Apple is to launch two new research and development (R&D) facilities in China, aiming to expand its presence in this burgeoning consumer market and facilitate closer working relationships with some of the world’s leading consumer electronics and hardware manufacturers. Whether this investment will reverse the trend of falling revenues, however, remains to be seen.
In September, it was revealed that Apple is planning to open a $45m research centre in Beijing, employing 500 people tasked with the development of innovative hardware. One month later, it was announced that a further R&D facility will go ahead in Shenzhen, Guangdong, an area often described as China’s ‘Silicon Valley’. While locating in Beijing is a somewhat surprising decision, due to its distance from the main development hubs, Shenzhen is a more predictable choice and much closer to tech companies such as Huawei, Tencent and Baidu. The company has not yet announced how many employees will be based at the Shenzhen facility.
Despite some uncertainty about employee numbers, the scale of Apple’s R&D investment in China is unlikely to challenge its Chinese competitors significantly. According to data sourced from the Market Research Centre SINO for the first half of 2016, two of Apple’s main competitors – Huawei and OPPO – both saw sales volumes increase over this period.
Vivo, another Chinese multinational smartphone company, also generated sales revenues similar to those of Apple in the first half of the year. Bearing in mind that Huawei Mobile has more than 20,000 R&D engineers at its headquarters in Shenzhen, and Vivo has around 4,000, it is clear that Apple’s investment is unlikely to cause many ripples.
One of the main reasons for Apple’s R&D investment is probably diplomacy. The Chinese government is keen to foster home-grown innovation and while Western businesses are welcome, particularly where they bring significant knowledge and expertise, they also need to invest to secure their position in the marketplace.
Apple may also have some making up to do with the Chinese government, following the media regulator’s decision to order the closure of its iBooks and iTunes stores earlier this year.
Apple’s R&D investment in China is not just about offsets, however. With sales in China falling away year-on-year the only route to growth is to collaborate and work more closely with manufacturing partners; drawing on the fast-developing resource of R&D talent in the territory. The sheer force of competition developing in China’s consumer electronics sector makes investment in the area essential, not to mention the opportunity it presents to tap into local talent.
This is another area where Apple will need to compete aggressively. To attract the best people, it will need to offer good salaries and incentives. Market surveys have shown that large domestic companies such as Huawei and Alibaba are the employers of choice for graduates. While Western companies are known to provide stable employment on reasonable terms, prospects for career development are perceived to be more limited. Apple will need to counter such perceptions to succeed in attracting engineering graduates to its new R&D facilities.
For one of the world’s most valuable brand names, increasing its operational presence in China could pose cultural and reputational issues, which will need to be managed carefully. The leading Chinese tech companies have a well-established, long-hours culture, which is unlikely to gel with an ethos that promotes work-life balance.
Apple’s decision to make these R&D investments in China is recognition of the importance of the Chinese marketplace and the wealth of talent that is emerging from its rapidly-growing consumer electronics sector. Whether it will be enough to address sliding sales and position the brand for market growth is uncertain, but the company will be hoping it sparks a new era of global cooperation and innovation.
Dominic Jephcott is Chief Executive Officer of Vendigital, a firm of supply chain and procurement specialists. He is based in Hong Kong.
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