WEBVTT - Why It's So Hard for Apple to Move Production from China to India 0:00:00.080 --> 0:00:01.280 Hello, Odd Lots listeners. 0:00:01.360 --> 0:00:03.600 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:03.760 --> 0:00:04.080 Tracy. 0:00:04.120 --> 0:00:06.280 We're doing another live show and it's right here in 0:00:06.280 --> 0:00:06.880 New York City. 0:00:07.080 --> 0:00:10.080 Yeah, this one should be our biggest yet, and we're 0:00:10.080 --> 0:00:12.520 going to have a bunch of Odd Lots favorites and 0:00:13.160 --> 0:00:15.880 do something maybe a little different to some of our 0:00:15.960 --> 0:00:18.200 previous live podcast recordings. 0:00:18.280 --> 0:00:21.079 When the guests are revealed, the show is going to 0:00:21.120 --> 0:00:22.840 sell out right away, so you should really just go 0:00:22.840 --> 0:00:25.960 get your ticket right now. It's June twenty sixth. It's 0:00:25.960 --> 0:00:28.560 at Recket, NYC, and you can find a ticket link 0:00:28.600 --> 0:00:31.800 at Bloomberg dot com slash odd Lots or Bloomberg Events 0:00:31.840 --> 0:00:34.040 dot com slash odd Lots Live and. 0:00:33.960 --> 0:00:35.520 Why we hope to see you there. 0:00:38.479 --> 0:00:51.879 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:54.000 --> 0:00:57.520 Hello and welcome to another episode of the Oudlots podcast. 0:00:57.600 --> 0:00:59.960 I'm Joe Wisenthal and I'm Tracy Alloway. 0:01:00.280 --> 0:01:03.640 Tracy. I'm gonna confess something I've kind of hinted it. 0:01:03.640 --> 0:01:05.640 It's not that big of a confession, and. 0:01:05.600 --> 0:01:09.120 I've kind of hinted it already, which is that if 0:01:09.160 --> 0:01:11.600 Trump wants to impose a bunch of terrorists on a 0:01:11.640 --> 0:01:15.000 bunch of cheap, random plastic goods from China. 0:01:15.200 --> 0:01:16.600 I'm fine with that. That's cool. 0:01:16.800 --> 0:01:20.000 Fifty one hundred percent, one hundred and forty nine percent. 0:01:20.680 --> 0:01:22.640 I'll consume less. I'll be a little bit more of 0:01:22.680 --> 0:01:24.240 a monk or something like that. 0:01:24.280 --> 0:01:24.959 I'm fine with that. 0:01:25.360 --> 0:01:29.440 Okay, But isn't the argument not necessarily the cost, although 0:01:29.600 --> 0:01:32.720 there is a cost on individual consumers. But the argument 0:01:32.840 --> 0:01:36.160 is why do we want to focus on shifting plastic 0:01:36.240 --> 0:01:40.600 production and toy manufacturing to the US. That's the criticism, right, Like, 0:01:40.680 --> 0:01:45.200 why specifically focus on cheap goods in factories? 0:01:45.720 --> 0:01:45.920 Yeah? 0:01:46.040 --> 0:01:47.920 No, you might be right, Like, I don't think there's 0:01:48.040 --> 0:01:52.600 much value in safe, you know, moving a plastic stepstule 0:01:52.680 --> 0:01:56.560 factory or a stroller factory or whatever to the US. 0:01:56.680 --> 0:01:56.960 I don't. 0:01:57.000 --> 0:01:58.960 I don't really see the point. I want there to 0:01:58.960 --> 0:02:02.760 be affordable strollers obviously, just buy and large a lot 0:02:02.800 --> 0:02:03.280 of this stuff. 0:02:03.400 --> 0:02:07.640 Yes, fine, this is not much of a confession, Okay, but. 0:02:07.800 --> 0:02:10.240 I will confess too that if the price of a 0:02:10.320 --> 0:02:13.000 new iPhone went up a lot, I would be pretty annoyed. 