In China, emerging as one of the world’s superpowers for consumption, the influences of e-commerce, social media, and millennials are only beginning to be felt and must be understood in the context of China’s culture and society. This is evidenced by Apple’s recent $1 billion investment in Didi Chuxing, a ride-sharing company in China, which is being cast as a strategic opportunity to gain deeper insight into the Chinese market.
In a statement Apple CEO Tim Cook said, “Didi exemplifies the innovation taking place in the iOS developer community in China...” More strategic than the Didi Chuxing investment alone, however, is the potential to further tap China, which is the world’s largest smartphone market. China has been Apple’s second biggest market as measured in revenues, but Apple has recently faced greater challenges and competition in China.
Cracking the consumer market in China can be challenging for a variety of reasons, including regulatory. For example, Apple has been among the firms affected by the Chinese regulators’ crackdown on Internet content. In addition, China’s recent regulations reportedly require foreign companies to share more information with the government and restrict some types of business to domestic companies.
Despite the hurdles, given the increases in wages and disposable income, the potential is huge in China, with its population of 1.375 billion people. China is already the world’s second biggest consumer and may be poised to overtake the U.S. as the top market inconsumer technology products in terms of money spent.
Given that potential, it’s little wonder why Apple CEO’s visit to China has been called a “charm offensive,” part of a strategy to win over Chinese regulators—while also giving investors confidence that China still presents growth opportunities for the company. TheiPhone 6, for example, has proven tremendously popular in China.
Western companies cannot assume, however, that what they know about consumers in their own markets will automatically translate into China. The Walt Disney Company learned that lesson with disappointments in Disney Hong Kong. Not recognizing that every child from mainland China going to Disney Hong Kong typically would be accompanied by two parents, four grandparents (4-2-1 family structure), and friends of the family, for example, was a serious oversight that led to customer dissatisfaction and revenue loss.
As panelists at the recent Emerging Markets Conference sponsored by Northwestern University’s Kellogg School of Management advised, companies must understand the uniqueness of China—particularly the 4-2-1 family structure, the rise of e-commerce, social media, and affluent millennials—before launching into any strategic move. In e-commerce, for example, China’s estimated 550 million online shoppers exceed the entire population of the U.S. by about 250 million people. “It is the biggest consumer opportunity of this decade,” Michael Zakkour, vice president, China/Asia Pacific for Tompkins International and author of China’s Super Consumers, told the conference audience.
Apple’s commitment to the Chinese market can even be seen in its apps. For example, concurrent with Cook’s visit to China, Apple announced its GarageBand app, which allows users to create music or podcasts, now “celebrates the rich history of Chinese music with new instruments and extensive Chinese language localization.” Apple said the GarageBand repertoire has expanded to traditional Chinese instruments (pipa, erhu, and Chinese percussion) along with 300 Apple-created Chinese musical loops for GarageBand users to incorporate into their creations. In addition, GarageBand’s sharing options are compatible to QQ, an Internet-based instant messaging service in China, andYouKu, a highly popular video-hosting site in China—another nod to Apple’s overture to China social media users.
Social media in China is politically complex. Jeff Weiner, CEO of professional networking site LinkedIn, recently described launching a Chinese-language version as involving “compromises that are far from ideal and can be very painful,” in order to comply with the wishes of the Chinese government. At the same time, China’s government-controlled media has been using Western social media—Facebook, Twitter, and YouTube—to tell China’s story to a foreign audience. Facebook, however, remains blocked inside China, although founder and CEO Mark Zuckerberg has been courting Beijing to gain entry to the market.
Social media is growing in importance to as means to influence Chinese consumers, as demonstrated in a recent study by my colleague Song Yao of Kellogg School of Management and researchers from Stanford University and Hong Kong University of Science and Technology. When the Chinese government temporarily blocked microblogging, the researchers observed a significant drop in television viewership.
China’s most popular microblogging site is Sina Weibo, providing a glimpse into social media and consumer behavior particularly among Chinese millennials who come from upper-middle-class and wealthy families. (The panelists cautioned that China has numerous distinct market clusters, and grouping people by age ignores sharp distinctions between those who live in rural villages, university students in Shanghai, and those who come from three generations of wealth.)
For Apple, like other Western companies, gaining—and keeping—a foothold in the Chinese market is the gateway to growth among a burgeoning consumer class. As Apple has shown this means offering products that not only have universal appeal (such as the iPhone 6), but with features uniquely positioned for this market.
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