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Why The Apple Business Model Won't Work In China

|Includes:Apple Inc. (AAPL), SSNGY, SSNLF

"Why the Apple Business Model Won't Work in China"

My hypothesis pertains to the socioeconomic nature of the Chinese populous. The socioeconomic make-up of China is highly vertical, with a wide base. This can be seen by a comparison between two factors (per capita income and per capita debt), between China and the United States. The average per capita income in China is $10,220, while in the US it is $84,300 ( However, the average per capita debt in China is 17% of the annual income compared to 136% in the United States ( Furthermore, China lacks a comprehensive social security program or government provided healthcare, and continues to artificially devalue the CN¥ and amass foreign credit. This top-down socioeconomic policy has implications which are important to consider in answering the overall question: Why will Apple's business model not work in China?

What this gets at is that the nature of the Chinese socioeconomic spectrum is unequivocally utilitarian, by nature of their political atmosphere and the export-oriented industrialization policies they pursued throughout the 20th century. Because of this, the Chinese populous lacks a middle-class bourgeoisie that is free to purchase luxury items such as an Apple iPhone. Americans and Europeans, however, live in a society in which they have the means to indulge themselves in over-priced brand-name items. This premise works under the presumption that Apple products are successful while priced higher than those of competitors because they offer luxury-services that are desirable but not entirely necessary.

Now, I in no way intend to say that Apple products are only good insofar as the brand itself, or price. Conversely, I believe Apple products are so seamlessly integrated with each other, that it does in fact offer the best end-to-end user experience of any competitor. Rather, my point is that the Chinese populous is not as concerned with this user experience in so far as it is going to mean they pay 2x what a Samsung Galaxy would cost them. Point is, the Apple "pay more and get a smoother experience" business model doesn't exactly fit in the Chinese socioeconomic spectrum. Simply put, you shouldn't subsidize luxury.

Work Cited:

Weagley, Robert O. "One Big Difference Between Chinese and American Households: Debt." Forbes. Forbes Magazine, 24 June 2010. Web. 29 Feb. 2012. <;.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.