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How Apple Created China's High-Tech Manufacturing
New Pod: Pat McGee - Apple in China
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Pat McGee on Apple in China

Every year, Apple sells more than 100 million unit's across it’s product lines, the manufacturing feat is so staggering that some factories are capable of producing up to 500,000 iPhone’s (alone), per day.
This scale of quality and quantity in manufacturing is not replicated anywhere else in the world, nor has been replicated anywhere in history. And as Pat McGee discusses on this podcast, it's all down to the special and unique relationship between the world's largest luxury hardware company and the worlds largest manufacturer. Apple and China.
Pat McGee has just written the book on this... 'Apple in China', and he joins me for a discussion which explores the intricate relationship between Apple and China's manufacturing landscape. Tim Cook's pivotal role, the challenges of relying on China for production, and the unique conditions that have allowed China to dominate and secure significant leverage.
Pat reflects on the geopolitical implications of Apple in China and the serendipitous journey which culminated in the book.
Key Takeaways From The Podcast
Apple’s investment into China over decades is the biggest corporate investment into another country in history.
Apple has enabled BYD, DJI, Huawei supremacy.
Tim Cook's political connections in China are fundamental to Apple's success.
Apple's reliance on China poses significant risks for the company.
Manufacturing in China allows Apple to achieve unprecedented scale and quality.
Taiwanese entrepreneurs played a key role in developing China's manufacturing capabilities.
Foxconn's working conditions highlight the human cost of mass production.
The geopolitical implications of Apple's strategy are profound and far-reaching.
Here is a transcript of the opening exchange from the conversation…
Ryan
How is Tim Cook's Guangxi?
Pat McGee
Yeah, no, he's clearly got all sorts of connections in China to such an extent that one wonders what happens to Apple's political diplomatic efforts when he's no longer the guy. It is not clear who else in Cupertino has his political connections. And as readers of the book will know, I don't sort of hold in high esteem or maybe I should say Apple doesn't hold in high esteem its own head of greater China, Isabel Mahi, whose chapter is called the figurehead. So yeah, no, if Tim Cook is playing a great role right now, I mean, an important role, just in a neutral sense, the way Britain is great, it is the diplomatic statesman like efforts that he to play in Beijing, whereas I think clearly he is more replaceable in terms of his operational prowess. Apple's got that in its DNA after him being there for what, 27 years? 27 years? Yeah, 1998 too today. And he's not the product guy, so you don't lose the product guy if Tim Cook steps down. So yeah, no, it's a good question because that's probably the number one thing he actually is involved with these days.
Ryan
Isn't his whole expertise the fact that he's this master supply chain controller?
Pat McGee
That's certainly why he's brought into Apple, but because his operational expertise ends up putting all his eggs in one basket, by necessity, he's had to become something of a statesman. Now, I draw all sorts of criticism of that statesmanship. think it's sort of, you know, he's acquiesced in many ways to the benefit of the Chinese state. And this is where I would reserve my biggest criticism for him. I just mean that if he were to step down, that is the biggest hole that would need to be filled immediately. More so than operations, more so than product. Supply chain isn't one person. They have thousands of people who work on supply chain and logistics. But nobody else, as far as I'm aware of, is meeting Xi Jinping, which he has done several times.
Ryan
And so the core of the book that inability for Tim Cook to acquiesce to China is just because they are almost 95 100 % reliant on this insane network of contractors and manufacturers for all their various products, hundreds of millions of units within China.
Pat McGee
Yeah, well Apple's very success in China, both as an operator and as a retail presence, which they are number one in both four, right? Nobody makes as much money as Apple in China. I mean, I'm thinking mostly of foreign companies. There's only about a dozen companies that make more than $10 billion in China and Apple tops the list with around 70 billion. But two years ago, so my numbers aren't fresh, but two years ago, I wrote an article pointing out that Apple was more profitable than any of the Chinese tech giants. In fact, it was twice as profitable as either Alibaba or Baidu. So they're enormously successful in retail and that's the secondary thing that they've got running in China, right? They earn $400 billion of revenue a year, 90 % of which is produced in China. Or I should say 80 % of that is hardware, 90 % of the hardware is produced in China. So that's where China's really important. But the success is what makes Apple vulnerable because they have not...
They do not have a plan B. They have the concept of a plan.
You know, to quote Donald Trump, they want to do more in India, but Beijing is aware of that and doesn't want it to happen. mean, Beijing wants technology transfer to be a one-way gate. So the technology transfer comes in, but it does not leave. They want to keep the experiential know-how in China. They don't want to lose the low value added things that they were famous for 20 years ago. As they move up the value chain, they nevertheless want to retain the lower value chain items as well in a way that no other country has really tried to before and Apple's operational concentration in China sort of allows them to be exploited by Beijing and really makes it difficult for them to make any brilliant strategic moves. Add to the fire Donald Trump and things get even more complex because he doesn't want moving to India either. And he's demanding they move to move from China. And neither of those things is really possible. So I really do think they're in a quandary. You know, the title, the subtitle of the book is that Apple has been captured and that's not
hyperbole to sell books. That's genuinely how I place them. And the thesis will be tested in the next five to ten years and I'll be stunned if we look back and say, McGee got it wrong. iPhones are being built on three continents now. I think that's very unlikely.
Ryan
Can you really double down on that catch 22? Why is it inconceivable that you would place all your chips on a bet 10 years down the line, Apple cannot move away from manufacturing in China?
Pat McGee
Well, I want to be clear. So I'm glad you brought this up just because I just realized that I was disappointed in the answer I just gave, which is that you may very well see assembly in multiple places. I'm talking about the depth and breadth of the supply chain. Like I'll use Tesla as an example. Tesla really does have localized supply chains that are, you know, as basically as differentiated as they can be centered around Texas and California, centered around Berlin, centered around Shanghai, right? Elon Musk will rightfully boast that the Tesla cars made in America are the most American cars you can purchase. Unfortunately, that is not true of the Chinese cars, right? The cars based out of Shanghai coming out of Tesla are thoroughly Chinese. They are not relying on components made in the US or batteries coming from the US. But...
Apple is basically the polar opposite of that. Everything is made in one country. And even though some assembly is done in India, those phones are no less dependent on the China-centric supply chain than any other phone you've ever purchased. So the fact that the box might say made in India next year, thoroughly meaningless, other than for tariff avoidance. But if Apple were able to create a bifurcated supply chain where the phones being made in India truly were dependent on dozens or probably hundreds of Indian suppliers or perhaps pseudo Bangladesh and a whole bunch of countries around there. That would be phenomenal. I don't hold out much hope for that to happen. And I think Apple's sense of it is that they can pull it off. And I think they're not giving enough credit to China. China was a once in a century, if not longer, partner for getting all this kind of stuff done. The infrastructure they've built is phenomenal. I hate to say it, but the authoritarian regime has a way of just enacting these five year plans and having local quadres across the state compete for the sort of, not so the bids but compete for the right to fulfill that destiny and in a way that they
What am I trying to say? Like we think of America as federalism, right? A funny term, but basically means that like, know, cities and states are where their local decisions get made rather than it being federal. And Beijing based communism is federalism on steroids. It is the chief distinction between Chinese versus Soviet communism. It is not top down the way Moscow is. The plans, the five year plans out of Beijing, those are top down. How they actually get carried out. is intense competition between Hangzhou and Suzhou and Shenzhen.
in Shanghai to compete for those orders. So where am I going with this?
Ryan
Well, let me let me prompt you once in a century conditions in China made this all possible. And you're saying that it is kind of inconceivable that these same conditions could be replicated elsewhere.
It's not inconceivable. I just see it happening anywhere else
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