Apple's iPhone Shipments Plunge in China as Huawei Tightens Grip - <AUTHOR> https://www.bloomberg.com/news/articles/2019-02-11/apple-s-iphone-shipments-plunge-in-china-as-huawei-tightens-grip <comment><USER2> Currently visiting China for Chinese New Year, and can't help but to notice the anti-US anti-Apple sentiment that arose recently. Although anecdotal, I think the nationalistic sentiment has a lot to do with the dip in sales.

To put in perspective, most Chinese netizens are generally pretty critical of the Chinese gov. Chinese with higher educations usually look up to western culture and products. However after the Huawei arrest incident, the Chinese netizens were _pissed_ at the American government, I've never seen such anger towards the US gov, and huge waves of boycotts began. They think that American gov is bullying a Chinese company into obeying US law even outside US, and their response is to boycott American products.

During my two weeks here I've talked to a dozen random people at bars, friends gatherings and on the plane. Normally US-China politics never come up, but it has come up in almost every single conversation this trip. Most of these people mention that they recent switched to a Chinese phone or their next phone will be a domestic phone.

<comment><USER3> For some reason I doubt that you have the right perspective. Chinese are very nationalistic and every non immigrant Chinese I met is pro Chinese government. Netcitizens are even worse.

American are persecuting a company that disobeyed American laws on American soil. No a single Chinese would blink an eye about persecuting American companies in China.

China is having economic issues, that's the major reason in sales' dip.

<comment><USER4> > American are persecuting a company that disobeyed American laws on American > soil. No a single Chinese would blink an eye about persecuting American > companies in China.

Hypocrites exist. The Chinese government was shamelessly hypocritical over the Meng arrest, complaining that it violated her "human rights," [1] while their utter indifference to them has yet again been made clear by the camps in Xinjiang. I doubt everyday nationalistic citizens would be any more thoughtful.

[1] [https://www.bbc.com/news/business-46465768](https://www.bbc.com/news/business-46465768): "A Chinese foreign ministry spokesperson told reporters: 'The detention without giving any reason violates a person's human rights.' ... Beijing has itself frequently been accused by rights groups of rights abuses including unexplained detentions"

> China is having economic issues, that's the major reason in sales' dip.

Nationalistic ferver drummed up by the Huawei arrest could compound the sales drop.

<comment><USER5> So... because China violates the rights of Chinese citizens, the US deserves to violate the rights of Chinese citizens?

It goes both ways. I'm sure we'd all prefer if everyone would just stop violating human rights, but that isn't happening. It's not fair to ignore the US's human rights violations just because of China's, and it's not fair to ignore China's human rights violations just because of the US's. Both governments are hypocritical.

</comment></comment></comment></comment><comment><USER6> I think what a lot of commentators are missing is that even without a trade war, IPhone shipments would have fallen in China.

In the past, the android phones kept focussing on features (remember the s3 ads about how it had all these features missing in the 4/4s). Now, especially with Huawei, they've really mastered the art of branding and messaging on their products. When Huawei listed a phone with 3 cameras and cost more than an iphone, I knew that was a home run. The higher price reinforced the image of the premiumness of Huawei which benefitted all their products down the line as evidenced by their sales numbers. They've finally realized the Xiaomi (same quality at a lower price), actually doesn't work on an emotional level with consumers. Instead, Huawei have gone to the extreme (Leica partnership lenses + 3 cameras). They've been doing this for a while, and results just take time to show and now they have.

<comment><USER7> What do the 3 cameras do?

<comment><USER8> It doesn't really matter as long as it creates a sense of uniqueness for the consumer. Remember all these octo-cores smartphones that were supposed to perform way better than the two-cores smartphones? It's only there to tell you "3 cameras are better than 2" even though no one understands what it does. Same with cores : "wow 8 cores? 8 is such a big number compared to 2 cores therefore it must be way better/faster"

<comment><USER9> May or may not be the case.

> "When I first heard that Huawei's new flagship device was going to have > three rear-facing cameras I was sceptical," said Ben Wood, chief of research > at CCS Insight. "But it feels like the company has added meaningful features > rather than gimmicks, including the five-times telephoto zoom, excellent low > light, long exposure performance and crisp black and white pictures the > dedicated monochrome lens offers."

