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Journalism of Courage
Factories here churn out iPhones that are exported to the US and Europe. Then thousands of them are smuggled right back into China.
The strange journey of Apple8217;s popular iPhone to nearly every corner of the world shows what happens when the world8217;s hottest consumer product defies a company8217;s attempt to slowly introduce it in new markets.
The iPhone has been swept up in a frenzy of global smuggling and word-of-mouth marketing that leads friends to ask friends, 8220;While you8217;re in the US, would you mind picking an iPhone for me?8221;
These unofficial distribution networks help explain a mystery that analysts who follow Apple have been pondering: why is there a large gap between the number of iPhones that Apple says it sold last year, about 3.7 million, and the 2.3 million that are registered on the networks of its wireless partners in the US and Europe?
The answer now seems clear. For months, tourists, small entrepreneurs and smugglers of electronic goods have been buying iPhones in the United States and then shipping them overseas.
There the phones8217; digital locks are broken so they can work on local cellular networks, and they are outfitted with localised software, essentially undermining Apple8217;s effort to introduce the phone with exclusive partnership deals, similar to its primary partnership agreement with AT038;T in the US. 8220;There8217;s no question many of them are ending up abroad,8221; said Charles R. Wolf, an analyst who follows Apple for Needham 038; Company.
For Apple, the booming overseas market for iPhones is both a sign of its marketing prowess and a blow to a business model that could be coming undone, costing the company as much as 1 billion over the next three years, according to some analysts.
But those economic realities do not play in the mind of Daniel Pan, 22, a Web site designer in Shanghai who says a friend recently bought an iPhone for him in the US.
He and other people here often pay 450 to 600 to get a phone that sells for 400 in the US. But they are happy.
Pan is among the new breed of young professionals in China who can afford to buy the latest gadgets and the coolest Western brands. IPhones are widely available at electronic stores in big cities, and many stores offer unlocking services for imported phones.
Chinese sellers of iPhones say they typically get the phones from suppliers who buy them in the US, then have them shipped or brought to China by airline passengers.
Often, they say, the phones are given to members of Chinese tourist groups or Chinese airline flight attendants, who are typically paid a commission of about 30 for every phone they deliver.
Though unlocking the phone violates Apple8217;s purchase agreement, it doesn8217;t seem to violate any laws here, though many stores may be avoiding import duties.