0:02:13.480 --> 0:02:15.920 I tend to notice these things. I tend to replace 0:02:16.040 --> 0:02:18.960 mine every two or three years or something like that. 0:02:19.360 --> 0:02:23.760 There are areas that we do import significantly from China 0:02:24.280 --> 0:02:27.360 that are not cheap child skis, cheap junk is. People 0:02:27.400 --> 0:02:30.240 like to fantasize that that's all China produces. There are 0:02:30.280 --> 0:02:32.840 areas that I would be very upset to pay a 0:02:33.080 --> 0:02:34.239 significantly higher price. 0:02:34.480 --> 0:02:38.160 Well, getting back to the goal of tariffs and protectionist 0:02:38.200 --> 0:02:42.440 trade policies, I assume, you know, putting tariffs on iPhones 0:02:42.480 --> 0:02:45.280 would be about moving some of the production closer to home, 0:02:45.360 --> 0:02:48.200 and I think there there's an open question about whether 0:02:48.280 --> 0:02:52.519 we want that as well, because for most of our lifetimes, 0:02:52.560 --> 0:02:55.600 the stories we've been hearing about iPhones in China are 0:02:55.639 --> 0:02:59.000 all about how terrible the labor conditions are and how 0:02:59.040 --> 0:03:02.160 difficult it is to actually make these things. So right, 0:03:02.320 --> 0:03:06.240 I can see, you know, some strategic argument. Obviously, semiconductors 0:03:06.280 --> 0:03:09.640 are considered a very important strategic goal nowadays, but the 0:03:09.720 --> 0:03:14.320 actual manufacturing, you know, there is that China story out there. 0:03:14.520 --> 0:03:18.240 Anyway, I think the administration is very sensitive to people 0:03:18.440 --> 0:03:20.680 like me. One of the first things, even in the 0:03:20.720 --> 0:03:22.680 midst of the heat of the trade war, and I 0:03:22.680 --> 0:03:26.119 should note we're recording this May twenty ninth, it could 0:03:26.160 --> 0:03:28.000 be that the whole trade war is illegal. There was 0:03:28.040 --> 0:03:30.239 that court ruling made last night. We really don't know 0:03:30.240 --> 0:03:32.680 where things got to end up. They're clearly sensitive to 0:03:32.720 --> 0:03:35.880 the iPhone thing, and so there were some carve outs 0:03:35.920 --> 0:03:39.640 specifically related more or less related to that. I think 0:03:39.800 --> 0:03:44.640 during the first Trump administration, Apple got some reprieve. These 0:03:44.680 --> 0:03:46.920 are sensitive areas. Yes, we want to build up the 0:03:47.000 --> 0:03:51.840 capacity to expand technological production, high tech things, high value 0:03:51.840 --> 0:03:53.760 add things, and so forth, but we don't want the 0:03:53.800 --> 0:03:58.200 sticker shock. This explains, of course, some of the sort 0:03:58.240 --> 0:04:01.280 of multiple personalities administration, if you will. 0:04:02.360 --> 0:04:05.840 Well, there's also the added complexity of building up these 0:04:06.080 --> 0:04:08.960 very very advanced supply chains, right, and if you look 0:04:09.000 --> 0:04:11.360 at Apple and what they did in China, that was 0:04:11.400 --> 0:04:15.720 built over the course of many, many years, decades even, 0:04:15.920 --> 0:04:17.960 And the idea that the US is suddenly going to 0:04:18.000 --> 0:04:20.840 flip a switch, a terriff switch and move all that 0:04:20.880 --> 0:04:23.880 production elsewhere seems a little optimistic, right. 0:04:23.880 --> 0:04:26.000 And then there might be flipping a switch, but not 0:04:26.120 --> 0:04:28.320 in the full direction. Maybe there are multiple dials on 0:04:28.360 --> 0:04:30.600 the switch. Sure, so then one possibility that you hear 0:04:30.680 --> 0:04:33.240 is okay, maybe move more to India. But I don't 0:04:33.240 --> 0:04:35.279 think Trump likes that. But maybe that would be a 0:04:35.279 --> 0:04:37.800 little bit better from the US perspective, in the sense 0:04:37.839 --> 0:04:42.280 that we're not contributing as much to Chinese economic development, 0:04:42.480 --> 0:04:45.480 and so, okay, it's not bringing jobs back, and Trump 0:04:45.520 --> 0:04:47.560 said moving to the US. From time to time you 0:04:47.600 --> 0:04:50.160 hear about maybe they could be built in Brazil or something. 