Why China and Apple Are a Match Made In Hell

Despite Apple's popularity in China, it's time for the company to move its factories out of the country.
Posted February 15, 2012
By

Mike Elgan


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Four years ago, I wrote a column in this space about the incompatibility between Apple and China . And four years later, that observation is proving to be truer than ever.

What do I mean by "incompatible"?

Countries have cultures. And companies have cultures, too. And the cultures of China and Apple are diametrically opposed to each other.

Here's what I mean.

China’s Incompatible Business Culture

In my column four years ago, I pointed out how hard it was for Apple to make a deal with China's two top mobile carriers, China Mobile and China Telecom, to carry the iPhone. At the time, Apple had been unable to reach an agreement with any Chinese carrier.

Since then Apple has signed with a relatively insignificant player in the market, China Unicom. But after five years of trying, the company still can't come to an agreement with giants China Mobile or China Telecom.

With 628 million subscribers, China Mobile is the world's largest carrier by far. Apple is the world's largest mobile handset vendor.

There are an incredible 10 million unauthorized iPhones on the China Mobile system, which have access to only 2G data connection speeds because Apple hasn't built a China Mobile-compatible handset. So demand is very high.

You'd think Apple and China Mobile would be able to overcome their differences in the interest of mutual profiteering. But you’d be wrong.

The problem with a China Mobile deal is that the carrier insists on a cut of Apple's app revenue as a condition for the iPhone to be approved. Apple insists that it not share app revenue with carriers. So after five years of trying, the two companies are simply too incompatible to reach a deal.

China’s Incompatible Legal System

As Apple's actions in the patent wars demonstrate, Apple loves doing business in countries with reliable, independent and fair legal systems. And nobody would describe China's legal system that way.

Rather than being independent, the courts in China are agencies of the Chinese Communist Party, and can be manipulated by Chinese business interests and public opinion to advantage Chinese companies over foreign ones.

Some 12 years ago, a Hong Kong-based company called Proview trademarked the name IPAD for a product idea that was abandoned. The company itself has failed, and was delisted from the Hong Kong stock exchange in 2010.

But before that delisting, Apple purchased the rights to the IPAD name from the company (in 2009) for $55,000. During the negotiations for the rights, Apple concealed its identity so it wouldn't be gouged. And Apple bought the rights to the name in Taiwan, but not in Mainland China.

So Proview saw its chance to cash in, and now wants $1.6 billion from Apple. In order to squeeze Apple, the company has convinced authorities in several cities to send police into stores to confiscate iPads. So merchants are taking iPads off the shelves preemptively. The company is trying to do so in more than a dozen other major cities as well.


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Tags: iPhone, iPad, Apple


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