathering of local MBA students, according to the Sina website. China Mobile also doubted Apple’s prowess in communications technology, it quoted him as saying.”

The local MBA students may have learnt some useful lessons in return for all those tuition fees (including, perhaps, some of the following:

    • Understand the increasing power of local players and technologies (and decreasing power of foreign ones);

    • Note that business drivers and perceived benefits may be different for a local firm (especially a dominant one – or even a less dominant one, such as China Unicom, that suddenly becomes partner of last resort!);

    • Keep discussions private, but be ready to play the consumer PR game;

    • Appoint, use, and listen to local managers who know the local market;

    • Have a “Plan B”!

The lessons learnt by Apple may end up costing them an awful lot more than an MBA. We will see.

See news sources:

4 Responses to “China Mobile Eats Apple for (i)Breakfast”

  1. Archive » Don’t Quote Me (On Winning Strategies)| China Business Blog Says:

    […] themes/pod88/images/menu_5_on.gif’,1)”> « China Mobile Eats Apple for (i)Breakfast January 17, 2008 Don’t Quote […]

  2. Iphone » Blog Archive » China Mobile Eats Apple for (i)Breakfast Says:

    […] rs Couldn’t Live Without China Mobile Eats Apple for (i)Breakfast | China Business Blog wrote an interesting pos […]

  3. The Culture of Business or the Business of Culture? | Aaron Daniels Says:

    […] ded by posting a link to an article in “China Business Services” titled “China Mobile Eats Apple for (i)Breakfast“ We can now add Apple to the list of Western comp […]

  4. Archive » By Invitation: Sebastian Huber on Foreign Media In China| China Business Blog Says:

    […] with a range of problems from angry stakeholders to attacks on their brand – things that Apple, Danone, Google, and others have found to their cost in the recent past. Sebastian Huber […]

Leave a Reply

You must be logged in to post a comment.