This is Part 3 of a 9-part essay series on Apple’s Success in China. Part 1 introduces the essay series. Part 2 explains Apple’s product-zeitgeist fit in China. Part 3 looks at product localization. Part 4 looks at Apple’s services in China and relationship with Tencent. Part 5 looks at the complexities of operating in China. Part 6 and Part 7 look at Apple’s compliance efforts in respect of the App Store and iCloud respectively. Part 8 looks at Apple’s investment in DiDi. Part 9 concludes with lessons from Apple’s experience in China.
Apple’s Product Strategy
Before discussing Apple’s product localization for the Chinese market, it is worthwhile to discuss Apple’s product strategy in general. Apple’s product strategy has three key features:
- Owning and controlling the primary technologies behind its products
- Obsession over the user experience
- Tightly focused product portfolio
These three features are mutually reinforcing. These points are not novel and will be covered briefly.
Apple’s desire to own and control the primary technologies behind its products is manifested in its proprietary operating systems (iOS, macOS), in-house chip development (notably the A-series chips powering the iPhone), provision of key apps and so on. This vertically integrated business model allows Apple to provide a better user experience, as Steve Jobs explained in an interview:
“The reason is, is because you can’t do what you can do at Apple anywhere else. The engineering is long gone in most PC companies. In the consumer electronics companies, they don’t understand the software parts of it. And so you really can’t make the products that you can make at Apple anywhere else right now. Apple’s the only company that has everything under one roof. There’s no other company that could make a MacBook Air and the reason is that not only do we control the hardware, but we control the operating system. And it is the intimate interaction between the operating system and the hardware that allows us to do that.
Our DNA is as a consumer company—for that individual customer who’s voting thumbs up or thumbs down. That’s who we think about. And we think that our job is to take responsibility for the complete user experience. And if it’s not up to par, it’s our fault, plain and simple.”
It is this same level of control that allows integration across different Apple products, an ecosystem that originally included Mac and iPod/iPhone but has now expanded to include iPad, Apple Watch, AirPods, HomePod, and so on. Nonetheless, for one of the world’s most valuable companies, Apple’s product portfolio is relatively small. At a strategic level, this is because of Apple’s insistence on only making products which are significantly differentiated from what other companies can do.
This focus is instantiated in Apple’s organizational structure. Unlike other large companies, which typically adopt a divisional structure based on product groups or geographies each with its own profit-and-loss (P&L) statements, Apple is organized functionally.1 Employees are hired to perform a well-defined role, rather than “to have skills that check some all-star management box” and only the CFO “owned” a P&L and “one graphic arts team chooses images for the entire company”.
Under such a structure, the job of coordination across different functions falls upon the executive team (known as “ET” within Apple), consisting of “the CEO, the heads of product marketing, hardware and software engineering, operations, retail stores, Internet services, and design— all of whom directly have a hand in Apple’s products—and the heads of finance and legal”.2
Given such a product strategy and organizational structure, it is in Apple’s DNA to create the same products for the entire world with minimal localization and in accordance with the tastes of Apple’s designers and engineers who are almost entirely in the US. A further, more prosaic, reason against tailoring hardware features for specific markets is because of Apple’s desire to “standardize as much of its designs as possible to make manufacturing efficient”.
Nonetheless, this lack of localization did not inhibit Apple’s initial success in China. As China became a more significant part of Apple’s revenues, Apple implemented more China-specific product features. However, I argue that these product features are minimal and did not really move the needle.
In line with Apple’s general product strategy, Apple largely provides the same software experience to Chinese users.
For example, the layout of Apple’s mainland Chinese website is consistent with its English-language website, instead of following the more “cluttered” philosophy of Chinese website design. Chinese versions of iOS and macOS are also largely the same.
