Thursday, February 17, 2011

Fake iPhones and Apple's Expansion in China

There's a epidemic sweeping China these days.  Tons of fake iPhones and iPhone wannabes are flooding the market.  The reason is obvious: the iPhone is a runaway success in China.  Demand is off the charts and supply is limited. 

With all these knock-offs and copycats, can Apple continue their blistering expansion in China?  Simple answer: Yes, Definitely.  To understand why this is so, you have to know what is happening in China and the mentality of the Chinese consumer.

China's economy grew by ten percent for 2010 and is expected to grow by another ten percent for 2011. There is a growing middle class with increased amounts of discretionary spending.  Chinese consumers have a huge appetite for Apple products, especially iPhones.  Apple has become a valued luxury item in China the same way they love their BMWs and their Louis Vuitton bags.  To them, the Apple name has become synonymous with "quality" and "expensive".  The funny thing is, in China, being equated with "expensive" is not necessarily a bad thing.  Chinese consumers love expensive, high quality goods, and many are willing to pay for them. 

This brings us back to the discussion of fake iPhones.  They look similar to the real iPhone, but once you hold one (video link) or use one (video link), it becomes very obvious that it is not an Apple product.  They cannot replicate the materials used in the real iPhone.  The touch screen looks and feels horrible.  Yes, there will be people who will buy these phones, just as there are people in the United States who will not buy Apple products because they think they are overpriced.  Also, there will always be people who don't like Apple and will never buy an Apple product.  But in China, Apple has become a status symbol.  For many in China's growing middle class, there can be no substitute for the real thing.  With an estimated 190 million urban households falling into this category, that's a lot of people.

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