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Was It Necessary for Apple to Kowtow to China?


Nokia, Nestle, and Disney also make the news.

China Watch: Top Business News From the World's Second Largest Economy

After a two-week barrage of criticism from the state-owned Chinese media, Apple (NASDAQ:APPL) has issued an official apology to its customers in China.

In March, Apple had been slammed first by the state-owned CCTV television station. On a corporate exposé program, called 3.15, CCTV alleged that Apple's warranty policies were discriminatory towards Chinese customers. Then, the state-run People's Daily newspaper published a front-page story slamming Apple's arrogance.

It seems the criticism has finally gotten to Apple, because CEO Tim Cook issued a public apology earlier this week, in which he said his company would change its policies for repairing faulty iPhones in China.
Over the past two weeks, we have received a lot of feedback about Apple's repair and warranty policy in China. We have made a profound reflection on these opinions, studied China's "Three Guarantees" regulations together with government authorities, examined how we communicate about our repair policy, and checked our management practice for Apple's authorized service providers. We are aware that insufficient communications during this process has led to the perception that Apple is arrogant and disregards, or pays little attention to, consumer feedback. We express our sincere apologies for any concern or misunderstanding arising therefrom.

Apple's apology assuaged Chinese critics, with China's foreign ministry praising the company for acknowledging its mistakes.

"[Apple's] apology letter has eased the situation, softening the tense relationship between Apple and the Chinese market ... Its reaction is worth respect compared with other American companies," wrote the state-owned Global Times in an editorial, according to Reuters.

But some analysts believe that Apple made a mistake in apologizing to the Chinese media, especially because many Chinese netizens had expressed skepticism about the state-run media's attacks on Apple.

(See also: Is the Chinese State Media Out to Knock Apple Down?)

"After the criticism started taking place, my firm went out and interviewed about 30 Chinese consumers. The vast majority of them said 'why is the media attacking Apple? Apple is known for great service,'" Shaun Rein, managing director and founder of China Market Research Group, told Bloomberg. "The consumers are saying the media should be attacking, say the pigs in the river, which is really disgusting."

An Apple store in China. Source:
"The problem with Apple apologizing is that it gives credibility to the state media attacks. We've gone out and interviewed consumers and they say 'wait a minute. We supported Apple, but now they're apologizing. Maybe there is something to all the criticisms by the state media," Rein added.

Tim Cook's decision to apologize was likely made after calculating the importance of the Chinese market to Apple. The Greater China region alone accounted for 13% of Apple's sales in 2012, and with the iPhone 5 now compatible with China Mobile's (NYSE:CHL) networks, Apple is close to working out a carriage deal with the world's largest wireless carrier. A China Mobile deal would enable Apple to regain lost market share against the likes of Samsung (PINK:SSNLF) and domestic rivals Lenovo (PINK:LNVGY) and ZTE (SHE:000063).

Given that China Mobile is also state-owned, Apple probably decided to err on the side of caution to ensure that there will not be any snafus with the planned carriage deal.

Here is the week's other business news from China:

Nokia Closes Flagship China Store

Nokia (NYSE:NOK) suffered a symbolic setback in its bid to regain lost market share in China, as it announced the shuttering of its flagship store in Shanghai, which opened less than six years ago.

"Nokia is focusing on growing its presence in operator and third-party retail outlets, rather than through our own physical stores. We are, of course, also continuously beefing up our online presence. With this in mind, our store in Shanghai was closed on 31 March," Nokia spokesperson Brett Young told ZDNet.

With the decline in sales of its traditional Symbian phone line, Nokia's Greater China revenue slid 79% year-on-year to $280.7 million in the fourth quarter. The company is hoping that a deal signed late last year for China Mobile to carry its flagship Windows Phone 8 (NASDAQ:MSFT) device, the Lumia 920T, will turn its fortunes around.

In contrast with Nokia, Apple has steadily expanded its retail presence in China. The Cupertino, California-based company now has eight retail stores in China.

Nestle to Nurture Coffee Culture in China

Global food giant Nestlé (PINK:NSRGY) is the latest multinational with plans to turn tea-loving China into a nation of coffee drinkers. The Swiss company is spending some 100 million yuan ($16 million) to build a new coffee warehouse, quality-testing laboratories and a coffee farming institute in the town of Pu'er in China's southwestern Yunnan province.

At the farming institute, coffee-growing training will be provided to 5,000 farmers, who are traditionally more used to growing tea. Nestlé' aims to transform Pu'er into the coffee capital of China, with a focus on producing the higher quality arabica coffee bean.

Though China still has yet to develop a strong coffee culture, sales are climbing fast. Starbucks (NASDAQ:SBUX), which currently has over 800 stores in the mainland, said China will become its second-biggest market behind the US by 2014, surpassing Canada, Japan, and the UK.

Nestlé' did not reveal details about its sales in China, but Heiko Schipper, managing director of Nestle's greater China food and beverage division, said that getting Chinese customers to buy more coffee is a vital part of its growth strategy in China.

China to Get Different Cut of Disney's Upcoming Iron Man 3

With the growing strength of the Chinese box office, there has been a corresponding increase of Chinese influence in Hollywood movies. Most notably, the action movie Red Dawn had its villain changed from Chinese to North Koreans after the state-owned Chinese press sharply criticized the movie.

For big-budget blockbusters, it's even more important to get box office support in China, which is perhaps why Disney (NYSE:DIS) plans to screen a different cut of the upcoming Iron Man 3 there. Movie lovers in the mainland will get to see bonus footage featuring a leading Chinese actress, reported Deadline.

The Chinese version of the film will also feature a special appearance of China's top actress, Fan Bingbing, and will offer specially prepared bonus footage made exclusively for the Chinese audience. Marvel Studios' experience working on this film with Fan Bingbing and Wang Xueqi and in shooting in China has been very positive and has created a springboard for future collaboration with China's talented stars and its growing film and television industry.

With China now the second-biggest box office market in the world and predicted to overtake the US in the next 10 years, expect many more of such customized movies in the years to come.

(See also: The Rise of China's Box Office Market and Its Implications for Hollywood)

Twitter: @sterlingwong
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