In the course of my research, I compiled the following non-exhaustive list of China-specific software localization:
1. iOS 6 (2012):
- OS-level integration with Chinese Internet services (Baidu, Weibo, Youku, Tudou): This allowed Chinese iPhone users who sign into Chinese social networking services to more easily share content using an operating system-level user interface. Also, Baidu was made the default search engine for searches carried out using the default Safari browser. Such China-specific localization is required in part because of the parallel Chinese ecosystem of Internet services.
- Support for Chinese languages (Mandarin, Cantonese, Hokkien) on Siri.
2. iOS 7 (2013):
- Support for T9 Chinese input Additional Chinese input method to cater method.
3. iOS 10 (2016):
- OS-level integration with Chinese Internet services (Meituan Dianping, DiDi etc.). These were generally the second generation of Chinese Internet services that arose in the wake of mobile computing.
4. iOS 11 (2017):
- Support for using phone number as Apple ID instead of email addresses: because many Chinese Internet users leapfrogged the PC and email to use smartphones and instant messaging as their primary computing device, many do not use email regularly. Such support was long overdue as it was only added in 2017.
- Support for scanning QR codes in the default Camera app: notwithstanding the PR effort to cast this as localization for the Chinese market, by 2017, Chinese users who are used to scanning QR codes with specific apps and hence such system-level support is probably not consequential. This feature is likely aimed at other markets that might see greater QR code usage going forward.
As should be obvious, Apple’s various software localizations for the Chinese market are more incremental improvements rather than market-defining features. To explain Apple’s success in China, we must look elsewhere.
This section will discuss two examples of Apple catering its product strategy to the Chinese market. The first example—the color Apple uses in the industrial design of its products—is an example of Chinese preferences impacting Apple’s product strategy more generally.3 The second example—beginning in 2018, Apple sold China-specific iPhones withl two nano-SIM cards, instead of the Dual SIM with an eSIM version sold in the rest of the world—is an example of a China-specific product strategy.
Tim Cook acknowledged in an interview that that the Chinese market played an significant role in Apple’s product designs and pointed to the gold version of the iPhone as an example.
Since as early as the iPhone 3GS in 2009, Apple has adopted the “S” strategy. To wit, the industrial design of the iPhone is updated every other year and in the years when the industrial design remains unchanged, the iPhone sees improvements in terms of software, camera, and other internal components. However, an unchanged industrial design would diminish the signalling value of iPhone as a luxury item, as it becomes harder to visually conclude whether a specific iPhone is the latest and greatest or from the previous generation.
To combat this signalling problem, beginning with the iPhone 5S, Apple has ensured that each “S” generation of iPhone has a unique color that differentiates it from the previous generation (underlined in the table below).
This has proved successful highly successful, such as in the Chinese market, where the gold version of the iPhone 5S sold out most quickly and earned the moniker of tuhaojin 土豪金 in China. This same phenomenon occurred with the rose gold version of the iPhone 6S and the gold Apple Watch Edition, which sold out within its first hour in China (Hein, 2015). (This strategy was less successful in 2018, by which time the smartphone market in China has become saturated.)
At this point, it is worth noting that Apple has a significantly weaker lock-in in China compared to other countries, thus consumers switch away from the iPhone more easily and are more sensitive to the iPhone’s industrial design. This is in part caused by Apple’s services being less popular compared to cross-platform Chinese Internet services (most notably WeChat), a dynamic that will be explored in more detail in Part 4.
It was not until 2018 that Apple announced China-specific iPhones. Specifically, the newer iPhones from 2018 onwards sold in China mainland, Hong Kong, and Macao (but not Taiwan) feature Dual SIM with two nano-SIM cards, instead of the Dual SIM with an eSIM version sold in the rest of the world. 4
Apple chose not to disclose its rationale for this differentiated design. Despite my best research, I was unable to find a convincing explanation for this differentiated design.
