We’re not trained to associate China with innovation. Just 10 years ago everyone equated the giant get-rich-quick country with scams to sell shoddy, fake goods at prices equal to the real things. Then the DVD you bought there would get stuck or the tablet PC would freeze. But China has jumped so far ahead that the world’s paragon of consumer tech innovation Apple has picked it for a second research and development center next year. The center will open in the southern city Shenzhen, a wealth of IT talent that Apple could hire or sound out for new product ideas.
We might also associate China with low-cost manufacturing. But although salaries of the undisclosed number of Shenzhen R&D center employees will probably cost less than peers in Apple’s Silicon Valley headquarters, Apple isn’t necessarily going there to save money.
Apple’s second China R&D center, after a $45 million first in Beijing, will help the American firm vie in the world’s biggest smartphone market by keeping up with its talent. Shenzhen, a megalopolis just north of Hong Kong, is home to Apple’s smartphone-developer rivals Huawei and ZTE. Flagship Internet content firm Tencent Holdings is there too. Some Shenzhen companies already work with Apple to make its gear.
“They do not want to miss innovation coming from China,” says Alicia Garcia Herrero, chief Asia Pacific economist with the French investment bank Natixis. “Innovation is a question of getting closer to the consumers’ mindset and taste. Process and design innovation, more generally, are in this category.”
Or as Apple CEO Tim Cook was quoted saying when in Shenzhen Oct. 11, the Chinese city comes with a “skill level” that is “gradually leading other parts of the world.” Tencent might inspire Apple’s app developers with its ever-hip Wechat mobile messaging service and online payment schemes.
“We are excited to be opening a new Research and Development center (in Shenzhen) next year so our engineering team can work even more closely and collaboratively with our manufacturing partners,” Apple says in a statement, adding that it employs 200,000 people in the city now. “The Shenzhen center, along with the Beijing center, is also aimed at strengthening relationships with local partners and universities as we work to support talent development across the country.”
It just so happens that iPhone sales fell another 33% in greater China – Taiwan, Hong Kong and the big China we’re talking about – in the third quarter this year over the same period of 2015 largely because Chinese are gravitating toward locally designed (and invariably cheaper) Android phones. Apple might learn from its Shenzhen contacts how to bring prices down to Huawei and ZTE levels.
Its R&D center would at least ease criticism among Chinese that it’s a foreign carpetbagger looking to the giant market for profits without giving a lot back, analysts say.
“Foreign tech companies often face criticism in China for earning handsome profits from Chinese consumers, but not making sufficient efforts to contribute to the country's development,” says Mark Natkin, managing director with market research firm Marbridge Consulting in Beijing.
“It is an argument that is designed to pressure such firms into moving more of their R&D or making available more of their technology to China," Natkin says. "Companies that ignore this message may encounter many more obstacles to smooth operations in China than those that take the hint.”
