Apple is plotting two research and development centers in China. The designer of consumer electronics cites stronger collaboration with “manufacturing partners” as a reason. That’s probably just a slice out of the real fruit that’s hanging over Apple’s head. Other likely reasons suggest Apple is keener than ever to hold onto its threatened status as a must-have brand for Chinese consumers.
Here are five other reasons Apple is pushing its R&D in China, according to views collected from tech industry analysts.
1. More iPhone sales. Apple once had a market of 25.4% in China, edging out Samsung in late 2014. It now lags local Android-based brands such as Huawei and OPPO, which led market share polls for the first time in June. In the second quarter of this year, Apple shipped 8.6 million smartphones, a 31.7% decline from a year ago. Huawei led with 19.1 million units, market research firm IDC reports. Sales of iPhones went on to fall 33% in the third quarter this year versus the same period of 2015. More R&D in China means access to employees of those local brands, who might defect over to Apple for the right salary package.
2. The image it’s tied to China’s economy. Like other foreign brands, Apple gets accused in China of just wanting to make money and leave. This image issue matters as the nationalistic Chinese find they can make smartphones on their own and need not depend on a foreign brand even if it’s a traditional status symbol. “Foreign companies in the past have been accused of capitalistic carpet bagging in China, so R&D is a good public relations move to show commitment to Chinese consumers,” says Danny Levinson, an early-stage tech investor with Matoka Capital in Beijing.
3. A better idea of what the Chinese user wants. Chinese consumers traditionally look to foreign brands for durability and status. But foreign developers, especially those with a one-size-fits-all model such as the iPhone, easily fail to match other expectations. About half of Chinese digital consumers use an electronic device while watching TV, for example, and “switching between different platforms is becoming more common,” Accenture found in a 2014 report. And because China’s middle class is new and shy, consumers prefer Android models over the iPhone for the price. The Beijing and Shenzhen R&D centers will help Apple grasp these trends by being close to some of China’s top tech firms and universities. Can it develop a $320 iPhone?
4. A lead over Google. Google has a troubled history in China over refusal to censor search results. It shut down its Chinese search engine in 2010 after a hack attack. But Chinese smartphone brands all use its Android operating system and you hear murmurings about the Silicon Valley software icon’s hope to expand R&D if not in China at least near it. That reentry would be a direct threat against Apple. “The first and obvious (concern) is that they do not want Google to be back in China and not them,” says Alicia Garcia, chief Asia Pacific economist with the French investment bank Natixis.
5. Reliable relationships with supplies. Apple’s supply chain depends increasingly on China in addition to its historical sources Japan, Korea and Taiwan. Shenzhen, site of Apple’s second planned Chinese R&D center after Beijing, is bubbling over with companies that can supply or assemble high-tech gear at decent prices. Desay Battery and Sunwoda Electronics provide batteries, for example. Apple has worked as well with BYD, a Shenzhen assembler and component maker. BYD ended up filing a patent lawsuit. Analysts still warn that Chinese companies will steal technology, sometimes for relaunch it as a knockoff brand. It's clear why Apple needs stronger relations with suppliers.
