Chinese propaganda campaign could sap $13 billion in sales from Apple

Chinese propaganda campaign could sap 3 billion in sales from Apple

Since the middle of last month, the government of China has been engaged in a propaganda campaign against Apple, starting with an attack on Apple's warranty practices. Reports from state-run media outlets, including China Central Television and newspaper People's Daily, alleged that Apple's warranty and repair policies in China were unfair in comparison to other country's. Apple CEO Tim Cook issued an apology to Chinese customers and pledged that Apple's staff in China would be better trained on warranty issues.

The long-term results of what has so far been three weeks of consistent state-driven propaganda assaults haven't yet surfaced. If we let history serve as a guide, there are plenty of examples of Chinese state campaigns against foreign companies severely impacting their bottom lines in the People's Republic. Citigroup analyst Glen Yeung points out that similar allegations against Toshiba in 1999 pulled down the company's notebook sales in China down far enough that they lost their top spot in the sales charts.

In December of last year, Yum Brands - the company that owns KFC, Pizza Hut, and Taco Bell - was the target of the Chinese government. Yum operates around five thousand KFC outlets in China. Government reports alleged that chemical residues were detected in limited quantities in a small portion of KFC's chicken supply. While the government never formally fined or punished Yum, the company's sales in the first two months of this year were down 25% over the year prior.

The most damning example cited by Yeung, however, is that of HP in 2010. Following issues with faulty Nvidia GPUs, state-controlled media in China engaged in a coordinated campaign against HP, accusing the US-based tech giant of not offering the same extended warranty in China on Nvidia-toting laptops as they did for US customers. The same line of faulty chips was dispersed across many manufacturers, including Apple's MacBook Pro line. In a single quarter, HP's marketshare in China collapsed by fifty percent, knocking the company from the number two position in China to third place behind Dell. Unsurprisingly, local manufacturer Lenovo claims the top of the sales totem pole with nearly a third of PC sales in the Chinese market. Late last year, Lenovo overtook HP for the number one sales position globally.

So, why the state-coordinated assault on Apple? While the government will never comment on such matters, the nationalist attitude of the Chinese government is all the reasoning we need. Like any nation, the Chinese government would prefer to see homegrown companies flourish locally, if not globally. Unlike most developed nations, however, the Chinese government isn't afraid to be overt in steering public goodwill away from foreign companies like Toshiba, KFC, HP, and Apple. While Apple's manufacturing contracts with Foxconn have brought billions upon billions of dollars into China, the recent emergence of Apple as a consumer electronics force with which to be reckoned in the Chinese market has clearly proven worrisome to the government.

Chinese consumers have long clamored for Apple products, coveting the brand cachet that comes with owning a MacBook or iPhone or iPad. So voracious has the demand for Apple products in China been that Cook as recently as a few months ago believed that China might in the next few years become Apple's largest market. Apple has experienced incredible growth in China, with nearly a quarter of their revenue growth over the past two years coming from there. Apple's growing strength in China is a threat to Chinese companies like Lenovo and ZTE, hence the overblown warranty controversy that has consumed headlines in China.

Yeung points to HP's collapsed marketshare in China as a worst-case scenario for Apple. Sixteen percent of Apple's sales currently come from China. Yeung estimates that if similar damage were dealt to Apple's marketshare it could conceivably sap more than $13 billion from Apple's revenue over the next year. In the last quarter of 2012, Apple brought in a record $54 billion of revenue.

It's hard to judge just how successful the Chinese propaganda campaign against Apple will be in the end. Before their falls from grace, neither Toshiba nor HP enjoyed the same level of extreme consumer demand as Apple does today. While a public apology from a high profile CEO like Tim Cook is evidence that Apple too fears the backlash that might come from this campaign, Apple's brand power is likely strong enough to persist through the resolution of this campaign, especially with Apple taking steps to address the legitimate concerns raised. If Apple does come through relatively unscathed as we expect, it'll only be a matter of time before the next state media trains its sights again on Cupertino.

