|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | |
JULY 22, 2004
By Alex Salkever Apple's Slow Boat to China Jobs & Co. are in danger of blowing an opportunity to score big with millions of tech- and status-symbol-crazy Chinese Here's an interesting factoid that Apple (AAPL ) might want to ponder. The premium electric-shaver market in China is worth over $300 million in annual sales. I got that tidbit from Merrill Weingrod. He's the brains behind retail and marketing consultancy China Strategies, an affiliate of the global retail consultants Kurt Salmon Associates. Weingrod has been working in China for over a decade and is considered a top guru for foreign companies trying to crack the Middle Kingdom's markets. Weingrod gave me that stat when I asked him if he thought Chinese were ready to buy iPods. What he meant was this. If tens of thousands of Chinese are willing to drop $250 to $500 for luxury shavers, from Philips, Braun, and Panasonic, then you can bet an equivalent or greater number would want to buy iPods. To underscore that point, look at the 300 million cell-phone users in China who are paying $250 to $800 for a handset. Considering that average Chinese mobile-phone buyers make far less than their American counterparts, it's clear that folks there will do whatever it takes to get gadgets they want. What's more, Weingrod is sure the shaver-buying public will balloon as the Chinese economy continues to grow at a rapid rate. Beijing estimates that its economy is growing at a 9% clip, but that could understate the real growth in the big cities. China's economy is hard to get solid numbers on because so much of what happens remains off the books. In any case, "China is becoming a very large, middle-class society way faster than the rest of the world realizes," says Weingrod. "You've got a large population of people who can afford to buy better consumer goods." COMPELLING MATH. Apple, however, is hardly rushing into this potential promised land, although it has shown signs of interest. In May, 2004, it unveiled a deal to preload its popular iTunes music software on every PC made by Founder Technology, China's second-largest PC manufacturer. Mac watchers immediately discounted the possibility of an iTunes Music Store launch in China where rampant piracy would likely spook the big labels. Apple declined to comment for this article. However, many wondered whether the Founder deal presaged a more intensive iPod marketing campaign in the big urban centers of Beijing, Shanghai, and Guangzhou. So far Apple hasn't done anything further on this score, but it ought to hurry up. It has a wide-open opportunity to become a big player in what will likely become the world's largest personal-tech market within the next decade. The math is compelling. Weingrod estimates that China now has 35 million to 40 million households with the equivalent purchasing power of a U.S. household earning $25,000 to $30,000 per year. That means now 100 million Chinese are living the middle-class life. That number could double or triple over the next 10 years, Weingrod figures, making the Chinese middle and upper classes nearly as large as the entire U.S. population. AS FLASHY AS IT GETS. But more than North Americans or Europeans, Chinese personal-tech aficionados see their gadgets as status symbols, according to Bryan Ma, an International Data Corp. analyst based in Singapore who tracks handheld device markets in Asia. Ma points to cell-phone replacement cycles in China that run 6 to 12 months faster than those of Europe or North America as a reflection of the strong desire among Chinese to possess the latest and greatest. "The flashier an item, the more of a status symbol it is," says Ma. With its sleek appearance and raft of design awards, the iPod is probably the flashiest, most recognizable handheld digital device in the world today. Yet when it comes time to ship these beauties to fulfill waiting lists, consumers in the U.S., Britain, and other countries trump China. To some extent, it's a logical approach. Apple is simply taking care of markets where it already has a strong presence. That's easier than opening up new ones. And China, where the Mac platform only has 0.2% of total PC unit shipments, according to IDC, pretty much qualifies as a new market. Mac sales never took off there, in part due to perceptions that they're too costly compared to Windows machine, says Ma. Apple doesn't break out iPod sales in China. But they're likely under 80,000 units per quarter, by my math. Apple derives less than 10% of its quarterly revenues from Asia excluding Japan, where it's particularly strong. So it's pretty clear China is still a tiny part of Apple sales. MOTOROLA'S MODEL. However, a go-slow approach to China could give Apple's many rivals -- especially Sony (SNE ) or Singapore-based Creative Technology (CREAF ) -- a chance to gain coveted brand recognition and public loyalty. Other digital music-player makers are hungrily eyeing that market and positioning products to sell there. And Weingrod says an early entry makes it easier to defend a premium brand in China. Witness the case of Motorola (MOT ). The Schaumberg (Ill.) maker of communications gear and mobile handsets plowed full-speed into the Chinese market back in the 1990s. Competition from local upstarts quickly grew, but today Motorola retains its early cachet as one of the most prestigious cell-phone brands in China. It has managed this while most other Western handset makers have struggled mightily. What's more, Motorola is selling 300,000 of its highly profitable top-end phones per quarter in China. In the PDA-phone category in the first quarter of 2004, Motorola held 40% of the Chinese market, says IDC. "Motorola was in there early. They were able to ride that wave and maximize their value," explains Ma. A STORE IN BEIJING? Perhaps the next round of Yao Ming commercials for Apple should run in China rather than in the U.S. and feature iPods. Picture the big National Basketball Assn. star palming an iPOD mini. At the same time, Apple should make sure that its hot products make it quickly to Chinese retailers both online and off and that its Chinese customers get easy access to online sales of iPods. How about an Apple flagship store in Beijing or Shanghai to whip up interest in the iPod line and other digital lifestyle accessories? One thing is clear. Apple ignores China and its booming markets at its own peril.  Salkever is Technology editor for BusinessWeek Online. Follow his Byte of the Apple column, only on BW Online
BW MALL
SPONSORED LINKS
Buy a link now!Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