[https://www.theguardian.com/technology/2018/mar/27/huawei-p2...](https://www.theguardian.com/technology/2018/mar/27/huawei-p20-pro- smartphone-three-cameras-full-body-screen)

> Huawei's traditional setup of combining the data from a monochrome and a > color sensor is still in place, but this time, the color sensor weighs in at > a whopping 40 megapixels. You'll have the option to use that entire > resolution to take photos, though the default setting will be to combine the > data from four adjacent pixels into one and thus generate clearer, brighter > 10-megapixel shots. One of these quad-pixel pixels inside the P20 Pro > measures in at 2µm, which is huge for a smartphone sensor. Google's Pixel 2, > for comparison, has 1.4µm pixels, while the regular P20, which has a > 12-megapixel main sensor, comes with 1.55µm pixels.

[https://www.theverge.com/2018/3/27/17165822/huawei-p20-pro-s...](https://www.theverge.com/2018/3/27/17165822/huawei-p20-pro- specs-price-release-date)

<comment><USER10> I have Maimang 5 - a budget phone from almost 4 years ago. Despite it budgetness, it still came with the best camera chip on the market at the time, and with far from budget parts, aside from SoC. And it was never advertised on those points.

</comment></comment></comment></comment></comment><comment><USER11> Roger McNamee seems to get it, the iPhone was probably the most successful technology product in history, and arguably the "most" successful in anything. It leads to a sea of other innovation across multiple spectrum.

On the Notes of Retail, Apple had ~430 Stores in 2014, ~460 in 2015. As of end 2018 it is ~510, all the stores opened in 2015 were planned before Angela's arrival, so effectively she has slowed down the opening of new Apple Store under her tenure. During that time, Apple grew from ~800M Active Devices to 1.4B, that is 600M Devices increase, but less than 60 new Stores opened, if you are wondering why it is so crowed you cant even breath in Apple Store, that is why.

In 2015 I made a prediction that Apple could be aiming at 1B iPhone users by 2020. It seems crazy at the time, and a lot of people did call me so. But as of 2019 Apple has 900M iPhone users, so the 1B iPhone users doesn't seems to far off. I also thought Apple should be aiming at 1000 Apple Stores world wide. Apple Retail were growing at approximately 10+% before 2015, it was possible to reach ~750 by 2020, now not only have they not accelerated, they slowed down.

From reading all the latest Interview, it finally seems to me this luxury Apple idea didn't came from Angela herself. It came from Tim Cook ( or may be even Jonny Ive ), he wanted Apple to be more luxurious ( Apple Watch Gold Edition in 2016 ), and get Angela on board to try and help shaping the Retail part. Angela never wanted the job in the first place, but Tim Cook talked her into it. And one reason why her salary package were the highest in Apple.

I hope having Deirdre O'Brien meant Tim Cook gave up this idea of luxurious Apple. At least not luxurious in the normal sense, Apple is an affordable luxury in tech world, and that is drastically different to clothing or Jewelry industry. iPhone needs After sales services, and you cant rely on a small number of Apple store to provide adequate services to its customers and loyal users.

<comment><USER12> Apple is not just chasing luxury, they're chasing tech as fashion.

They realized that when people carry their tech with them all the time it becomes fashion. That's why they bought Beats, because it became a huge tech- fashion brand that threatened Apple.

And with fashion people are willing to pay much higher prices.

<comment><USER13> Which was not a clever idea, because Apple already owned the tech-as-fashion brand just by being themselves.

In fact the fashion market is all about ridiculous virtue signalling at absolutely ridiculous prices - like the Vertu range, which takes an average phone and wraps it in some leather and chrome bling, dresses up the marketing copy with "craftsmanship" "exclusive" etc etc etc and charges five figures for it.

The key point is _ridiculous_ pricing. Not just the very high end of affordable, like Apple. But the kind of ridiculous that only works for the 0.1%.

So Apple was never going to be Gucci-of-tech, or LV, or H. Or even Vertu. Because Apple is never going to charge $20k for its main iPhone range. And unless it does, it can't be a serious fashion brand.

In fact Apple's strong point was always its appeal to the exclusivity of the _creative_ market - talent, intelligence, inventiveness, and art. It's a completely different exclusivity - more accessible but also sexier - than the mass market appeal of the expensive-but-trying-too-hard mid-market brands that Apple has ended up in.