0:04:50.520 --> 0:04:52.600 But all of these raised the question. There's two things. 0:04:52.640 --> 0:04:55.039 It's like, hey, is this realistic at all? If door 0:04:55.120 --> 0:04:57.360 is switch that you could pull is move to the US, 0:04:57.600 --> 0:05:00.800 move to India, that switch would have been moved. And 0:05:00.839 --> 0:05:03.000 then the other thing, too is what does it even 0:05:03.040 --> 0:05:06.000 mean to build the iPhone in India or the US, 0:05:06.120 --> 0:05:10.000 because there's final assembly, et cetera. But of course component 0:05:10.080 --> 0:05:14.720 parts within the iPhone themselves. Also, much of it is 0:05:14.880 --> 0:05:17.120 actually made in China. And you know, I'm sure there's 0:05:17.400 --> 0:05:20.279 thousands of tiny pieces of various things doing things, and 0:05:20.320 --> 0:05:22.640 there many of them are built in China. So even 0:05:22.640 --> 0:05:25.000 the idea of like we're going to move X production 0:05:25.160 --> 0:05:30.400 to X country is not a clear statement because it 0:05:30.440 --> 0:05:33.240 could just be the final packaging or whatever, and that's 0:05:33.279 --> 0:05:36.000 not really where the value add lies, which means we 0:05:36.080 --> 0:05:40.159 really have to more deeply understand how and what gets 0:05:40.200 --> 0:05:42.080 built in China and what it would mean to even 0:05:42.120 --> 0:05:44.000 move that. Well, we're even talked about when we're talking 0:05:44.000 --> 0:05:46.800 about moving these things, let's do it. Well, I'm very 0:05:46.800 --> 0:05:50.799 excited to say we do indeed have the perfect guest. 0:05:51.400 --> 0:05:53.640 We're going to be speaking with Patrick McGee. He's at 0:05:53.640 --> 0:05:55.920 the FT but he has a new book out came 0:05:55.960 --> 0:05:59.559 out May thirteenth called Apple in China Like the Capture 0:05:59.560 --> 0:06:01.840 of the World's Greatest Company, And it is a book 0:06:01.880 --> 0:06:06.159 about the history of Apple's deep relationship with the state 0:06:06.200 --> 0:06:08.640 of China, with the economy of China, the sort of 0:06:08.680 --> 0:06:12.360 co evolution of these entities. So much of the iPhone 0:06:12.440 --> 0:06:16.400 story we know is sort of inextricably connected with the 0:06:16.480 --> 0:06:19.599 rise of Chinese manufacturing. This is what Tim Cook is 0:06:19.720 --> 0:06:21.800 known for in the very beginning. So Patrick, thank you 0:06:21.880 --> 0:06:25.080 so much for coming on outlaws my pleasure. 0:06:25.240 --> 0:06:26.120 Hi Joe, Hi Tracy. 0:06:26.800 --> 0:06:28.960 What does it mean if Apple says, oh, we're moving 0:06:29.000 --> 0:06:31.560 more production to India or we want to what does 0:06:31.560 --> 0:06:32.400 that term mean to you? 0:06:33.000 --> 0:06:35.160 Ah? Well, cleverly, they don't say that. They say they're 0:06:35.160 --> 0:06:38.960 moving assembly because they they know, but the reader probably doesn't, 0:06:38.960 --> 0:06:42.200 the lister probably doesn't. There's a massive distinction between assembly 0:06:42.600 --> 0:06:45.640 and production. So I think Apple is sort of orchestrating 0:06:45.640 --> 0:06:47.799 this effort. Right, There's no press release