What’s so special about Apple (AAPL)? When the company made history Thursday by becoming the first U.S.-listed company to be valued at $1 trillion, people tried to answer that question.
It could be Apple’s innovative technology, high-quality premium products, or the smart business model of building an ecosystem. But what differentiates Apple from other frontrunners in the $1 trillion race could also be — China.
China is not just where Apple manufactures iPhones; the world’s largest smartphone market makes up about one-fifth of Apple’s revenue. While other U.S. tech giants are either blocked (Facebook and Google) or marginalized (Amazon) in China, Apple has managed to establish a strong presence there. During Wednesday’s earnings call, Apple reported a 19% year-over-year growth during the quarter in Greater China, the fourth consecutive quarter that it recorded double-digit growth in that region.
In the first quarter of 2018, iPhones accounted for 13% of China’s smartphone market, according to Counterpoint Research. Though it’s facing challenges from local players like Huawei, which just surpassed Apple in smartphone sales for the first time, the access to the world’s fastest-growing consumer market with 550 million middle class gives a big boost to Apple’s bottom line. Here’s what Apple did to become a household name in China.
Since 2008, Apple has been using omni channels and working with local carriers to bring its phones into the mainstream in China. When other retailers put phones behind locked glass counters, Apple leaves their phones out for display, so consumers can touch and play. Apple now runs more than 40 stores in China and has lined up more openings in inland cities.
Phone is a premium product in the U.S., and even more so in China, where most people’s monthly income can’t afford a $1,000 iPhone X. The image of being high-end and less affordable has made the iPhone even more desirable. Using the latest model of iPhone is usually associated with prestige.
“Chinese consumers are fanatic about aspirational logo driven status symbols,” said Shaun Rein, founder of China Market Research Group, who believes this gives the rise of iPhone as an “affordable luxury product.”
For foreign companies in China, dealing with the local government could be a major ordeal. U.S.-born internet companies usually face pressure from China’s censorship rules.
Apple CEO Tim Cook is in close contact with the Chinese government. He actively attends and speaks at state-hosted conferences.
For Apple, the stakes are particularly high in China. “Even Apple doesn’t sell to Chinese consumers, they’re sourcing products from China. They can’t afford to upset the Chinese government, because if they were to do so, it’s gonna destroy their entire business,” Rein told Yahoo Finance.
“Apple is an example Google wants to follow when it comes to regulatory and lobbying,” said Rein.