Cook has done an excellent job of destroying that creative entrepreneurial foundation. This has made a lot of money for Apple in the medium term, but at the cost of the good will and loyalty of its core fans.

That won't seem like a problem if you're a bean counter, but it's a huge vulnerability for the brand. It means Apple has shaved off more and more of its USP, and now it's vulnerable to imitators in some of its key territories.

</comment></comment></comment><comment><USER14> China's economy is looking scary at this point.

Also from Bloomberg: Chinese consumer tax receipts down 70% in November. [https://www.bloomberg.com/opinion/articles/2018-12-31/china-...](https://www.bloomberg.com/opinion/articles/2018-12-31/china- s-economic-slowdown-is-worsening-stop-dithering-beijing)

<comment><USER15> The corporate bond defaults [1] are also interesting as a tell on their real situation. I'll be curious to see if the central government relents and unleashes a far larger stimulus as it appears there isn't going to be a trade deal near-term.

Granted, you've also got Germany in a de facto recession and the UK inching toward one [2]. If the US can maintain a 2.5%+ GDP growth pace for 2019 against all of that, it'll be surprising. Projections on S&P 500 Q1 earnings have turned from 6-7% growth to an expected contraction. The market will weaken further with earnings growth disappearing, which is guaranteed to force the Fed to pause rate hikes and then cut.

[1] [https://www.bloomberg.com/news/articles/2019-02-11/two- large...](https://www.bloomberg.com/news/articles/2019-02-11/two-large- chinese-borrowers-are-said-to-miss-bond-payments)

[2] [https://www.bloomberg.com/news/articles/2019-02-11/u-k- econo...](https://www.bloomberg.com/news/articles/2019-02-11/u-k-economy- wilts-as-brexit-jitters-hit-business-investment)

<comment><USER16> > Granted, you've also got Germany in a de facto recession

Added to that, Deutsche Bank's recent "funding woes" (to quote the FT) personally give me a bad vibe, not sure if we're at the "summer 2007 phase" of Northern Rock's troubles [2] or if we're already in the "early September 2008 phase", i.e. a couple of weeks before Lehman fell. The nastier news is that, afaik, Deutsche is (was?) seen as being supported by the German government (the same as Volkswagen, for example), even more than the Wall Street investment banks were supported by Washington, and if Deutsche falls that will reflect very, very badly on the perceived financial soundness of the German government and hence of Europe as a whole.

[1] [https://www.ft.com/content/cb739552-2c5d-11e9-8744-e7016697f...](https://www.ft.com/content/cb739552-2c5d-11e9-8744-e7016697f225)

[2] [http://news.bbc.co.uk/2/hi/business/6996136.stm](http://news.bbc.co.uk/2/hi/business/6996136.stm)

</comment></comment></comment><comment><USER17> If you look at market share though it seems to actually be holding solid or growing [1]. This makes me believe a more neutral narrative that it's due to people upgrading from lousy low end android to higher end android much faster than an existing iPhone user would upgrade. The top 25% of the population use iPhones and aren't leaving the Apple platform - the folks who bought a low end phone are upgrading to higher end much more rapidly. [1] [https://www.statista.com/statistics/262176/market-share- held...](https://www.statista.com/statistics/262176/market-share-held-by- mobile-operating-systems-in-china/)

<comment><USER18> It's Windows vs Mac all over again, people just wouldn't believe it :)

1 company vs 100. All the 100 companies would have to be knuckleheads forever (which is super unlikely, it's basically: "you can fool some people all the time or all the people sometimes, but you can't really fool all the people all the time").

Android is moving up in the world, and except for the US, which was always a bit weird in regards to Apple, Android will make Windows' dominance look like a walk in the park. Look at what Google's doing with relatively weaker dominance of Chrome in the web browser world.

<comment><USER19> Windows vs Mac is a very shallow interpretation.

-the affluence level of iOS users dwarf Android users statistically. A person who can afford a $700 iPhone is much more valuable than a person buying a $220 Android phone (the average selling price of an Android phone)

\- Apple couldn't keep up performance wise with the Mac because you had the entire PC industry funding Intel. Hardly anyone is making money selling Android phones. Apple is making 80% of the profit in the phone market.

