According to the AAA strategies, there are three main positions companies can use in foreign markets to their advantage. The first is aggregation and involves using regional groupings to minimize firms’ costs of adaptation and exploit larger markets to achieve scale. The second is adaptation and involves firms’ targeting their products to suit local markets. Finally, the third is arbitrage and involves firms taking advantage of foreign countries’ economic, geographic, cultural, economic and administrative differences to add value. Apple pursues several AAA strategies in China to maintain its large profit margins and efficient production process; however, it could do more in the way of adaptation to increase its market share in the Chinese smartphone market.
Currently, Apple’s strategy in China primarily revolves around arbitrage. Apple has been using China’s comparative advantage in labor to maintain incredibly high profit margins (as high as 70% on the iPod) and low inventory. China has a “vast, agile” labor force with over 800 million people between twenty-to-sixty years old that can cater to Apple’s constant adjustments to specifications and orders at a fraction of the cost in the United States. Apple has done this by partnering with Chinese electronic manufacturing service, Foxconn, which assembles all of the many components in Apple’s products imported from other countries at a very low rate.
Apple has also adapted some of its products to suit demand in the local Chinese market. In particular, Apple has altered its repair and warranty policy to respond to Chinese consumer unrest at Apple’s perceived lack of care for customer service. While not particular to the Chinese market, it also lowered the price of its iPhone 4 to respond to consumer demand for cheaper smartphones in emerging markets. However, within the scope of things Apple could be doing to cater