Source: CNN Money

Derek Kessler

Managing Editor of Mobile Nations, Army musician, armchair pundit, and professional ranter.

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There are 19 comments. Add yours.

Premium1 says:

Don't mess with the Chinese

shinuyuki says:

While I hate the fact that China was treated differently, I seriously cannot foresee this costing Apple $13B in sales. While I'm not naive enough to think this won't cost Apple a shiny penny. Maybe $1-2B overall; however, $13B seems like a stretch. Then again, I'm no analyst.

My 2 cents.

mhemmes says:

So you do believe that the China is treated differently, in terms of Apples warranty practices?

shinuyuki says:

Well..maybe. It could be the employees on China's end, or it could be on Apples end. Either way, their repair policy was either different or was ignored. Then again, you should never blindly trust any news outlet. Always try to do your own research. Either way, something is up.

iSRS says:

We are in uncharted territory. A communist nation with this much world influence and control over a global economy. Will be an interesting ride and see how this plays out and if it, ultimately, backfired on them.

uwatto says:

Apple should pull out of china and build their products in America, might shut the bastards up

rustymini says:

communism vs. capitalism. It's a balancing act for China......Somethings got to give. like you say......see how things play out.

JoeyW says:

and you think China is leaning towards which? It's a genuine question, our news outlets/education tends to skip around this topic and hope we don't ask for more information.

mulasien says:

What's truly depressing in this scenario is not China's actions to help boost their national business at the expense of their foreign competitors, but how utterly spineless our own government (U.S.) is in doing the same. As much trade as we do with them, China serves China's interests first and foremost. If we don't adopt the same approach, we're soon going to be playing second fiddle to a nation that is definitely *not* our good friends, economic ties notwithstanding.

JoeyW says:

The title for this particular article is pretty ignorant. The author is doing the exact same thing what it is accusing China of doing. Fear mongering on the internet blog no longer works like it used to and not treating your readers as a intelligence equivalent to use multiple sources of news outlets is amusing. But hey, its your ad revenue. Good thing the rest of the mobile nation sister sites don't have this attitude.

Nathan Grey says:

How is the title ignorant? China does enact propaganda campaigns to further local businesses. I would like to see Apple pull their manufacturing out of China. I doubt it would happen.

MacIntense says:

I am not surprised that China would do something like this. I would say to Apple hey start manufacturing in the United States or move to another low cost labor country. Take it away from the Chinese. Apple is powerful enough that most nations would welcome the training and expertise that Apple could bring to their country.

ChrisFricke says:

...or they could just weather this minor storm and ultimately sell millions of devices to Chinese consumers while enjoying the cheap labor and lax regulations that foreign manufacturing offers. Win Win!

Though I seem to remember that there was an announcement of some kind during the presidential election stuff that Apple was going to do more manufacturing in the US at some point. Not that they'll slow down in China but still...

asuperstarr says:

Wow its unfortunate that companies are having to deal with this kind of politics. I hope apple is able to overcome this situation and it doesn't end up hurting the customer.

thatguykc says:

Communism works on paper until you introduce fallible human beings w/ a natural bent toward self-serving behavior. You'd think the state-run media would go out of business because no one watches it.

PassOutPete says:

This should be an eye-opener as to why Apple needs to start producing and manufacturing their products stateside! The bootleg copycat devices would stop, leaked images would stop and somehow someway, I'm sure Apple would still make on profit around the world.

Vanti says:

Well to try and take a positive from this at least china is supporting their own people and businesses. Granted it may be unjust and downright outrageous but if say all major markets where to adopt this approach, then truly only the best products would rise where as the others would fall. Or maybe just the opposite would happen and products would sell according to their region.

fightcrazy says:

The question is very simple, does Apple treat China any different than any other Country as far as their product guarantees are concerned? If they do then change it and get it done fast. The kind of sales that Apple is doing in China is nuts. Why bite the hand that feeds you?? Apple should fix the problem and the other problem should fix itself.