-iOS is doing well in most affluent countries

[https://deviceatlas.com/blog/android-v-ios-market- share](https://deviceatlas.com/blog/android-v-ios-market-share)

<comment><USER18> My personal opinion is that the future of technology isn't in the current affluent countries. Besides this, we already know that the vast majority of people stay within their ecosystems, once they start using them. Especially know that the differences in phone quality are going down (cheap phones are getting good; a cheap Android phone from 2010 was miles away from an iPhone, a cheap Android phone from 2020 will be comparatively much, much closer).

So the future isn't looking very bright for Apple, considering that India, China and Africa are almost entirely Android territories :)

Just keep in mind that Windows failed for 10+ years before having the smash hit that was Windows 95.

<comment><USER19> Windows "failed" but the whole time Microsoft was making a killing selling DOS. Microsoft, Intel, and the PC manufactures were all making money. The PC market drove a demand for high performing chips and even when PCs were being commoditized, there was enough of a demand for high end processors to keep Intel's R&D effort strong. The high end profitable niche of the Android market is teeny. It's eveb worse in the tablet market and the wearable market.

Not even Google is making any real money on Android. It came out during the Oracle trial that Android has only made Google $39 billion during its entire existence. Even then, they pay Apple over $2 billion a year to be the default search engine for iOS devices. Mobile hasn't been that great for anyone in the Android ecosystem.

Android as a whole is nothing more than unprofitable race to the bottom.

What use it to sell to 3 billion people buying $50 phones? If Apple starts losing the high end, then it needs to worry.

Even in the PC market, none of the PC manufacturers are rolling in cash - except for Apple. I wouldn't be surprised if Apple makes more selling Macs than all PC manufacturers make selling computers (excluding servers).

On a second thought, the biggest users of servers are probably cloud companies and Facebook and many of them are making their own servers.

<comment><USER20> _It came out during the Oracle trial that Android has only made Google $39 billion during its entire existence. Even then, they pay Apple over $2 billion a year to be the default search engine for iOS devices._

If Android didn't exist, Google would likely be paying even more to be the default search engine on non-iOS devices, or they'd have significantly lower search revenue.

</comment></comment></comment></comment></comment></comment><comment><USER21> Now that China profits have dried up, Apple will turn its attention to India.

But they've really missed a trick with their retail strategy in India. They've partnered with local retailers to run "Apple stores". These stores are nowhere near the smooth, beautiful experience of a regular Apple Store.

It feels preposterous to walk into a shoddily built store selling a phone for $1200 when you can walk next door to a Samsung or OnePlus outlet and get a similarly capable phone for half the price

Apple needs to bump up its quality game. They've been losing market share here in India and for all purposes, this country is a lost cause to them. I wouldn't be a very happy Apple shareholder right now

<comment><USER22> I somewhat doubt India is a good target for them. Even FirefoxOS feature phones currently outsell Apple in India right now.

<comment><USER21> India's premium smartphone market is small, of course, but it is also growing, and it is also a market where Apple has lost massive market share.

And let's be honest, anyone who can see even 10 years into the future would know that the next wave of growth will come from India

</comment></comment></comment><comment><USER23> It seems peculiar for stories to continue to ignore the economic situation inside China as a major cause for Apple's sales woes inside China, especially given the number of companies not named Apple that have also reported plunging sales there.

We've had reports of a worsening job market and reduced consumer spending inside China since last year.

>DONGGUAN, China — China's consumers and businesses are losing confidence. Car sales have plunged. The housing market is stumbling. Some factories are letting workers off for the big Lunar New Year holiday two months early.

[https://www.nytimes.com/2018/12/14/business/china-economy- xi...](https://www.nytimes.com/2018/12/14/business/china-economy-xi- jinping.html)

<comment><USER24> The first bullet in their _sub-headline_ does say:

> IPhone's high price tag is a major reason for the contraction

That combined with lower consumer confidence could easily be the most obvious reason. With a small amount of nationalistic propaganda/marketing thrown in.

The other big elephant in the room is WeChat becoming the primary Chinese mobile OS, diminishing the value of Android vs iOS. Which puts further pressure on the price of the phones, as they are more commodity-like. Apple raising prices, particularly in China, at this time might end up being the worst business idea they've made in a long time.

<comment><USER23> If Bloomberg's theory were true and the price of Apple's devices was the major issue here (and not the Chinese economy) then we would expect to see similar sales drops outside of China, and we have not.

