Apple’s investment in car-hailing giant Didi is commonsense
For foreign firms to crack the Chinese market, the surest route to success is to team up with a reliable partner
Global hi-tech companies face a dilemma. In a competitive arena, mainland China’s burgeoning market offers an unparalleled opportunity for expansion. But with ever-more Chinese being attracted to local brands and Beijing pushing to replace foreign technologies with domestic alternatives by 2020, getting a leg up is becoming increasingly challenging. Companies require a savvy approach to benefit and that is what Apple is betting on with its investment in car-hailing leader Didi Chuxing.
Apple’s sales fell for the first time in 13 years in the quarter to April as demand for the iPhone declined, driven by a 26 per cent plunge in China. The mainland had been the US firm’s fastest-growing market, but its share has been eroded by home-grown competitors. Compounding the gloomy outlook, its iTunes movies and book services were ordered closed by Beijing due to new government regulations on foreign content. Perceived negative relations between Apple and authorities prompted billionaire investor Carl Icahn to sell his stock.
One strategy for a company faced with such circumstances would be to quit the Chinese market and focus on others. Mainland firms have proven adept at knowing what Chinese want while innovatively expanding beyond their core businesses into other digital realms. Smartphone makers Huawei and Xiaomi have eaten into the profits of Apple and South Korean and Japanese firms with products that are more affordable and as desirable; Xiaomi has built up a powerful fan base. China’s great firewall of internet censorship has furthered the difficulties for outsiders. But that does not mean the doors are closed for foreign tech firms; they can still persevere, boost their innovation and creativity, partner with Chinese firms or invest. Apple has taken the latter route by putting US$1 billion into Didi, which claims to have 87 per cent of the market and already has investment from mainland tech giants Alibaba and Tencent, among others. That will improve understanding of the mainland business environment, while opening opportunities for both sides. Apple has expertise in mapping and artificial intelligence and is experimenting with self-driving cars, while Didi can help with promotion of the US firm’s services.
China is no longer producing cheap, poorly made goods; its digital and technology players are innovative and coming up with world-beating ideas. Some are pushing the technology packet in the same way as Silicon Valley start-ups. Foreign firms should not lose sight of that as they look to ways of expanding and shoring up profits.