What makes Apple unable to leave China?

With the aim of consolidating its leading position in the global smartphone market, especially in China, Apple has just officially inaugurated a new research and development (R&D) center in Shenzhen.

This is an important strategic move, showing the determination to compete directly with the fierce rival Huawei. This R&D center, marking Apple's 5th facility in China, is expected to be the driving force behind the birth of breakthrough iPhone products, meeting the increasing demands of Chinese consumers.

Apple’s decision to expand its investment in China represents a delicate balance between business interests and political factors. Despite pressure from some US politicians, Apple has prioritized shareholder returns by continuing to invest in the world’s largest consumer market.

This move by Apple also refutes speculations that the company will withdraw from the Chinese market to come to India. In fact, expanding production in India shows that Apple is diversifying its supply chain, minimizing risks and taking advantage of growth opportunities in this emerging market.

Although mainland China remains Apple’s third-largest market, behind only the Americas and Europe, sales there are showing signs of decline. The main reason is believed to be the ban on the use of iPhones in some government agencies and state-owned enterprises. Specifically, in the first 9 months of 2024, revenue from this market accounted for only 17.5% of Apple’s total global revenue, down from 19.6% the previous year.

The report shows that Apple's total revenue in mainland China still increased slightly by 0.8% in the first nine months of the year, but its volume sales decreased significantly by 9.7% compared to the same period last year. In the third quarter alone, the situation became more serious when volume sales in mainland China decreased by 6.5%, while total sales increased by 4.9%. This shows that Apple needs to make strategic adjustments to adapt to the new situation in the Chinese market.

Apple’s sales decline in China is closely linked to government directives restricting the use of iPhones and other foreign mobile devices in government agencies and state-owned enterprises. By the end of last year, the iPhone ban had expanded to affect at least eight provinces, including key coastal economic zones, according to a Bloomberg report.

This has created fiercer competition in the market, giving domestic brands like Huawei a chance to get ahead. Last August marked an important milestone when Huawei officially overtook Apple, becoming the mobile phone brand with the highest sales value in China after 46 months. In terms of the number of units sold, Huawei even surpassed Apple in the first quarter of 2024.

With the launch of the Mate XT Ultimate Design, priced from $2,800 on September 10, Huawei has once again asserted its leading position in the field of technological innovation. This tri-fold smartphone not only has an impressive 10.2-inch screen but is also equipped with many other top features, making it a formidable competitor to the iPhone 16 and similar products.

To cope with increasingly fierce competition from domestic rivals, Apple has decided to expand its research and development operations in China. The establishment of an “Advanced Application R&D Center” in Shenzhen not only brings Apple closer to the world’s largest market, but also allows it to develop more personalized products and services for Chinese consumers.

The center will serve as the headquarters for Apple's research and development operations in the Guangdong-Hong Kong-Macao region, replacing the previous facility established in 2016. Apple maintains other R&D centers in Beijing, Shanghai, and Suzhou.

The new research center will be where Apple focuses on researching and developing products for the Chinese market and the Asia-Pacific region, according to Shenzhen Daily. This means Shenzhen will play an even more important role in the production and supply of Apple products globally.

In 2016, Apple CEO Tim Cook noted that Shenzhen factories were so technically advanced that they surpassed many other places in the world. And that assessment is even more true today.

More than 1,000 experts will work here to research and develop new hardware components for iPhone, iPad and other Apple products. In addition, they will participate in applying modern manufacturing technology and conducting rigorous testing to ensure product quality.

According to the Global Times (China), a Chinese economic expert commented that Apple's decision to expand its operations here is a wise move, especially in the context of the volatile world economic situation.

Notably, Apple CEO Jeff Williams’ visit to China in July, shortly after the Chinese Communist Party reaffirmed its commitment to opening up to the world, suggests that Apple is taking the opportunity to increase its cooperation with China amid this new policy.

In a meeting with Chinese media, Jeff Williams emphasized the indispensable role of Guangdong province, especially Shenzhen city, in the company's global supply chain. He said that more than 70 Apple suppliers have factories in the province, which shows that Guangdong is a very important manufacturing center.

In the last fiscal year, 157 of Apple’s 187 major suppliers, accounting for 98% of its manufacturing costs, were based in China, and 56 of them were Chinese-owned.

Meanwhile, there are only 14 Indian-owned suppliers. Despite its rapid growth in recent times, India's share of Apple's total revenue is still very modest, less than 5%. This shows the "Apple"'s deep dependence on the supply chain in this country of a billion people.