Also, we wouldn't expect to see falling sales in China across all of the device manufacturers (even those selling budget devices) inside China as shown in even this article.

The reality is that the major factor here is that Chinese consumers are cutting way back on spending due to economic uncertainty inside China.

It's something that has been discussed in the media since last year.

</comment></comment></comment><comment><USER25> iPhones have become just too expensive for people in Asia to buy. It's simple as that. If they bring down the price to $599 like it was for the original iPhone and keep the price constant every year, Apple will double or even triple their existing market share. It will still be profitable for Apple knowing that service revenue will increase when more people are using iPhones around the world.

<comment><USER10> No, the simple explanation for their sales tanking is simply because they got their market saturated. Plainly and simple.

Huawei on other hand has rather different marketing plan - they make somewhat expensive products for ordinary people, even thought some of their phones can cost more than $1000 USD in maxed out configuration (leather and hand made editions)

Apple on another hand has really little appeal to this demographic, on both brand identity front, and product match.

That surely sounds unusual to a Western person, but that how it is. Huawei buyer is a well off working man in late twenties or early thirties with few more things to care about in his life than his phone.

Car analogy: Huawei - a nice full size sedan, a show of success for a common man; Apple - an "economy supercar" like Black Badge edition RR Ghost, something what broke millionaire wannabees buy

<comment><USER26> Within China, Apple doesn't compete on price. Yes Huawei has expensive phones, but for example you can buy a Mate 20 Pro for $650 there whereas an iPhone XS costs $1,270 for the entry level model.

[https://www.gizmochina.com/2018/10/26/huawei-mate-20-and- mat...](https://www.gizmochina.com/2018/10/26/huawei-mate-20-and-mate-20-pro- chinese-pricing-vs-other-regions/)

<comment><USER10> > iPhone XS costs $1,270 for the entry level model.

Indeed, but they also have the "3rd world iPhone" models - respins of previous generations and "C" model which were to supposedly cater to this market.

They greatly overestimated willingness of locals into buying "poor man's Rolce Royce editions"

<comment><USER27> Who would buy a previous generation iPhone when they can buy a modern Android generation phone for the half the price?

<comment><USER19> A "modern generation" Android phone that is half the price of an iPhone would be much slower. The 6s from 2015 was faster than the flagship Galaxy S8 in single core performance.

Also, that Android phone you buy will stop getting updates in 18 months if you're lucky. The iPhone 5s from 2013 is still running the latest OS.

<comment><USER28> > A "modern generation" Android phone that is half the price of an iPhone > would be much slower.

Slower in doing what? Posting a pic/video on Wechat? Making a money transfer? Playing a game?

Phones today are where the PC market was about a decade ago when 4GB RAM and a Core 2 Duo SoCs became common and offered enough performance for users to not have to upgrade their laptop every 3-5 years.

We don't have to look at AnandTech-style benchmark analysis anymore to figure out whether a midrange Android in 2019 will serve most needs.

<comment><USER19> I just had the pleasure of using my son's Moto G released in 2018. He was glad to upgrade to my old iPhone 6s.

</comment></comment></comment></comment></comment></comment></comment></comment><comment><USER29> I'd expect the same to happen in a recession in the western world. People do not buy luxury products in a recession and if they absolutely need to replace a device, will pick one half the price that's good enough.

Though the business model of tech giant is new, for most, the market in which they evolve isn't. Facebook and Google's revenues are essentially advertising, another source of revenues that is very pro-cyclical.

Amazon is retail sales, also quite pro-cyclical.

I don't know how a cloud business would behave in a recession. Plus the cloud is still in high growth phase, kind of like smartphones or online advertising were in 2008, making the economic context less relevant.

<comment><USER30> Manufacturers will ensure phone companies ensure customers buy new phones.

In the odd event that my iPhone lasts the 24months without having a major hardware hickup (such as being shattered), somehow all the rebates disappear from my plan. A rep from my phone company calls me and says I can get a new 24 months plan WITH a new iphone, and since the new one would get the rebates I just lost, it's effectively the same monthly cost including the new phone. Being the sucker that I am, I accept and I have a new phone.

I'm sure I could find a company that sells me a plan that would become _cheaper_ instead of stripped of all rebates once my 24 months are over. But I'm also lazy and don't want to switch mobile networks as my current network has the best coverage in the rural areas I need to go to.