that says anything 0:06:47.800 --> 0:06:50.040 from Apple, so you can't quote Apple. But insofar as 0:06:50.040 --> 0:06:52.200 the word got out, you know, my money's on Koupatino 0:06:52.440 --> 0:06:54.960 being behind this. So yeah, I mean put it this way, 0:06:54.960 --> 0:06:57.640 if there are a thousand steps in making an iPhone 0:06:57.680 --> 0:06:59.960 and the final one is now being done in India, 0:07:00.400 --> 0:07:03.200 that's enough to have a quote unquote substantive change to 0:07:03.240 --> 0:07:06.400 the product, and therefore the box can say made in India. 0:07:06.520 --> 0:07:08.720 Nothing about that phone is any less dependent on the 0:07:08.800 --> 0:07:10.920 China centric supply chain than any other phone you have 0:07:10.960 --> 0:07:11.640 ever purchased. 0:07:11.880 --> 0:07:13.920 Okay, so on this note, maybe a good place to 0:07:14.000 --> 0:07:17.640 start is walk us through your typical iPhone, the one 0:07:17.680 --> 0:07:20.480 that Joe is buying every two or three years. What's 0:07:20.560 --> 0:07:24.400 its I guess birth process, Like, where do iPhones come from? 0:07:24.440 --> 0:07:27.640 And what is the actual supply chain that creates them. 0:07:27.960 --> 0:07:30.040 That's such a funny question. I'll tell you one funny answer, 0:07:30.080 --> 0:07:31.800 which is that I asked, you know, a very senior 0:07:31.840 --> 0:07:34.720 person at Apple how an iPhone is made, and he said, 0:07:34.760 --> 0:07:36.800 have you seen the I Love Lucy clip of them 0:07:36.840 --> 0:07:39.360 making chocolate have you ever seen that? Yeah, of course 0:07:40.040 --> 0:07:42.280 I actually hadn't. So Okay, so picture of its conveyor 0:07:42.360 --> 0:07:44.880 belt and the chocolate is coming so fast that eventually 0:07:44.880 --> 0:07:47.480 they just start heating them rather than packaging them up. Okay, 0:07:47.640 --> 0:07:49.400 So there's a method to the madness here. I mean, 0:07:49.640 --> 0:07:52.400 Apple is able to take Adam Smith's idea the division 0:07:52.400 --> 0:07:55.080 of labor and put it to the hilarious degree that 0:07:55.160 --> 0:07:57.480 out does Nathan Field with the comedian trying to do 0:07:57.520 --> 0:08:00.120 this with house cleaning two decades after the fact. So 0:08:00.520 --> 0:08:02.280 it is often the fact that on a conveor belt 0:08:02.320 --> 0:08:04.880 you have nine to eleven seconds to perform your task, 0:08:04.920 --> 0:08:06.640 you know, putting a module in the left hand corner 0:08:06.720 --> 0:08:09.080 or whatever, before the next iPhone comes over. So that's 0:08:09.120 --> 0:08:11.400 the final assembly process, and that's really what is taking 0:08:11.400 --> 0:08:14.800 place now in India ramping that up to avoid tariffs. 0:08:14.960 --> 0:08:18.560 But the actual production we're talking one thousand components and 0:08:18.680 --> 0:08:22.760 Apple works with the tightest engineering tolerances possible, only high 0:08:22.800 --> 0:08:24.840 quality materials. That you put this in car terms, they 0:08:24.840 --> 0:08:27.640 are making ten million porsches a year rather than ten 0:08:27.680 --> 0:08:30.880 million volkswagons, right, and the numbers are just staggering. Right. 