1. California State University, Fullerton
Mihaylo College of Business and Economics
Department of Management
Capturing Demand
James Lee
MGMT 449
Professor Moshiri
October 18, 2016

2. 2004, Tim Cook, Chief Operating Officer, strategically, orchestrated the transition of Apple’s
manufacturing operation from U.S. to China in order to capture China’s growing demand, thus
increasing profitability. The transition from U.S. to China will decrease operational costs but
only a small fraction of the overall supply chain. Cook’s goal was to meet future demands of
Apple’s products and services in China. Allowing factories to meet demand faster than in the
U.S., and supply chain could be co-located in China, scaling up and down as needed. Example of
the Supply chain flexibility occurred when a Chinese contract manufacturer was asked to
overhaul iPhone manufacturing to add a new faceplate just weeks before a critical retail launch.
New screens arrived at the plant at midnight, and within 96 hours, the contract manufacturer
was producing 10,0000 of the new iPhone a day.
Secondly, Cook strategically built strong relationships with three of the largest phone carriers in
China in order to capture a percentage of China’s smartphone industry. December, 2013, China
Mobile agreed to make the iPhone available to over 760 million China mobile subscribers and
access to hundreds of additional China mobile sales points throughout the country. 2009, China
Unicom (second largest service provider) launched a three-year deal to cover 355 cities by year
end. Lastly December, 2012 Apple and Telecom announce a distribution agreement and year
2014, announced a data storage agreement. Cook took three trips to China to build a
relationship with the various distributors, and now has agreements with the three largest
phone carriers. FY 2013- 2014 Apple’s, YOY unit growth was 99.7% vs competitors averaging
less than 32%. The supply chain flexibility allowed Apple to meet the volatility of unit demand,
increasing revenue, thus, increasing profitability.
Apple Investors were worried that the cost to purchase the iPhone 5s was too high, vs
competitors such as Android and Lenovo. To target the 760 million customers of wireless
service provider, Cook’s goal was to develop a cheaper iPhone 5c, however, China’s market did
not respond well to the cheaper 5C. September, 2013, launch of the iPhone 5c, only achieved
two percent share of all iOS devices. Why? Several factors, but one was cultural status, China’s
society, viewed the iPhone as, “luxury good” indicating an individual wealth and high status,
hence, for the poor performance of the 5C.
Legal, cultural, counterfeit, and ethics proved to be a challenge, however, Apple in China was a
strategic decision. Cook strategically built strong relationships with various vendors, leveraging
his experience and expertise in operations, in order to generate profits. November, 2011, three
months after the death of Steve Jobs, in Cook’s first three quarters as CEO, Apple’s market
value soared, up almost US $140 billion, with profits of US $31 billion. 2015 Q3 Apples revenue
in China grew to US $13.2 billion, up from $6.2B in 2014, YOY growth 1.13 times. The re-
location of manufacturing and contract agreements with large distributors, allowed Apple to
meet the rapid demand of China’s smartphone industry, hence, increasing profitability.