It's a plan plan that is both simple and clever: instead of lowering the prices for buying new phones, what they do is just raise the price of NOT buying a new phone.

<comment><USER27> That only works in countries that are contract driven, in those where pre-pay rules, not so much.

</comment></comment></comment><comment><USER31> Doesn't help that even I can't keep track of the differences between their phones and which lower end models they still sell and what the hell the iPhone XR is meant to be.

Feels like Apple have a really weird phone line up right now.

There used to be 3 models - iPhone classic (the previous gen maybe with a few tweaks), iPhone massive (better camera and battery) and iPhone awesome expensive high tech edition (new stuff). Now it seems to be 5 or more models in China, how can this make sense? Just stick to those three models and price them correctly and they'll get more sales.

<comment><USER32> > Doesn't help that even I can't keep track of the differences between their > phones and which lower end models they still sell and what the hell the > iPhone XR is meant to be.

> Feels like Apple have a really weird phone line up right now.

So Apple's sales are hurt because it's hard to keep track of their 3 models this year? Shouldn't the same logic basically kill Huawei's sales?

Off the top of your head can you quickly tell me the differences between these Huawei models launched over the past year?

 _Huawei Mate 20 Pro, Huawei Mate 20 Lite, Huawei Mate 20, Huawei P20 Pro, Huawei P20, Huawei Mate 10 Pro._

And that's only counting the high-ish end. It would be a really long comment if I included all models.

<comment><USER31> Huawei isn't a premium brand in the same way Apple is so keeping things clear and focused is less important for them. I think we all know many of the reasons discussed on here has contriibuted to the downturn in sales. I'm clearly not saying it's exclusively about one issue in my comment, but you decided to rephrase it to say that, which must have been fun for you.

Edit: Changed "X" to be "one issue" for clairty, but thay makes the following comment confusing. Sorry about that.

<comment><USER32> I said nothing about the X nor have I implied it, just about Apple's lineup in general. Apple has a very narrow lineup that's not that hard to follow. Huawei aims at high end and the prices confirm it. The lineup is far more complicated. And being less than high end shouldn't really change this. If a complicated lineup kills sales it should do it for both Apple and Huawei.

My only point is that the argument "lineup is complicated" doesn't really have any merit. I see no point in attcking me for something that left very little room for interpretation.

</comment></comment></comment></comment><comment><USER33> It is obvious. China debt bubble is bursting right now so they are sensible with prices and Apple just have raised them absurdly.

China will experience a traumatic experience(growing pains) for getting to a service economy like the rest of the world had.

If Apple continue raising prices they will lose the mass production advantage they have. Steve Jobs always created products that were affordable(like the iPod, or the inexpensive macbook) so it gave the expensive ones mass production components(like accelerometers, cameras, special glass, wifi chips, touch screens).

It seems Tim Cook had the brilliant idea of eliminating low cost products in order to raise margins(that are obscene high right now at Apple), but people are not stupid and alternatives exist.

<comment><USER34> > Steve Jobs always created products that were affordable....It seems Tim Cook > had the brilliant idea of eliminating low cost products in order to raise > margins...

One of the smart things about Jobs's product structure is that it put people on a position to take a chance on Apple by buying a low-end product, then they could migrate into the more expensive end once they got used to Apple. There's a reason it's called the _entry_ -level, and getting rid of it is foolish.

</comment></comment><comment><USER35> Next headlines:

2020: European Car Shipments Plunge in China as XXX(#) Tightens Grip

2025: Tesla Car Shipments Plunge in China as YYY(#) Tightens Grip

(#) Any local company currently in favor with the ruling party.

<comment><USER36> [https://www.volkswagenag.com/de/news/2019/01/VW_China_delive...](https://www.volkswagenag.com/de/news/2019/01/VW_China_deliveries_2018.html)

</comment></comment><comment><USER37> The original iPhone cost $499 according to google search.

<comment><USER38> …with a contract in the US.

<comment><USER37> People wouldn't spring for the same exact deal at that price? Seems a lot of people are fine with throwing 70 dollars a month just on the service even with tons of alternatives that are a fraction of the cost.

