Apple revises warranty terms

'CEO's apology underlines how important China is to tech giant'

An apology and a string of warranty policy adjustments made by Apple Inc in China underscore the growing importance of what has become the company's second-largest market.

Apple's softened stance also suggests the Chinese market is now considered "too big to fail", said market watchers.

In a statement issued on the company's Chinese website on Monday, chief executive officer Tim Cook vowed to revamp its repair and warranty terms and apologized for any misunderstandings stemming from poor communication with customers.

Glen Yeung, an analyst at Citigroup Inc, said that if the negative publicity leads to a reduction of half of Apple's market share in China — as happened to United States-based Hewlett-Packard Co after a notebook computer recall in 2010 — the cost to Apple could be as high as $13.1 billion.

Multinational companies often face difficulties in adjusting to, and complying with, local regulations. In a market as huge as Apple's is in China, the risk from compliance lapses can be significant, according to Jason Dedrick, a researcher at Syracuse University's School of Information Studies.

China has become one of Apple's major sources of income, with sales last year totaling $23.8 billion, which was 15 percent of the company's total global revenue.

It's not worthwhile for Apple to risk losing a market that boasts one of its brightest business spots, where damage could be paramount if not handled properly, said Wang Zhiyuan, head of the customer service department at Shandong province's consumers' association.

Wang's organization, together with five other provincial counterparts, published a series of reports late last year, saying that some of Apple's terms in its customer agreements "reduce or exempt Apple's compensation liability and limit consumers' rights".

"Some clauses are severe violations of customers' rights. This dampens Apple's brand image and is a serious public-relations issue," he said.

In Apple's statement, Cook said he wanted to express his "sincere apologies" for causing consumers any problems.

"In the last two weeks, we reflected deeply about the suggestions and feedback regarding Apple's maintenance and repair policies," Cook said in the statement. "We realize that due to insufficient external communication, people consider Apple's attitude as arrogant, inattentive or indifferent to the consumers' feedback."

The unusual move came after a wave of criticism from Chinese media targeting the "unreasonable" customer service policies and "arrogant" attitude of Apple, the maker of the popular iPhone and iPad devices.

The criticism hit its peak on March 15, when China Central Television used the occasion of the World Consumer Rights Day to broadcast reports claiming that some of Apple's consumer policies discriminated against Chinese customers.

Apple's overhaul to its warranty policy includes a full replacement of the iPhone 4 and the iPhone 4S in case of malfunction, instead of major repairs, and it also added a one-year warranty starting from the date of replacement of the products rather than the initial purchasing date.

Before Apple changed its policy, the company's latest smartphone model, the iPhone 5, was already covered by similar terms.

Apple also said it will provide simpler and clearer warranty guidelines on its website and ensure that customers get easy access to feedback and services, Cook said.

He added the firm will boost training and supervision of authorized resellers on the new warranty terms.

In the US, Apple operates a nationwide network of retail stores that provide services and handle customers' queries. But China has only a few Apple stores, and third-party vendors render most of the post-sales service.

A source at Apple's Chinese operations said that the firm has not violated any Chinese laws or regulations. The intention of Cook's letter is to "enhance service standards and show concern regarding the Chinese consumers' rights and feelings".

Apple has come under fire frequently in the past two years in China, after customers said it replaced many parts of a malfunctioning device, except for the case and battery charger, but then refused to renew the device's warranty.

The practice was widely criticized by users and advocacy groups. According to Wang, Chinese law requires that when companies replace damaged products, they need to update the warranty period accordingly.

"We think that it's a positive sign that Apple rewrote some of its terms. But much more needs to be done," Wang noted.

For instance, the company did not clarify its warranty terms for some of its other products, such as computers, tablets and music players, he said. And the company also needs to specify whether the planned after-sales training will be based on Chinese laws or on the firm's internal policies.

Van Baker, research vice-president of mobility with US technology consulting firm Gartner Inc, said that if Apple "adequately" addresses consumer complaints in China, the impact for the company should be minimal, given CEO Cook's letter of apology and promises of revised practices.