Apple Preparing A China Exit Strategy?

China is Apple’s largest and most important overseas market.  On top of China being the company’s global manufacturing base for the iPhone, Apple reported that 22% of its revenue in 2016 derived from sales in the country.

by: Gau Bodepudi | Guest Author

While Apple has typically enjoyed a favorable relationship with the Chinese government, it has been facing numerous setbacks within the past year.

In April 2016, China’s State Administration of Press, Publication, Radio, Film, and Television placed a regulatory ban on the company, blocking iTunes movie and e-book distributions within the country.  This came just about six months after the government approved Apple’s launch of the stores.

In the same month, Apple lost a trademark dispute against a leather-goods company, losing the exclusive right to call its products an “iPhone.” And in June of 2016, the Beijing Intellectual Property Office ordered the company to stop selling its iPhone 6 and iPhone 6 Plus in Beijing. Amidst such setbacks, there has been a growing concern if China is intentionally making it difficult for Apple to conduct business in China.

In an attempt to ease relations, Apple CEO Tim Cook visited the country.  He promised increase investments and to build a research facility in China. Cook also assured investors, in their fourth quarter earnings call, that the company is continuing its growth plans in China. “[W]e are very bullish on China. We continue to see a middle class that is booming there. . . . I think we continue to have a really good opportunity there, and so we continue to focus significantly in China.”

But Apple now finds itself in the middle of a trade dispute between the U.S. and China.

In what was downplayed as campaign rhetoric in early 2016, Trump suggested he would impose a 45% tariff on U.S. imports from China. But China took Trump’s tariff statements seriously.  Days after Trump won the presidential election, as reported by the Global Times of China, in response to a U.S. imposed tariff, “China will take a tit-for-tat approach then. . . . US auto and iPhone sales in China will suffer a setback.”

President Trump has since softened his approach on tariffs, floating an increase of just 10%.

It remains to be seen Trump’s next move and its impact on U.S.-China trade relations.  It also remains to be seen if China’s relationship with Apple will suffer as a result. But Apple and its Chinese based manufacturing partner, Foxconn Technology, appear to be planning for contingencies.

Foxxconn Technology is reportedly in preliminary discussions to open a new branch in the U.S. And Cook met with Indian government officials in January of this year to begin manufacturing operations in India.

Could this signal the beginning of Apple’s contingency exit strategy from China as its manufacturing hub?  Only time will tell.

About the Author: Gau Bodepudi is patent attorney that serves as a managing member at IP EDGE, an IP consulting firm. He has written an IP investment blog at www.investinip.com.  You can follow him on Twitter too @investinip.

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