Apple has to think different about China

Apple(s AAPL) apologies are rare. Especially ones that come from the CEO.
Steve Jobs said sorry (sort of) when the iPhone 4 antenna backlash appeared ready to derail the launch with bad press. Tim Cook did the same when Apple Maps’ arrival was greeted last fall with mocking and scorn and threatened to overshadow the iPhone 5’s arrival. Other than that, Apple gets lambasted in the media in many countries for a variety of reasons and the company’s standard response is silence.
But in China? Rather than the local media and government coming around to the way Apple does business, it seems to be the other way around: Apple is learning its usual playbook for success doesn’t necessarily work there.


An iPhone launch in China.

After a two-week sustained campaign conducted by the country’s government-controlled media outlets against Apple’s repair and warranty service for iPhones that painted the company as “arrogant,” Apple took the very unusual step of having Cook apologize in an open letter to Chinese customers. He also offered a slight change in how the company handles warranties. The Chinese media stood down after Apple’s peace offering, and it does appear that for now, both sides got something good out of the deal.
Consider the way Apple dealt with a warranty snafu in Italy. In late 2011 the country’s consumer protection agency found Apple was violating a law requiring free two-year warranties for all products. Apple was offering one year (its standard policy) and selling AppleCare plans to customers if they wanted more protection. Even with plenty of media coverage, it took several rounds of fines and threats from the government to shut down Apple’s local businesses before Apple complied — over a year later.
To recap: In China, Apple wasn’t breaking any law, yet it issued a deferential apology. In Italy, it actually ran afoul of the law, a year later fixed its policy with no apology. But whether it’s dealing with security problems, iCloud outages, or potential antitrust matters, the latter situation is far more common for Apple than the former.

A new dynamic

The China affair started out in typical fashion for Apple. The company initially responded to the China Central Television report on its iPhone repair policy, saying, “Apple makes outstanding products … and offers incredible user experience. Our team is always making an effort to exceed customers’ expectations.”
Most Western media reporters who cover Apple saw that and thought, “sounds about right:” like a lot of companies, Apple’s typical playbook in these situations involves bland statements that give away nothing. But when the People’s Daily paper couldn’t get an interview with an Apple executive, it proceeded to call Apple “arrogant” and sharpened its attacks.
There’s nothing new or surprising about Apple executives not giving interviews. Its preferred way of interacting with the press is through occasional large, orchestrated media events that are invite-only, carefully crafted statements or background briefings.
And the notion of Apple being called “arrogant” is also nothing new. What is new is the extremely deferent apology. “We express our sincere apologies for any concerns or misunderstandings this gives consumers,” Cook wrote. Compare that to Jobs’ response to so-called Antennagate: “This has been blown so out of proportion that it’s incredible” and “when companies get big, people want to tear them down.”

Tim Cook in January. He has made annual visits to China since becoming CEO. Credit: China's Ministry of Industry and Information Technology

Tim Cook in January. He has made annual visits to China since becoming CEO. Credit: China’s Ministry of Industry and Information Technology

But for foreign companies trying to gain a foothold in the Chinese market, the humble apology is actually something of a standard operating procedure for dealing with dissatisfied customers and a nagging Communist Party-controlled media, as Bloomberg noted. The growth potential of the Chinese market is impossible for companies to ignore; Cook believes it will become Apple’s largest market some day and on recent earnings calls has described it as “a very, very important country to us.”
And the Chinese media clearly also can’t be ignored or asked to wait until Apple is ready to make an announcement — particularly if the outlets are deeply connected to the government that can heavily influence Apple’s fortunes in the country. (China also does not have the kind of grassroots system of support from fan sites and blogs run by the Apple faithful the way it does in the U.S. and other countries.) The situation as it played out this week sets a pretty clear precedent that for Apple to succeed, it’s going to have to get used to this dynamic — and make adjustments.

A complicated relationship

Apple isn’t new to China. The two have plenty of history: it provides millions of jobs to Chinese workers through its partnership with Foxconn and other manufacturing companies. So the company is experienced in dealing with industries and government agencies that are not necessarily independent of the country’s ruling party.
Apple has learned to play the game when it comes to getting new iPhones approved by the nation’s communications authority, getting new carriers to support the iPhone, dealing with the intellectual property laws, getting stores opened, and more. And this is no easy thing to navigate; Apple rival Google has a particularly tortured relationship with China due to a history of censorship and hacking. Apple has also dealt with hacking attacks possibly emanating from the country.
But as Apple moves to make its No. 2 market its No. 1 market, and the populous country’s citizens into customers, the road there is paved with other forces — state-run media, a government potentially treating Apple as a proxy for its disagreements with the U.S. government — that will mean it’s not just business as usual for Apple.
Thumbnail courtesy of Flickr user LJR.MIKE via Compfight cc