The Culture of Business or the Business of Culture?

I recently chimed in with my own two cents regarding this question on LinkedIn:

"Does cultural sensitivity and awareness deliver better business results when it comes to doing business in China?"

I've written about cultural issues in business before and cited examples of cultural incompetence which created business problems in China for both Dell and Starbucks. The author of that question responded by posting a link to an article in "China Business Services" titled "China Mobile Eats Apple for (i)Breakfast"

We can now add Apple to the list of Western companies behaving poorly in China. For those that haven't been watching, Apple approached China Mobile with a deal similar to the one it offers AT&T. Following Apples long tradition of price skimming (selling new products for a premium), Apple sold its new iPhone through AT&T at an inflated price AND demanded what is reported to be 50% of the service fees AT&T charges for the phone.

China Mobile was an ideal partner for Apple in China. Enjoying 70% market share in the Middle Kingdom, China Mobile is widely recognized and has the infrastructure to support rapid market penetration of the iPhone. However, China Mobile is much different from AT&T in one important respect: China Mobile sells cellular service, not handsets. After all, this is the country where they are made. Handsets are readily available in more variety and cheaper than China Mobile could offer them.

By offering to support iPhone sales in China, China Mobile would have been offering Apple a service, not the the other way around. Apple's response was a demand for up to 30% of the service fees charged by China Mobile for iPhones. Can you say "slap on the face"?

According to the article, China Mobile is already at work spinning the issue with the Chinese consumer. This has now become an issue of nationalistic pride. Mr. Gao Nianshu, general manager of China Mobile's date department presented lessons learned to a local group of MBA students:

• Understand the increasing power of local players and technologies (and decreasing power of foreign ones);
• Note that business drivers and perceived benefits may be different for a local firm (especially a dominant one - or even a less dominant one, such as China Unicom, that suddenly becomes partner of last resort!);
• Keep discussions private, but be ready to play the consumer PR game;
• Appoint, use, and listen to local managers who know the local market;
• Have a “Plan B”!

His mention of a "Plan B" is interesting. Apple has been having the iPhone manufactured in China and Taiwan in contract factories. I know for a fact that iPhone technology has been presented to other manufacturers (non Apple affiliated) in China for mass production. We may be seeing a China Mobile version of the popular iPhone soon.

Apple really blew it on this deal. If they can't get China Mobile back to the table, they will face an uphill battle for market share in China. In fact, they may miss the huge opportunity they saw in China altogether.