0:08:30.880 --> 0:08:33.360 So if you're doing one thousand components a day, and 0:08:33.400 --> 0:08:36.440 you're shipping one million iPhones a day. That means at 0:08:36.440 --> 0:08:39.240 peak season, you were doing the manufacturing, the logistics, the 0:08:39.360 --> 0:08:42.440 just in time production of one billion parts per day. 0:08:42.640 --> 0:08:44.960 So find me an American factory that can do one 0:08:44.960 --> 0:08:47.560 of those parts, because China has factories that can do 0:08:47.600 --> 0:08:50.080 it for all one thousand. That's why nothing is moving 0:08:50.080 --> 0:08:53.760 here anytime soon. It's the combination of Apple's imperfection for 0:08:53.800 --> 0:08:58.559 defects quality and Apple's gar gantu and titanic like quantity. 0:08:59.240 --> 0:09:03.400 There is producttion of Apple products and I believe iPhones 0:09:03.640 --> 0:09:07.920 in India or sorry, assembly of Apple products in India. 0:09:08.200 --> 0:09:11.720 What do we know about the efficiency or the relative 0:09:11.720 --> 0:09:14.400 efficiency because obviously the company has been thinking about these 0:09:14.440 --> 0:09:16.720 risks for years and years and years, and I'm sure 0:09:16.760 --> 0:09:20.400 would love to not be this tightly linked to one country, 0:09:20.440 --> 0:09:22.440 which we know, for all the reasons we don't need 0:09:22.480 --> 0:09:25.120 to get into is risky. What do we know about 0:09:25.120 --> 0:09:27.240 the efficiency of its assembly in India? 0:09:28.040 --> 0:09:30.200 Let me just give you sort of objective numbers and 0:09:30.240 --> 0:09:32.440 then we'll go from there. So the first iPhones made 0:09:32.480 --> 0:09:35.160 in India were actually in twenty seventeen, OK, and by 0:09:35.160 --> 0:09:39.960 twenty twenty three, India was assembling about twenty five million iPhones. 0:09:40.160 --> 0:09:42.480 Go back a decade. The first iPhones were made in 0:09:42.559 --> 0:09:44.720 China in two thousand and seven, and by two thousand 0:09:44.760 --> 0:09:48.280 and fifteen you had two hundred and thirty million iPhones 0:09:48.360 --> 0:09:52.040 being built. So roughly speaking, the quote unquote diversification in 0:09:52.040 --> 0:09:54.560 India is happening at one tenth the pace of the 0:09:54.600 --> 0:09:58.560 original creation and scale of the iPhone, and even that 0:09:59.280 --> 0:10:02.959 vastly over the speed of development in India because, of course, 0:10:03.000 --> 0:10:04.600 in the early years of the iPhone, I mean you're 0:10:04.600 --> 0:10:07.559 literally inventing things like multi touch glass, right, you were 0:10:07.559 --> 0:10:11.400 inventing and redesigning the iPhone every single year, whereas India 0:10:11.480 --> 0:10:13.200 is basically just having to do the final steps in 0:10:13.240 --> 0:10:15.800 the process, and it's still not happening very quickly. Now, really, 0:10:15.840 --> 0:10:19.280 what changes is that in Shanghai twenty twenty two, the 0:10:19.280 --> 0:10:21.320 city enters lockdown, and that's a city of more than 0:10:21.320 --> 0:10:23.880 twenty five million people. It really is the first time 0:10:23.920 --> 0:10:26.599 in Apple's two decade history in China where did the 0:10:26.679 --> 0:10:30.240 government provincial officials in this case, really had made a 0:10:30.240 --> 0:10:33.600 decision diametrically opposed to Apple's interests and that's when Plan 0:10:33.679 --> 0:10:36.360 b Let's really ramp up in India went into effect. 0:10:36.559 --> 0:10:38.880 But it's been almost three years since then, and even 0:10:38.920 --> 0:10:41.040 so you don't have a whole lot going on there. 