International Marketing Themes:
Trade War between the USA and China.
Theory of Comparative Advantage.
Impact on Company’s Opportunity.
Impact on Company Market Entry Options.
Impact on Company Operations Post-Entry.
Company Marketing Mix Impacts
The following report has been prepared from the news article published in Sydney Morning Herald on August 13, 2020. The article is titled “Apple's $61b China market threatened by Trump's WeChat ban” and is written by Felix Tam and Shiyin Chen. The reason for choosing this article comes in the wake of the prevailing health crisis (COVID-19) that has grappled and disturbed the economies from across the world. From PESTEL Analysis point-of-view the article aims at highlighting the Political Issues, specifically growing tensions between the United States of America (USA) and People's Republic of China (hereafter, China) that have as a result affected the business of many internationally known companies operating in the two nations. The report will provide a summary of the mentioned article, following it up with an analysis on likely impact on the company's operations, marketing mix, opportunities and market entry options.
The President of USA, Donald Trump, issued an executive order earlier in August 2020 barring US companies to do any business with WeChat which is the flagbearer application of Chinese company Tencent. The move comes on part of the growing trade tensions between USA and China. The decision is said to be implemented in the next 45 days. WeChat which enjoys the title of "super-app" is an integral part of almost all the Chinese citizens who are reliant on the application to meet their needs as routine as chatting, shopping, buying movie and train tickets, paying bills etc. This news has brought a huge cause of concern for Apple Inc as the company has created a formidable market for all its product offerings in China and has both explored and extracted sizeable revenue generation from the Chinese market for years. According to the article, the company enjoyed a yet another strong first quarter which was largely backed by the revenue generated in China and was deemed to be the first mobile to be 5G enabled, in October.
However, in light of the present circumstances, implementation of the executive order will mean that Apple Inc will take a huge beating of declined sales and may most likely lose its hard-earned market share to the local competing Chinese brand and market leader, Huawei and others such as Xiaomi, Oppo etc. This is a strong possibility as the Chinese prefer WeChat and given the option to choose between WeChat or Apple Inc products, the Chinese have in majority showed their commitment to the former. Thus, a ‘WeChat disabled’ Apple smartphone might most likely end up as "electronic trash" for the Chinese. Apple Inc is also dependent upon China for its raw materials and manufacturing process which is largely done in China. Although the implications of the executive order are yet to unfold, it has, for the moment, cast a lot of doubts for Apple Inc's present market base of $US44 billion ($61.4 billion) in China and any further prospects certainly seem bleak if upcoming iPhones have to be launched without WeChat.
A trade war emerges when two countries start imposing trade restrictions and tariff quotas on each other’s respective goods and services to bring each other down (Guo et al. 2018). The current article brings to light the trade war between USA and China that has been going on since 2016. While the USA feels that China has been dealing in unfair trade practices China, on the other hand, feels that USA feels insecure because of China's rise and potential dominance in the international market (BBC News 2020). The latest decision that has been discussed in the article can also be understood as part of the trade war tactics that have been applied by US President for which China can likely retaliate in varied ways.
The theory states that when a country can produce goods and services at a lower cost than other countries, it enjoys a comparative advantage over others (Hausmann et al. 2019). China enjoys a comparative advantage for the manufacturing of products for US firm Apple Inc and saves an additional cost of 65$ on the production of its mobile phones (Stewart 2014). Besides, China which apart from producing the goods for Apple Inc also purchases the same phones provides Apple Inc with major revenue resources and also facilitates the company by providing subsidies (Stewart 2014). However, if the ban on WeChat is finally executed, it is likely to pose problems for Apple Inc as China may retaliate by either non-production or counter-trade restrictions for the company.
The impact of a trade war which can likely result in a ban on the use of WeChat through Apple's smartphones is likely to bring a negative impact on the scope and opportunities for Apple Inc (Gallagher 2020).
As per the article
Trade wars potentially hamper the scope of market entry options for prospecting companies in foreign markets. The reason most of the companies seek to expand globally is that the local markets get saturated after a point and are not able to generate enough revenues. The trade wars lead to a reduction in demand and supply (as is evident from our case study where the proposed ban will lead to a decline in demand of Apple iPhones in the Chinese markets) and specifically affect the small businesses (MacDavid 2019).