Western reports strongly suggest that this is a compromise Apple made at the request of the Chinese carriers. It is easy to understand why Apple, which is significantly more resistant to pressure by carriers compared to other smartphone manufacturers, is hesitant of doing the same against the three state-owned carriers in China. However, it is not clear what exactly the interest motivating the Chinese carriers is. At the time of writing, eSIM has still yet to be widely adopted. But in a future where eSIMs are widely used, users will be able to change carriers much more easily, thus potentially spurring price competition and reducing differentiation among network providers. According to James Yan, an analyst with Counterpoint Research, this is “a situation that Chinese carriers do not want to see”. Similar behavior is seen in the US, where the he US Department of Justice began investigating AT&T, Verizon, and the GSMA mobile industry group for possibly colluding to keep users from switching to eSIM devices.
However, this explanation is unsatisfactory. Considering that the China-specific phones still support two physical SIM cards and that there are only three carriers in China, it is not clear that the alternative reduces price competition significantly. In fact, in the short run, the lack of eSIM support in China means the two-nano-SIM model might result in greater competition instead. Furthermore, the three carriers are state-owned and trace their origins to an earlier policy decision to consolidate several Chinese carriers. Thus, the Chinese government has previously demonstrated ability and willingness to intervene to restrain zero- sum price competition among the carriers. eSIM is currently the only way to provide cellular connection to wearables (e.g. Apple Watch). I have also verified that Chinese carriers do indeed support eSIM.
An alternative explanation is that dual SIM cards cater to the demand of Chinese smartphone users. Chinese consumers have long hoped for dual SIM functionality, a feature common in Android phones. According to IDC Mobile Phone Tracker conducted in 2018 Q2, 90% of smartphones in China are dual-SIM. (The equivalent figure is 98% in India, 92% in the Philippines, 77% in Indonesia, 29% in the UK and 4% in the US.) According to this explanation, Apple is thus trying to match the features provided by Android phones in China. However, this does not explain why Apple is unwilling to do the same in other comparable markets or why these changes were extended to the Hong Kong and Macau markets. Furthermore, Chinese demand for dual SIM functionality has diminished in recent years, as Chinese carriers, at the behest of the government, have abolished policies like “internal roaming” that might incentivize a regular Chinese user to have two SIM cards.
As such, while this is a clear example of hardware differentiation tailored for the Chinese market, Apple’s rationale for doing so is quite unclear.
I would argue that the explanation almost certainly involves compromising to Chinese carriers instead of catering to Chinese consumers. Such compromise is not new. iPhones manufactured for the mainland Chinese market only support one-to- one FaceTime video calls. Apple has disabled FaceTime Audio and Group FaceTime at a firmware level, a restriction that cannot be bypassed with inserting a different SIM card or changing the geography on the Apple ID. (Similar restrictions apply to phones sold in the UAE.) I was unable to find an official explanation for this, but informed speculation suggests that these features were removed to appease the state-owned Chinese carriers, whose revenues from texting and voice call services have already been significantly eroded by messaging apps like WeChat.
Another such similar example is the Chinese Ministry of Industry and Information Technology’s regulation in 2018 to curtail the use of CallKit functionality in China. CallKit was a framework introduced in iOS 10 to allow VoIP app integrate tightly with the native Phone UI, such as:
- Having incoming calls via VoIP apps displayed fully on the lock screen.
- Using VoIP apps when making calls from the native Phone app’s contacts, favorites, and recents.
- Integrations with other active calls, CarPlay, Bluetooth accessories and so on.
The reason for curtailing CallKit is unclear. The article linked above suggests that the Chinese government is motivated by VoIP services that might bypass the Great Firewall or otherwise diminish surveillance measures. However, in theory, it certainly seems possible to regulate or remove VoIP apps that contravene Chinese laws and regulations, while allowing CallKit.
As such, I believe protectionism in favor of Chinese telcos, a la the FaceTime audio example, is the real reason. After WeChat removed CallKit functionality for users who registered a Chinese phone number, voice calls through WeChat no longer show up on the lock-screen (and thus can be easily missed) and are abruptly disconnected when a CallKit-enabled call comes in. Thus, at least in this dimension, the experience of calling via actual phone calls is superior to a WeChat call.
