Facing a barrage of attacks from China's state-controlled media over what appear to be minor complaints about the company's warranty policies, Apple (AAPL) CEO Tim Cook on Monday issued a rare apology to try to tamp down the controversy.
In a signed note posted on Apple's Chinese website, Cook apologized for the company appearing to be arrogant in a previous response to warranty complaints and detailed a new replacement policy -- one that is now better than what U.S. consumers enjoy.
The unusual move highlights the importance of China to the Cupertino company -- China is now its second-largest market after the United States -- and the intrusive role the Communist government plays in the economy. To succeed in a nation that welcomes foreign investment but is wary of foreign companies dominating local markets, multinationals, even those with the gold-standard reputations, tend to respond quickly to government criticism.
Cook's apology follows a front-page editorial last week in The People's Daily, the mouthpiece for the Communist government, that accused Apple of being "arrogant" for not addressing warranty complaints aired in mid-March on the powerful government-run China Central Television network. Then a Chinese regulator said that it planned to increase its supervision of Apple.
It remains unclear what may underlie the attack on Apple, but Andy Tsay, a professor of operations management at Santa Clara University, said it makes sense for Apple to proceed with caution.
"In a politically charged situation like this, this is something you really have to handle delicately," he said.
Fueling the criticism was the government's insistence that Chinese consumers were not being treated as well as those elsewhere. Whether or not that was true, Apple needed to address the issue, said Anna Han, a Santa Clara University business law professor who advises U.S. companies operating in China.
It is common in legal disputes between Chinese companies for one to ask for an apology, she said. While Apple's warranty controversy did not involve another company, offering up a public mea culpa resonates with the culture and blunts the government criticisms, Han added.
"They take the wind out of it," she said.
In the letter, Cook said, "We recognize that some people may have viewed our lack of communication as arrogant or as a sign that we didn't care about or value their feedback. We sincerely apologize to our customers for any concern or confusion we may have caused."
The People's Daily and CCTV said Apple did not give consumers new iPhones as replacements for damaged ones as it does in other countries, along with a new one-year warranty.
"The gist of the CCTV report was that everyone else in the world is getting better treatment from Apple by getting replacement phones, so it's discriminatory against the Chinese," Tsay said. "And the Chinese people hate to be made to feel like second-class citizens to anybody."
In fact, the company's U.S. and China warranty policies were virtually the same.
Cook said Apple now in China will replace damaged phones with new devices and give consumers a new one-year warranty. Previously, Apple often would replace damaged parts with new components. In some situations, Apple would replace a damaged phone with a new one but not issue a new one-year warranty.
On its U.S. website, Apple says that under its iPhone one-year warranty, the company will repair defects with new or refurbished parts, give the consumer a new or refurbished phone or offer a refund on the purchase price. Apple does not extend the original one-year warranty but does offer a 90-day warranty on replaced parts of phones.
Apple joins a growing list of foreign brands that have recently experienced negative publicity in China. The contretemps may have unnerved investors. Shares of Apple slipped more than 3 percent Monday to $428.91, causing the company to fall behind Exxon as the most valuable company in the United States based on market valuation.
The criticisms of Apple in China are seen by some as a sign officials are concerned about dominant foreign companies in its mobile industry. Apple is competing against Chinese companies Lenovo, Huawei and ZTE, though South Korea-based Samsung is the smartphone market-share leader in China. Earlier this month, China's Ministry of Industry and Information Technology published a white paper that warned Google (GOOG) has too much influence in China's smartphone industry through its Android mobile operating system.
Cook's letter does not guarantee future smooth operations for Apple in China, BGC Partners analyst Colin Gillis said.
"Do you think the Chinese government wants Apple to have a dominant position -- or do you think they'd prefer to have one of their own operating systems?" Gillis said.
Contact John Boudreau at 408-278-3496; follow him at Twitter.com/svwriter.