Its investments in the country have been spectacular, rivaling nation-building efforts in cost, man-hours, and impact. Apple itself estimates that since 2008 it has trained at least 28 million workers—
The fate of all the company’s hardware production relies on the good graces of America’s largest rival.
One newspaper columnist said if Apple was really brave, Think Different would have included “Tank Man,” the unarmed protester who stood defiantly before a formation of armored tanks amid the Tiananmen Square crackdown less than a decade earlier. Now there was a rebel. A troublemaker. Apple, of course, played down the decision. A spokesman implied the Dalai Lama just wasn’t well known enough in Asia. But it was an obvious fib. The Asia campaign had instead gone with Amelia Earhart. The removal of the Dalai Lama from the campaign was soon forgotten. But a precedent was set. It’s the first known instance of Apple kowtowing to China. There would be many more to come.
Western PC companies were shifting to China because of what was available; Apple shifted because of what was possible.
Jony was enamored with the stainless steel back of the original iPod. Earlier reviewers of the device critiqued the choice of material because of the way fingerprints marred the chrome look. But this wasn’t some oversight. It forced the user to polish the unit, and for Ive that created an unconscious, nurturing connection.
Nobody at Apple had really architected the move to China; but in one opportunity after another, Apple operations were lured into the country. “We just got pulled in,” he says. “I was always like, ‘We’re gonna get exposed. This is too much China exposure.’
The necessity of giving engineers respite to save their marriages was understood, but with Apple’s ID studio continuing to push the boundaries of what was possible, workers were under constant pressure to perform. So instead of giving time off, Apple started to give out bonuses meant to assuage spouses.
In a slide deck called Leadership Palette, Apple states: “Fighting for excellence is about resisting the gravitational pull of mediocrity. It involves being dead tired and still pushing yourself, and others, to get it right, every time.”
Its currency was kept artificially low, boosting the value of exports while making imports expensive—an added incentive to make components in-country, further supported by strategic tariffs.
Apple was also investing heavily in the production process to build moats around its manufacturing innovations, while rivals were just giving suppliers spec sheets and saying, “Build this.”
Companies typically outsource because they don’t want to deal with manufacturing; they want to focus on the higher-value parts of what’s called the smile curve of product development. Think of how a product is made, sequentially. First is the higher-value functions of product conception and design; then the smile dips into the low-value function of logistics and manufacturing; then it curves back up to retail, branding, and services.
Ford sought guidance from Ian Duffy, head of Asia for IKEA. In China, Duffy had made the decision to brand the Swedish furniture retailer Yi Jia, which means “suitable home.” Duffy told Ford this was his “biggest mistake,” as it had deprived the company of its strong global image. Ford followed his advice. So amid the Chinese legalese on the store license, English characters were used to spell out Apple.
In other words, the Apple Squeeze was instrumental to how Apple attained industry-leading margins. The message was: We won’t pay you much, but the experience will be invaluable.
The shift in thinking was also driven by the practical realities of how the iPhone’s exponential growth impacted its top suppliers. Apple had instituted a rule so that its vendors wouldn’t be more than 50 percent reliant on Apple for their revenues. Overdependence on Apple could create trouble, because Cupertino had a propensity to shift directions. So if, say, a company providing a key component was 80 percent dependent on iPhone revenue, and Apple made a design change obviating the need for that component, that company might collapse. In fact, many did; this happened repeatedly, and it caused Apple problems, including negative headlines in the media and bad will from suppliers. So Apple learned to find a sweet spot: to be the most important client for its suppliers, so it had leverage, but not so much that the supplier was overly reliant.
So as iPhone shipments soared, Apple encouraged its China-based suppliers to feed the Android market. As a result, Apple gave birth to the Chinese smartphone industry. In 2009, the majority of smartphones sold in China were produced by Nokia, Samsung, HTC, and BlackBerry. But as Apple taught the supply chain how to perfect multi-touch glass and make the thousand components within the iPhone, Apple’s suppliers took what they knew and offered it to homegrown companies led by Huawei, Xiaomi, Vivo, and Oppo. Result: the local market share of such Chinese brands grew by leaps and bounds, from 10 percent in 2009 to 35 percent by 2011, and then to 74 percent by 2014. It’s no exaggeration to say the iPhone didn’t kill Nokia; Chinese imitators of the iPhone did. And the imitations were so good because Apple trained all their suppliers. Cook didn’t want Apple to be the developer of the world, and it wasn’t. It did, however, become the developer for China.
In economic terms, Apple was creating the whole market—supplying inputs in the form of worker training and machinery, then purchasing the outputs.
Such tactics accelerated after 2017 but had been going on for years. One former Apple executive recalls, around 2012, being with one of Terry Gou’s top executives when they saw indigenous Chinese companies holding signs outside the Foxconn factory, recruiting talent. “Holy shit, I’m gonna lose my best guys here!” the Foxconn executive exclaimed. Recognizing the two, a top engineer walked over and offered his hand: “It was a pleasure working with you. I’m working for Huawei now.” As the engineer walked away, the two executives were silent for a few seconds. Then the Apple executive turned and said, “Who the fuck is Huawei?”
After more than a decade of sending its top engineers to China, to train staff on how to build things at Apple quality, Cupertino needed to fly Chinese engineers into America’s heartland to complete the project.
Apple is in real danger again. Financially, it’s the most successful company ever. But the Big Brother on the screen isn’t a work of fiction anymore. Rather, it’s incarnated in the leadership of a country that has, in important ways, captured Apple—becoming so world-leading in manufacturing that Apple’s efforts to escape are likely to prove fanciful.