</comment></comment></comment><comment><USER39> Trade wars are a bitch

</comment><comment><USER40> I am neither Chinese or American - The US targeting Huawei seems unfair. It is like suspecting a person of theft and then applying all sorts of punishments, without any strong proof. This is not justice. If I were Chinese, you bet I won't buy any American product.

</comment><comment><USER10> People in the West don't get a lot about Chinese society, nor do ones who come and go to China on few year long stays in better parts of China.

Yes, China has fake Prada, tons of fake Prada, but you don't really get a lot of people going for Pradas invariably of its genuineness. Same for iPhone users - there are extreme cases of idiots selling their organs to buy one, but to most people - the brand may be near invisible, moreover to people outside of megacities.

China's rich don't necessarily come from big cities. There are way more millionaires outside the Beijing/Shanghai/Guangzhou trio than inside. In fact, mid-tier cities have more millionaires per capita than megacities.

It's only natural that marketing of big foreign brands that primarily target megacities gets what is sows - a very proletarian, working class demographic.

I want to add that Amazon got a hunch of that recently - Amazon China was a joke up until their last few campaigns that were targeting almost exclusively second tier cities. To everybody's surprise, that move made them to near double their business here in around one year.</comment>


Drucker on Management: The Five Deadly Business Sins (1993) - <AUTHOR> http://online.wsj.com/article/SB10001424052748704204304574544283192325934.html

<comment><AUTHOR> sorry, you need to access through google to see the whole text.

copy here: By PETER F. DRUCKER

This column was originally published Oct. 21, 1993.

The past few years have seen the downfall of one once-dominant business after another: General Motors, Sears and IBM, IBM +2.46% to name just a few. But in every case the main cause has been at least one of the five deadly business sins-avoidable mistakes that will harm the mightiest business.

\-- The first and easily the most common sin is the worship of high profit margins and of "premium pricing." The prime example of what this leads to is the near-collapse of Xerox XRX +0.60% in the 1970s. Having invented the copier -- and few products in industrial history have had greater success faster -- Xerox soon began to add feature after feature to the machine, each priced to yield the maximum profit margin and each driving up the machine's price. Xerox profits soared and so did the stock price. But the vast majority of consumers who need only a simple machine became increasingly ready to buy from a competitor. And when Japan's Canon brought out such a machine it immediately took over the U.S. market -- Xerox barely survived.

GM's troubles -- and those of the entire U.S. automobile industry -- are, in large measure, also the result of the fixation on profit margin. By 1970, the Volkswagen VOW.XE +2.60% Beetle had taken almost 10% of the American market, showing there was U.S. demand for a small and fuel-efficient car. A few years later, after the first "oil crisis," that market had become very large and was growing fast. Yet the U.S. auto makers were quite content for many years to leave it to the Japanese, as small-car profit margins appeared to be so much lower than those for big cars.

This soon turned out to be a delusion -- it usually is. GM, Chrysler and Ford F -0.15% increasingly had to subsidize their big-car buyers with discounts, rebates, cash bonuses. In the end, the Big Three probably gave away more in subsidies than it would have cost them to develop a competitive (and profitable) small car.

The lesson: The worship of premium pricing always creates a market for the competitor. And high profit margins do not equal maximum profits. Total profit is profit margin multiplied by turnover. Maximum profit is thus obtained by the profit margin that yields the largest total profit flow, and that is usually the profit margin that produces optimum market standing.

\-- Closely related to this first sin is the second one: mispricing a new product by charging "what the market will bear." This, too, creates risk-free opportunity for the competition. It is the wrong policy even if the product has patent protection. Given enough incentive, a potential competitor will find a way around the strongest patent.

The Japanese have the world's fax-machine market today because the Americans who invented the machine, developed it and first produced it charged what the market would bear -- the highest price they could get. The Japanese, however, priced the machine in the U.S. two or three years down the learning curve -- a good 40% lower. They had the market virtually overnight; only one small U.S. fax-machine manufacturer, which makes a specialty product in tiny quantities, survives.

By contrast, DuPont has remained the world's largest producer of synthetic fibers because, in the mid-1940s, it offered its new and patented nylon on the world market for the price at which it would have to be sold five years hence to maintain itself against competition. This was some two-fifths lower than the price DuPont could then have gotten from the manufacturers of women's hosiery and underwear.