Interestingly, after I left China and registered a non-Chinese number, CallKit functionality on my WeChat calls became enabled.5
Update (13 June 2020):
I have found further evidence supporting the view that the China-specific iPhones do not have eSIM because of regulatory, rather than consumer-driven, considerations.
It appears that Apple’s eSIM troubles in China date back to 2017, when it introduced the Apple Watch Series 3 with LTE via eSIM. For context, China regulates SIM cards and Internet access much more seriously than most countries. Purchasing a new SIM card must be done in person, with identifying documents in tow. Recent news suggest one must undergo facial recognition scans. 6
It is thus unsurprising that eSIM poses a regulatory challenge. According to Valentina Palladino of Ars Technica, “[s]ince the eSIMs in Apple Watches aren’t given out by the Chinese government, it likely doesn’t know how to regulate the eSIMs yet, nor does it know how to validate the identity of the Apple Watch user.” This is thus the likely explanation for why the China-specific version of iPhones use dual SIM instead of eSIM.
Whatever regulatory hurdle that existed in 2017 seems to have been gradually overcome. Chinese telcos now offer eSIM services for wearables like the Apple Watch (albeit in only a few cities, rather than nationwide), though eSIM for smartphones have yet to be formally adopted.
If this is right, I expect a re-convergence of China-specific iPhones and iPhones generally after China formally adopts eSIM for smartphones, at least where the iPhone’s dual SIM design is concerned.
The main point of this essay is that Apple has only made very minimal product localizations for the Chinese market. This is the natural consequence of its product strategy and functional organizational structure.
At face value, Apple’s experience thus appears to suggest that localization is of minimal importance. As shown, Apple’s various localizations are largely either fairly basic (e.g. language support, integrations with China-specific services etc.), merely cosmetic (e.g. color of iPhone), or much too late (e.g. native QR code support after Chinese users have already develoepd the user habit of scanning QR code using specific apps—basically nobody in China uses the Camera app to scan QR Codes).
I would caution against such a suggestion. After all, the modern smartphone market was jumpstarted with the iPhone and Apple thus had significant advantages as a first-mover. Rather, Apple’s obsessive consumer-centric approach suggests that certain desiderata—superior user experience, sleek aesthetic design and so on—are universal and thus can appeal equally to both Western and Chinese consumers with minimal localization.
- As noted in the previous part, the only exception to this is China, for which Isabel Ge Mahe is Apple’s Managing Director of Greater China, a region that included mainland China, Hong Kong and Taiwan.
- Adam Lashinsky (2012) Inside Apple: How America’s Most Admired—and Secretive—Company Really Works.
- A possible third example is Apple’s decision to release iPhones with larger screen. According to a 2013 report by Strategy Analytics, Chinese smartphone users prefer smartphones with larger screens, compared to American and European consumers. As such, some have cast Apple’s decision to release a larger-screen iPhone in 2014 (iPhone 6 and iPhone 6 Plus) as another example of catering to the Chinese market. I believe this is a stretch and the embiggening of smartphones was an inevitable trend.
- Two exceptions are the iPhone XS from 2018 and the second generation of iPhone SE from 2020. The former is identical to the international version, whereas the latter only supports a nano-SIM card. It is not clear what to make of this. Given that the successor to the iPhone XS, the iPhone 11 Pro, supports two nano-SIM cards in China rather than eSIM, I would argue that these exceptions are caused by the expectation that these two phones are likely to sell less well compared to other iPhones in the Chinese market, hence their lack of customization.
- However, a slew of other China-specific features became disabled as a result. I intend to explore this further.
- This is in contrast to the US. I remember purchasing a SIM card online prior to arrival and having it delivered to my place of residence to avoid the otherwise extortionate fees of short-term SIM cards sold at the airport. Data plans are much cheaper in China, though.