Apple Struggles to Win Fans in China

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com/research/stocks/snapshot/snapshot.asp?symbol=MOT'>MOT), who have leveraged their connections in industry to get cell-phone retailers to sell iPods.

Not everyone is sure Apple's newest retail strategy will make much of an impact. "Apple opening its own store will help raise brand awareness, but it's hard to say if that will translate to an increase in actual sales," says Antonio Wang, research manager at IDC China.

The big problem for the American company is the price sensitivity of the market. While some Chinese like the Mac's clean design and its reputation for being relatively free of viruses, that doesn't necessarily mean they have bought the computers. Wang Yanmin, a 26-year-old from the northeastern city of Changchun, helps manage a Mac fan site, kenapple.com, even though he has never owned a Mac himself. Since the unemployed Wang cannot afford to buy one, he installed the Mac operating system on his PC instead. Earlier this year he opened his own store do the same for other PC owners, but closed it after two months because of lack of business. "The price of an Apple is not something most people in China can accept," says Wang.

Pricey Products

The Apple products sold in China are generally more expensive than what American consumers pay. For example, a white 2.4 GHz Intel Core Duo MacBook at the new Apple store in Beijing retails for $2,000, or nearly what the average urban Chinese worker earned in 2007. By comparison, Americans can buy the same product for $1,300 from Apple online. Apple's Johnson doesn't think the company has a problem, though. He says Apple sets its prices in China based on what's the right price in the market. "The last I heard, there are 3.3 million people who own a car in Beijing," he says. "If you can afford a car, I think you can afford an iPod or a Mac."

In many ways, China is unlike other foreign countries Apple has entered. It's the only developing country where Apple has its own retail store; the other countries outside the U.S. where Apple has opened stores are Australia, Britain, Canada, Italy, and Japan. "In the global Mac community, if you come from someplace that has an Apple store, there's something in you that makes you feel I come from an Apple country," says David Feng, executive president of BeiMac Union, a Beijing-based Mac user community. "And there's a bit of a sense of pride that this gives you."

Pirated Music Files

China also is the only country where Apple has a brick-and-mortar store but not a local edition of its iTunes online music store. Apple's Johnson declined to comment on why Apple does not have a Chinese version of iTunes. Analysts say it is most likely due to concerns about piracy. The International Federation of the Phonographic Industry estimates that more than 99% of all music files distributed in China are pirated. "Apple should probably get more involved in finding a solution to the problem too, via iTunes or other means, as after all, that's the primary use of the iPod in China, isn't it?" says Matthew Daniel, vice-president for strategic development at R2G, a Beijingdigital music distribution company.

Other companies have tried. In 2005, Beijing's Aigo, which sells MP4 players and portable storage drives, became the first Chinese company to open an online music store for Chinese consumers to download music legally. Feng Jun, Aigo's founder and president, admits his AigoMusic store is still losing money, but he believes that legal music downloading will win acceptance as Beijing continues to crack down on intellectual property violations. "We are a startup company, and we were able to invest in an online music store," he says. "Apple could easily afford to also. It would not be a big investment for them to come out with a Chinese version of iTunes."

Tschang is a correspondent in BusinessWeek's Beijing bureau.