DuPont's move delayed competition by five or six years. But it also immediately created a market for nylon that nobody at the company had even thought about (for example, in automobile tires), and this market soon became both bigger and more profitable than the women's wear market could ever have been. This strategy thus produced a much larger total profit for DuPont than charging what the traffic would bear could have done. And DuPont kept the markets when the competitors did appear, after five or six years.

\-- The third deadly sin is cost-driven pricing. The only thing that works is price-driven costing. Most American and practically all European companies arrive at their prices by adding up costs and then putting a profit margin on top. And then, as soon as they have introduced the product, they have to start cutting the price, have to redesign the product at enormous expense, have to take losses -- and, often, have to drop a perfectly good product because it is priced incorrectly. Their argument? "We have to recover our costs and make a profit."

This is true but irrelevant: Customers do not see it as their job to ensure manufacturers a profit. The only sound way to price is to start out with what the market is willing to pay -- and thus, it must be assumed, what the competition will chargeand design to that price specification.

Cost-driven pricing is the reason there is no American consumer-electronics industry anymore. It had the technology and the products. But it operated on cost-led pricing -- and the Japanese practiced priceled costing. Cost-led pricing also nearly destroyed the U.S. machine-tool industry and gave the Japanese, who again used price-led costing, their leadership in the world market. The U.S. industry's recent (and still quite modest) comeback is the result of the U.S. industry's finally having switched to price-led costing.

If Toyota TM +1.02% and Nissan succeed in pushing the German luxury auto makers out of the U.S. market, it will be the result of their using price-led costing. To be sure, to start out with price and then whittle down costs is more work initially. But in the end it is much less work than to start out wrong and then spend loss-making years bringing costs into line -- let alone far cheaper than losing a market.

\-- The fourth of the deadly business sins is slaughtering tomorrow's opportunity on the altar of yesterday. It is what derailed IBM. IBM's downfall was paradoxically caused by unique success: IBM's catching up, almost overnight, when Apple brought out the first PC in the mid-1970s. This feat actually contradicts everything everybody now says about the company's "stodginess" and its "bureaucracy." But then when IBM had gained leadership in the new PC market, it subordinated this new and growing business to the old cash cow, the mainframe computer.

Top management practically forbade the PC people to sell to potential mainframe customers. This did not help the mainframe business -- it never does. But it stunted the PC business. All it did was create sales for the IBM "clones" and thereby guarantee that IBM would not reap the fruits of its achievement.

This is actually the second time that IBM has committed this sin. Forty years ago, when IBM first had a computer, top management decreed that it must not be offered where it might interfere with the possible sale of punch cards, then the company's cash cow. Then, the company was saved by the Justice Department's bringing an antitrust suit against IBM's domination of the punch- card market, which forced management to abandon the cards -- and saved the fledgling computer. The second time providence did not come to IBM's rescue, however.

\-- The last of the deadly sins is feeding problems and starving opportunities. For many years I have been asking new clients to tell me who their best-performing people are. And then I ask: "What are they assigned to?" Almost without exception, the performers are assigned to problems -- to the old business that is sinking faster than had been forecast; to the old product that is being outflanked by a competitor's new offering; to the old technology -- e.g., analog switches, when the market has already switched to digital. Then I ask: "And who takes care of the opportunities?" Almost invariably, the opportunities are left to fend for themselves.

All one can get by "problem-solving" is damage-containment. Only opportunities produce results and growth. And opportunities are actually every bit as difficult and demanding as problems are. First draw up a list of the opportunities facing the business and make sure that each is adequately staffed (and adequately supported). Only then should you draw up a list of the problems and worry about staffing them.

I suspect that Sears has been doing the opposite -- starving the opportunities and feeding the problems -- in its retail business these past few years. This is also, I suspect, what is being done by the major European companies that have steadily been losing ground on the world market (e.g., Siemens SI +1.46% in Germany). The right thing to do has been demonstrated by GE, GE +0.29% with its policy to get rid of all businesses -- even profitable ones -- that do not offer long-range growth and the opportunity for the company to be number one or number two world-wide. And then GE places its best-performing people in the opportunity businesses, and pushes and pushes.

Everything I have been saying in this article has been known for generations. Everything has been amply proved by decades of experience. There is thus no excuse for managements to indulge in the five deadly sins. They are temptations that must be resisted.</comment>