Tim Cook traveled to China for the third time in as many months to seal a blockbuster deal with China Mobile, the world’s largest mobile carrier. Apple is now available on all of China’s largest cell phone networks, opening up a market of mind-boggling proportions. Cook, in a rare TV interview with the chairman of China mobile, said he was “incredibly optimistic” about Apple’s prospects.
People underestimate how big a deal China will be in the next 10 years. The West still thinks of it as a poor country, but within a decade more than three-quarters of the urban population will be middle class, according to McKinsey. By next year, China will account for about 20 percent, or $27 billion, of global luxury sales, according to another McKinsey report. Whether shopping at home or abroad, Chinese consumers are snapping up pricey cars, jewelry, clothes and watches. This is a tidal shift in an enormous economy. The pundits who say that Apple should be making a low-cost phone to compete with low-cost Android phones have got it wrong. Apple will end up selling every top of the line phone they can make and then some.
There are a few seeming contradictions to these trends. China may be known for its massive commerce of counterfeits, but middle-class consumers there are primed to pay a premium for the genuine article. Apple’s iPhones and other goods have clear status value, and middle-class Chinese consumers will buy them en masse.
Luxury car sales already prove this point: Jaguar sales were up 157% in China in 2013, nearly three times the growth in any other region. Growth is so strong, Jaguar Land Rover is shifting sales from Europe and the US to China, it’s now their primary market. Mercedes and Lexus are selling so many cars in China at a huge markup they’re not even bothering to export them. Even low-end retailers are adjusting their wares to suit these upscale tastes: Wal-Mart is also aggressively expanding in China, where they’re targeting the upper-middle class with suburban stores that require a car to reach and the shelves are stocked with pricey merch.
Japan in the 80s had a reputation for cheap shoddy knock-offs, now it’s the world’s third largest economy. Korea went through the same transition, thanks in large part to Samsung and other global conglomerates. China’s next. But now there’s a difference is scale: Tim Cook’s giddiness is due to the fact that the next decade, China will become a vast middle class economy with hundreds millions of consumers who want Apple’s products.
The essential Apple product will stay the same. I predict that Apple’s response will be much like that iconic American chain, McDonald’s. In addition to clogging arteries with Big Macs and fries from Norway to Lebanon, the local restaurants give a nod to local traditions. In France there are high-end pastries, there’s the Maharaja Mac of lamb or chicken in India and rice burgers in Hong Kong. It’ll be fascinating to see what Apple will offer in the way of “local menu” items in China.
