Apple probably never thought it would face its stiffest challenge in China, the country from where it assembles iPhones, iPads and their accessories.
One of the myths about China that has largely exploded in recent years is its upstream proficiency in producing hi-tech exports. As the world’s largest producer of hi-tech exports, the Chinese industry had acquired the reputation of being broad-based and technologically balanced. Barbie dolls, stuffed toys, alarm clocks, leather shoe-uppers and other consumer non-durables apart, it was taken to be equally proficient in producing finished electronic and computer hardware. Research on supply chains has revealed China’s contribution to manufacturing hi-tech items to be essentially at the downstream processing end. Large chunks of semi-conductor and electronic intermediates imported from the neighbourhood are efficiently processed by disciplined cheap labour in numerous Chinese SMEs. These final products are recorded at the point of shipment as hi-tech items by the Chinese customs.
While the role of processing, as the major contributor to manufacturing of hi-tech items by China might have been unknown to many, global electronic brands were always aware of this particular characteristic of the Chinese economy. And they lost no chance of exploiting it to the hilt. Apple is one of the biggest examples.
It is widely known that parts and components of Apple iPhones and iPads, along with their accessories, are sourced extensively from the region for final assembling in China. This low-value added operation supervised by the Apple’s electronic and design manufacturing Taiwanese contractor Foxconn (who also coordinates similar sourcing and assembling functions for Blackberry, Kindle and Playstation) has been a key determinant of Apple’s ability to supply large volumes. The role of China and its assembling skills in the Apple’s success, therefore, is undisputed.
From being a key player in the growth of Apple, China is now increasingly turning to being a major competitor. Nothing reflects this better than the startling growth of the Chinese smartphone manufacturer Xiaomi. It is hardly surprising that Xiaomi has already acquired giant-killing reputation by being labeled the ‘iPhone killer’ and ‘Apple of China’.
Xiaomi’s success is due to a couple of basics. Apple products don’t come cheap and target the high end of the market. In India, for example, the tax-inclusive retail prices of the latest range of iPhones would be at least $600. For a market where several other smartphones are available within the price band of $225-300, Apple’s pricing strategy is clearly off.
