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Cook brings Apple recipe to China

CONTRARY to global media descriptions, I am not surprised at all about Tim Cook's decision to become the first Apple Inc chief executive to visit China.

It's a natural and logical move for the new CEO of Apple, who brings a new business operations focus to what was once the "product first" culture at the company.

Trip to China aside, that subtle shift in strategy has also been reflected in product upgrading, pricing and cash flow management.

Where he went, who he met and what he said tell us a lot about how the world's biggest company by market value may change under Cook's stewardship after the death last year of Apple founder Steve Jobs.

During his remarkable visit, Cook met with Chinese Vice Premier Li Keqiang, visited a new iPhone assembly factory in Henan Province, stopped in at the Joy City Apple Store in Beijing's west and chatted with domestic telecommunications partners.

"Tim had a great meeting with Vice Premier Li and other top officials in Beijing," Apple spokeswoman Yuna Huang said. "China is very important to us, and we look forward to even greater investment and growth here."

Before talking more explicitly about the trip, I should stop here and explain more about changes afoot at Apple.

After Jobs' death of cancer in October, the company has become more market-oriented, paying more attention to marketing and sales of the iPad and the iPhone - a move that I call "business first."

Though popular, Apple's latest products, including the new iPad and iPhone 4S, are widely seen to have less innovation than earlier models.

Meanwhile, Apple slashed US$100 off the starting price of the iPad 2 to US$399 when it unveiled the new iPad earlier this month. The price drop, probably the fastest and biggest one in Apple's history, was considered as a very effective ploy in the fight against rivals like Motorola and RIM, and may have even overshadowed the launch of the latest iPad in terms of market influence.

Under Cook's leadership, Apple said it would use part of its big cash reserves to pay a dividend to shareholders, the first since 1995. It will also buy back US$10 billion of its own shares.

Jobs, though very popular personally in China, never visited the country while he was chief executive, even as Apple was trying to make inroads in the world's biggest mobile phone market. As man whose Apple background was in the supply chain, marketing and sales, China would look tantalizing to Cook.

China has become Apple's second-biggest regional market and its No. 1 manufacturing base. Research firm IDC also said China may become the world's largest smart phone market this year, overtaking the US for the first time.

China is a "staggering" market with "off-the-charts" sales of the iPhone, Cook had said previously.

But the "business first" way, which is followed by most companies in the world, was not Apple's way in the past.

During Jobs' tenure, Apple worked in a "product first" way. As he was fond of framing it, when products are good enough, consumers will flood to buy them. According to his biographer, Jobs was more keen on innovation than on things such as marketing, competitive pricing, meeting local government officials and paying dividends.

The ambitious Jobs combined "technology and liberal art" and focused on "creating" demand in people than cultivating their acquaintance. He was a detail man where user experience and industrial design were concerned. Under his watch the revolutionary iPhone 4, iPad and MacBook Air were released - all to popular acclaim.

Cook is often described as a classic "businessman," while Jobs often described himself as a "product man."

Now let's guess what the "businessman" did during his China visit and what he might do in the future.

Short-term issues:

1. Trademark dispute over the iPad

Apple is still in engaged in a legal battle with Shenzhen-based Proview over the iPad trademark on the mainland. Cook was aiming to use the visit to China to improve his company's relations with key government officials. Perhaps he was hoping they would hold sway over the Guangdong Province court's decision, due in May, in the pending lawsuit case.

2. A more balanced supply chain system

Cook is credited with persuading Jobs to outsource production and assembly of Apple products to China. Last year, as chief operating officer, he visited Apple's factory in Shenzhen, which was beset by labor problems. This week, Cook visited a new iPhone assembly plant in Henan Province, which underscored Apple's decision to move into central and western China, where labor and land are cheaper and the government provides incentives for economic development.

During the meeting with Cook, Vice Premier Li raised the hope that Apple will contribute more to the development of western China.

3. Faster certification approval

At present, most Apple products debuts in the Chinese mainland are often one or two months later than overseas, which encourages scalpers to smuggle in Apple products. The lag may be caused by delays in China's certification process for overseas electronic products brought into the country.

The best way to counteract the bootleg market is to hold global launches that include the mainland.

As a business executive, Cook is sure to understand the huge market demand of China and the necessity for faster mainland debuts. He had a nice opportunity to better communicate with local officials on that issue during his visit.

Long-term issues:

1. Multimedia expansion

Apple may open complete iTunes online stores, including music and books, in China, and may offer TV in the future. Unlike iTunes in other countries, Apple only provides App Store in China for mobile application download services, without music, video or book downloads.

Consumers are now used to paying for content through the online store business model. Cook may want to introduce multimedia content services in China, which are strictly regulated. Think about Amazon China, which is not allowed to do online book business though it's the No. 1 e-book service provider worldwide.

In future, Apple will probably seek to launch TV products. Cook may be testing the waters or may be signaling Apple's intentions toward such services, which are also difficult for a foreign company to gain approval.

2. Maps and research centers

Yes, Apple will invest heavily in China in the next several years, probably in local research centers. During the Jobs era, research teams were located in Apple's Cupertino offices in California. But the global research structure may be a more interesting model for a "businessman."

On the other hand, the competition between Google and Apple is heated. Since Google Maps don't work well in the Chinese mainland, it's just a question of time before Apple introduces its own map service on the iPhone and iPad.

3. Data centers

The huge demand for storage space and recently launched iCloud services may force Apple to build more data centers. The newly built China-based data centers, which would lift response speed and improve stability, would also improve the user experience for millions of iPhone and iPad users in China.

Apple launched the iCloud service recently, which allows users to store contacts, photos and data in the online cloud servers and syndicate the data among different devices.

It's a sensitive issue for a foreign firm to set up data centers in China, but Apple may at least give it a try by expanding its partnership with China Telecom, which has both state-owned company background and rich network resources.

Those are the possible reasons underlying Cook's visit to China, in my opinion. I have to say it's just guesswork based on Apple's statements and the company's latest changes.

But I am sure Cook will come to China again, to preside, for example, over the mainland debut of the new iPad, the opening of a new Apple Store or any other expansion by the company in the domestic market.

Personally speaking, it's not a bad thing to have a "business first" Apple CEO. With the growth of the China market, the region no doubt will play a more prominent role in launches of the next-generation iPad, iPhone or Macs. We probably needn't wait for one or two months to get the new gadgets in our hands after overseas debuts.


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