If you needed more proof that the Chinese market presents a unique and challenging environment for Western tech vendors, here it is. Apple has had to take extreme measures in China such as making buyers present ID at purchase, have their iPhone 4s opened and activated in the store and even closing the doors of their four bright, shiny Chinese Apple stores for a time to try to deal with scalpers.
The problem stems from many realities of the Chinese market, but also from Apple’s bizarre decision to lift the “Two per Customer” restriction to allow unlimited numbers to be purchased at a shot (looking to inflate those Chinese numbers at little, Steve?). This resulted in dealers coming in and purchasing a few dozen phones each to suck up existing supplies. They then set themselves up outside the Apple Store, add a $50 or so surcharge to the phones they have for sale on the sidewalk, and wait for the potential buyers who get turned away due to a lack of supply at the Apple Store (or who just get sick of the resulting long line). These buyers then purchase the more expensive devices on the street because they don’t want to go home without a phone, and these kinds of situations are very common in China and buyers often plan to have to pay a little more to smooth out problems. Just the cost of doing business.
However, the street scalpers are only part of the issue…
There has been a massive run on the Apple Stores in China by dealers due to all sorts of very Chinese factors beyond the desire of scalpers to take advantage of long lines, in my opinion.
For example, the Apple Store is selling their iPhones SIM free and for less than their partner, China Unicom. This makes the Apple Store version much more attractive to Chinese buyers in the far flung, rock em sock em world of Chinese telecoms, hence the big Apple Store demand. The vast majority of these scalped iPhones will likely show up on such carriers as China Mobile, which will likely continue to fan tensions in the uneasy partnering of Apple and China Unicom.
Beyond that, the Chinese phone market is enormous both in terms of physical distance and number of subscribers and is used to buying handsets from small storefront vendors or simply on the street. With only four Apple Stores, centered on Beijing and Shanghai, there is a massive demand for small dealers in the rest of the massive country to stock the phone for customers willing to pay through the nose for the authentic article.
Of course many blogs, both Apple focused and otherwise, are using the existence of the scalpers to paint a picture that the iPhone 4 is taking over the Chinese mobile market. This is classic Apple marketing spin and Cupertino’s fingerprints are all over it. I still maintain that while the iPhone 4 has been far more successful than the iPhone 3 in China, it is still not setting most of the market on fire. Many of the things that western observers are calling signs of Apple’s new dominance there are just due to the unique characteristics of the Chinese market. The iPhone 4 has been a modest hit in China despite long odds, but from all indications the number of iPhone 4s sold in China is still dwarfed by the number of Shanzhai black market versions already in use throughout the country.