COST/BENFIT

Books of Interest
 Website: chetyarbrough.blog

Apple in China (The Capture of the World’s Greatest Company)

Author: Patrick McGees

Narrated By:  Fred Sanders

Patrick McGee has written an important book about world trade. He reveals a shocking story about Apple and the risk of basing a corporation’s economic future on a singular aspect of its success, i.e. cost of manufacturing. This is a story of two companies and the world’s labor market. Foxconn and Apple look to China, Taiwan, South Korea, Ireland, and Asian countries that vie for the role of the cheapest and best labor markets in the world. Foxconn’s and much of Apple’s search and success as a tech company is based on finding the cheapest labor in the world for the manufacture of product. However, McGee explains how that view makes Apple and other international corporations vulnerable to the politics of nation-states that have a mix of economic and political agendas. McGee explains how politics can be a greater cost than benefit to a business enterprise because of nation-state’ politics.

McGee’s story is about the impact of China’s government on Apple and Foxconn led by Tim Cook and Terry Gou. Tim Cook is the wunderkind hired by Steve Jobs before his death, and Terry Gou is the Taiwanese billionaire who founded Foxconn which is now headed by Young Liu who was educated in Taiwan and the United States.

McGee explains why and how Tim Cook became the CEO of Apple. Jobs who was known as a poor manager of people, needed a manager who emulated Jobs’ drive but understood how to manager an organization to become bigger while remaining profitable. Cook is characterized as someone who has a near photographic memory. His analysis of reports from subordinates could be used to advance company goals or change a subordinate’s understanding of anything they propose that is not practicable or goal focused. What McGee argues is that Tim Cook’s focus on the cost of manufacturing became an Achilles heel when he hires Foxconn to organize Apple’s iPhone manufacturing to be done mostly in one country, China.

Cook needed a go-between which became Foxconn, a Taiwanese company that is the largest electronics labor contractor in the world. Foxconn is also China’s largest private-sector employer with over 800k employees. Foxconn employees assemble iPhones, semiconductors, and electronics for some of the largest American technology companies in the world, e.g. Apple, Microsoft, and Dell. Foxconn’s relationship with China is further complicated by the international relationship between Taiwan and China. Foxconn has built a lucrative business in the tech industry because of its labor intensity and the desire of tech companies to minimize overhead to improve their profits.

The desire to bring Taiwan under the control of communist China is a background conflict between Xi and Terry Gou. It may be unlikely that Gou would ever be elected President of Taiwan, but his candidacy is a cloud of suspicion to knowledgeable Chinese, Taiwanese, and American leaders. McGee notes Foxconn’s tax audits and land-use investigations by Chinese authorities that some believe are politically motivated. Foxconn has been criticized for poor working conditions because of incidents of worker protests, suicides, and labor strikes. China’s posture on those working conditions is ambiguous and most American businesses are ignorant or uncaring. A China crackdown on labor conditions would have wide effects on the global tech industry.

This benefited Apple in the first years of their association with Foxconn in China. However, later in the transition President Xi spread false reports of poor and unfair warranty practices being offered Chinese consumers of Apple products. Contrary to Xi’s claims, McGee explains that Apple warranties were the same in China as they were throughout the world.

China’s economy benefited from Apple’s move for cheaper manufacturing costs. China gained an immense technology boost from the retraining of Chinese citizens by Apple’s experienced engineers. With iPhone manufacturing in China, Apple’s revenues rose from $24 billion in 2007 to $201 billion in 2022. Apple invested an estimated $275 billion in China’s economy over 5 years. However, with Xi’s lies and vilification of Apple’s warranty, Chinese smartphone giants like Huawei, Xiaomi, Oppo, and Vivo increased sales. One presumes, Tesla followed a similar cost and benefit reward with its labor and technology transfer to China’s electric vehicle manufacturers.

One, its loss of sales in China, two, a significant change in low-cost manufacturing advantages with rising Chinese labor cost, and three, Apple’ technology transfer to Chinese companies. Add to those lost advantages is Apple’s relocation costs to another country for iPhone manufacture.

McGee notes Apple has a supply chain vulnerability from the Chinese government’s relationship with key suppliers of iPhone components wherever they are assembled. “Apple in China” is a message to the entire world about the risks of technological relocation solely based on reducing costs of labor in a politically and culturally divided world. This is a book every employer should listen to or read.