In China, Apple Goes Out of the Wok, Into the Fire


On Friday, Apple’s week of bad news from China got the proverbial icing on the cake in the form of an initial report from The Fair Labor Association about Apple’s manufacturing partners. The report had a number of points but the single bite the media latched on to was “tons of issues.”

From its lost iPad trademark to working conditions to a smoldering conspiracy theory about the brand punishing The New York Times, Apple stands on the verge of flipping from the brand we love and hold up as an example to emulate, to the brand we love… begrudgingly.[more]

Apple is the most valuable company in the world, thanks to a market capitalization in the neighborhood of $465 billion. A recent Forbes Customer Loyalty Engagement Index study points out exactly why this is:

“Apple was #1 (Tablets) and #2 (Smartphones) when it came to delighting their customers. That’s what a combination of a brand loaded with values and meaning and products that continually deliver meaningful experiences gets you.

When we look at individual categories, Apple was #1 in Laptop Computers too. And, logically, Tablets and Smartphones. They used to be #1 in the MP3 Players, but we had to stop measuring that category. Virtually nobody mentioned a brand competitive to the iPod, and even when they had a competitive brand, consumers insisted upon calling it an “iPod,” so we unofficially ceded that category to them too.”

But just as a Republican nominee for president, it’s punishing to be the frontrunner.

And has Apple ever been punished lately. It all goes back to its relationship with China, now the brand’s second largest market (even though Apple’s slipping share of the China smartphone market is worrisome).

In the Chinese courts, Apple lost its iPad trademark battle with a small Shenzhen-based company named Proview Technology. Apple claims it licensed the iPad trademark from the company, and now it’s reportedly threatening to sue for defamation. So what happened?

Some evidence can be found in the correspondence attained by Dow Jones-owned tech blog, All Things D. These memos and emails show Apple’s negotiations with the Taiwain-based Proview over rights to the “iPad” name. Apple may not have realized, or may have taken on faith, that the Taiwan-based Proview owned the iPad trademark for the mainland People’s Republic of China. And though the Taiwan-based company applied for the trademark, it appears that it may have been rejected and instead come to be owned by the Shenzhen-based affiliate, with which Apple had no deal.

The case is by no means over and Apple could still win back its trademark for the nation. Then there are China law insiders, such as those at China Hearsay, who smell bad lawyering and conclude “Apple’s best shot here is still the Shenzhen appellate case that will begin on February 29.”

Indeed, anyone with business experience in China may smell the stink of shakedown a mile away. A Wall Street Journal estimate (see the video at top) puts the “true value” of the iPad name at $2 billion.

As some have pointed out, there is a ripe political angle here too. As Apple looks for a solution — by way of the courts or through a rename of the device — some Chinese, sick of being the copyright-violation whipping boy of the US, have used the opportunity for a little Schadenfreude. A China Daily op-ed titled “Biting Back at Apple” smirks:

“Chinese rules allow trademark owners to request seizure of goods that violate their rights. These rules were enacted partly in response to foreign pressure for the Chinese government to stamp out the unlicensed copying of foreign goods.

As the defendant, Apple can now better understand the purpose of intellectual property rights protection is to promote innovation and it is against the spirit of innovation to use IPR protection as a business strategy for grabbing market share.”

In the meantime, the controversy allows media as respected as The Economist to write juicy headlines such as “End of the iPad?”

While the iPad trademark story is a headache for Apple, the story about the working conditions at its manufacturing partner Foxconn is a genuine brand threat.

Following years of bloggers slamming Apple over working conditions at Foxconn, The New York Times weighed in with a couple of long reports on the subject in January. One result of that reporting? Apple’s media relations team may have blacklisted the Times in retaliation. It’s a snub for the Times just when Apple has launched a massive charm offensive, warming up to a media it has usually kept in the dark.

This week will see a massive “Inside Apple” reporting campaign with ABC’s Nightline airing on Tuesday night (watch a preview below, and click here for more from reporter Bill Weir).

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Another result of the reports? It appeared that the noise was finally loud enough for Apple to act. Apple supplier Foxconn, shopping for a little public relations love of its own, has announced it will “sharply” increase worker pay. Meanwhile, Apple itself entered into an agreement with the Fair Labor Association to audit the facilities.

So the “tons of issues” found by the audit, which is also manufacturing the 10-inch Kindle Fire for Amazon? Not so much:

“After his first visits to Foxconn, [FLA’s auditor] van Heerden said, ‘The facilities are first-class; the physical conditions are way, way above average of the norm.’ He spent the past several days visiting Foxconn plants to prepare for the study.

‘I was very surprised when I walked onto the floor at Foxconn, how tranquil it is compared with a garment factory,” he said. “So the problems are not the intensity and burnout and pressure-cooker environment you have in a garment factory. It’s more a function of monotony, of boredom, of alienation perhaps.'”

If the FLA reports are any indication of what’s to come, it would seem that Apple’s new warm heart and open arms may pay off for the brand. And with that kind of momentum neutralizing the negative brand impact from its Foxconn relationship, the (rumored) upcoming introduction of the iPad 3 could be Apple’s biggest day ever.