Impact of trade wars can be more dangerous if the company has already established the business in foreign markets. The companies can face strikes on the international ground or legal and ethical issues in the foreign markets for non-compliance or any reason which can further lead to blockage of funds and illiquidity of assets. For example, China may take advance from Apple Inc but not deliver products as part of retaliation on account of bans posed by the USA. This can hamper Apple's revenues and lead it to face huge losses in Chinese markets (Rupani, 2020).
Impact of Trade War on
Product: If the ban on WeChat is imposed, Apple’s iPhones will become potentially 'obsolete' for the Chinese market (Warwick 2020).
Price: The product's demand will fall considerably and the company might have to withdraw the product completely or sell it at very low prices as people have a preference of WeChat over Apple's smartphones (Tam and Chen 2020).
Place: The potential ban will force Apple Inc to take the iPhones to be sold outside China. However, it will be difficult to sell off large quantities of phones as no other country will be able to replicate the demand posed by China and with constant up-gradation in smartphones these days, Apple Inc's large amount inventory might go unsold (Gallagher 2020).
Promotion: It is highly unlikely that promotion might be able to save the company in increasing demand for a product which without an important feature will be deemed useless by the target audience. (Tam and Chen 2020).
To summarise, the report is based on the recent article that states that the US President has imposed a potential ban on US companies like Apple Inc to allow Chinese users to use WeChat application through their smartphones. The decision is based on an ongoing trade war between the US and China since 2016. Apple Inc prefers Chinese markets as it can generate maximum revenue from selling products in China. China, on the other hand, enjoys a comparative advantage in the manufacturing of Apple products. The decision is likely to impact Apple's opportunity and market share in China severely. China could also retaliate by posing stricter restrictions on Apple Inc iPhones if it is rendered obsolete by Chinese residents.
BBC News 2020. A Quick Guide to the US-China Trade War. BBC News. [online] Available at: https://www.bbc.com/news/business-45899310. [Accessed on 21 August 2020]
Gallagher, W. 2020. US WeChat ban could cut global iPhone shipments by 30%, says Ming-Chi Kuo. [online] AppleInsider. Available at: https://appleinsider.com/articles/20/08/10/us-ban-on-wechat-may-significantly-damage-apples-iphone-sales. [Accessed on 21 August 2020]
Guo, M., Lu, L., Sheng, L. and Yu, M. 2018. The Day After Tomorrow: Evaluating the Burden of Trump’s Trade War. Asian Economic Papers, 17(1), pp.101–120. Available at: https://www.cuhk.edu.hk/hkiaps/news/pdf/working_papers/TrumpTradeWar.pdf. [Accessed on 21 August 2020]
Hausmann, R., Hidalgo, C., Stock, D. and Yildirim, M.A. 2019. Implied Comparative Advantage. [online] papers.ssrn.com. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2410427. [Accessed on 21 August 2020]
Iqbal, B.A., Rahman, N. and Elimimian, J. (2019). The future of global trade in the presence of the Sino-US trade war. Economic and Political Studies, 7(2), pp.217–231.
Jacobs, J., Mohsin, S. and Leonard, J. 2020. Trump officials say WeChat ban won’t keep Apple out of China. [online] Los Angeles Times. Available at: https://www.latimes.com/business/technology/story/2020-08-21/trump-wechat-ban-apple-china. [Accessed on 21 August 2020]
MacDavid, S. 2019. How is the U.S.-China trade war affecting international trade? [online] Trade Ready. Available at: http://www.tradeready.ca/2019/topics/researchdevelopment/how-is-the-u-s-china-trade-war-affecting-international-trade/. [Accessed on 21 August 2020]
Rupani, H. 2020 ‘Political and Legal risks’ [PowerPoint presentation]. Week3: Political Risks. [Accessed on 21 August 2020].
Stewart, M. 2014. Why Apple uses China Manufacturing. [online] ITI Manufacturing. Available at: https://www.itimanufacturing.com/apple-uses-china-manufacturing/. [Accessed on 21 August 2020]
Tam, F. and Chen, S. 2020. Apple’s $61b China market threatened by Trump’s WeChat ban. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/companies/apple-s-61b-china-market-threatened-by-trump-s-wechat-ban-20200813-p55l7q.html. [Accessed on 21 August 2020]
Warwick, S. 2020. A WeChat ban could be fatal for Apple and the iPhone in China. [online] iMore. Available at: https://www.imore.com/wechat-ban-could-be-fatal-apple-ios-and-china. [Accessed on 21 August 2020]
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