For a company of its size, Apple (Nasdaq: AAPL) has been surprisingly conservative about its investments in China, opening just a few of its trademark stores in a country that is already one of its top global markets but otherwise making few major investments. But that could soon change with talk that the world’s biggest tech company is aiming to open a research and development center in China, which has become an unspoken prerequisite for any company that hopes to successfully do big business in the country. Apple clearly needs to think about such high-profile, big investments in China if it ever wants to streamline some of the bureaucracy that has kept some of its most popular products out of the market for months after their global launches.
Those facts were on display with the latest news bits, which have media reporting that Apple plans to open a Chinese R&D center, even as the company has just announced that cellular versions of its latest iPads are finally coming to China months after their global debuts. According to the reports, Apple’s CEO Tim Cook discussed setting up the new R&D center, which would be in Beijing, during his trip to the Chinese capital last week. (Chinese article)
During that trip, one of Cook’s first stops was a low-key visit to the telecoms regulator, the Ministry of Industry and Information Technology (MIIT), which I speculated was the centerpiece of his trip. (previous post) The MIIT has emerged as Apple’s biggest nemesis in China in the lasat 2 years, requiring numerous testing and other bureaucratic procedures before the launch of any new products that use the nation’s mobile networks.
As a result, Apple’s newest iPhones and iPads usually launch in China anywhere from 2 to 3 months after their global debuts. That results in millions of dollars in lost sales for Apple, since much of the buzz surrounding the company’s newest products is usually gone by the time of their China launches.
Anyone who has been in China long enough knows that central leaders and regulators in Beijing love it when foreign companies invest in China, usually by building state-of-the-art factories and big R&D centers that can train thousands of young Chinese to design and build globally competitive high-tech products. Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC) are both great examples, with each opening extensive networks of R&D centers throughout the country, and Intel also building 3 major manufacturing facilities.
Such investment is often considered part of the price of doing business in China, even though there’s no such official quid-pro-quo policy from Beijing. This latest news indicates that Cook is finally waking up to the reality of this unspoken policy, and we’ll undoubtedly see Apple’s new R&D center make big headlines and attract global attention when it finally gets officially announced. We could also see Apple announce some other major initiatives to boost its China investment, including perhaps an acceleration of new store openings.
In fact, Apple is already a major investor in China through its use of third-party contract manufacturers such as Taiwan’s Hon Hai (Taipei: 2317), which manufacture many of Apple’s products at their China-based factories. But Apple needs to raise its profile more in the country through this kind of directly-invested R&D center, showing it is willing to put more of its own money into higher value-added investments.
Meantime, it’s worth noting that Apple has just announced that wi-fi and cellular versions of its latest iPad and smaller iPad Mini will also be available in China this Friday. (company announcement) Apple made no secret of the fact that the latest iPads are coming late to China, noting that both products are already available in 100 markets globally. Perhaps Cook’s growing ties with the MIIT, combined with this new R&D center, could mean that China may finally find its way onto Apple’s global launch map, paving the way for its next iPhones and iPads to debut in China at the same time as the rest of the world.
Bottom line: Apple’s plans to open a Beijing R&D center reflect its realization that it needs to boost its China investment if it hopes to expedite its China product launches.
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