0:10:41.240 --> 0:10:43.600 And yeah, I've talked to the engineers. They're called manufacturing 0:10:43.640 --> 0:10:45.520 design engineers. These are the people who sort of do 0:10:45.559 --> 0:10:48.520 the handholding the engineering one zho one in different countries, 0:10:48.679 --> 0:10:50.560 and they've been ramping up in India, and what they 0:10:50.600 --> 0:10:53.600 find is that the ecosystem isn't there, the industrial clusters 0:10:53.640 --> 0:10:56.120 aren't there. You don't have eight lane highways to and 0:10:56.160 --> 0:10:58.680 from the factories. You often sometimes don't even have stable 0:10:58.720 --> 0:11:01.120 Wi Fi in the taxi the cab on the way 0:11:01.280 --> 0:11:03.960 to the factory. Engineers are sometimes staying two hours away, 0:11:04.000 --> 0:11:06.640 which means four hours of their day is just going 0:11:06.640 --> 0:11:08.120 to and from the factory. And if they don't have 0:11:08.160 --> 0:11:10.680 a stable cellular connection along the way, it can be 0:11:10.679 --> 0:11:12.880 a little bit maddening. So many things you don't have. 0:11:12.920 --> 0:11:14.200 And the other thing you just don't have is the 0:11:14.240 --> 0:11:16.400 sort of Nietzschean will to power on the part of 0:11:16.440 --> 0:11:19.320 New Delhi to make manufacturing their thing. And you don't 0:11:19.360 --> 0:11:22.480 have what engineers call quote unquote China speed, which is 0:11:22.559 --> 0:11:27.000 just like this inexplicable, speedy development that would wow Apple 0:11:27.040 --> 0:11:29.319 engineers in the earliest years. So, just to give one 0:11:29.320 --> 0:11:31.440 example that's not in the book, there was this example 0:11:31.440 --> 0:11:33.760 where these engineers from Apple are in this factory that 0:11:33.800 --> 0:11:35.800 needs to be sort of retooled for the Apple line, 0:11:35.840 --> 0:11:38.280 and it's the size of a football field. It's enormous, 0:11:38.320 --> 0:11:40.160 and they estimate, okay, it's going to take two to 0:11:40.200 --> 0:11:42.520 three weeks to get this machine removed. They come back 0:11:42.520 --> 0:11:44.880 the next day it's all been moved, and it's totally 0:11:45.320 --> 0:11:47.560 blows their minds. All they've done is gone to sleep, 0:11:47.559 --> 0:11:50.319 head breakfast, and come back and everything is complete. And 0:11:50.400 --> 0:11:52.200 that which is happening in China all the time, and 0:11:52.240 --> 0:11:53.600 it just is not happening in India. 0:12:10.280 --> 0:12:12.960 I like the idea of just one more lane bro 0:12:13.160 --> 0:12:18.560 will solve our domestic iPhone assembly production problems. That's pretty funny. Okay, 0:12:18.640 --> 0:12:20.760 So I want to back up a little bit, but 0:12:20.840 --> 0:12:24.080 can we talk a little more about Apple strategy in 0:12:24.160 --> 0:12:28.239 China specifically, So how much of that was a deliberate, 0:12:28.640 --> 0:12:34.600 conscious decision versus something that just kind of happened alongside 0:12:34.640 --> 0:12:38.600 I guess the wave of outsourcing and globalization that we 0:12:38.679 --> 0:12:41.360 saw in the late nineteen nineties early two thousands. 0:12:41.760 --> 0:12:43.760 Yeah, great question. And what I like about your intro 0:12:43.880 --> 0:12:45.760 tracy is that I really do think the story of 0:12:45.760 --> 0:12:47.680 Apple and China over the last twenty years has really 0:12:47.720 --> 0:12:50.520 just been about the tedium of assembly. A journalists have 0:12:50.520 --> 0:12:52.040 won prizes for this kind of thing, right, and it's 0:12:52.280 --> 0:12:54.440 set into motion this cat and mouse pattern where a 0:12:54.480 --> 0:12:56.640 journalist goes into a factory and says, all these workers 0:12:56.640 --> 0:12:59.160 are working too hard, there's underage employees, et cetera. And 0:12:59.160 --> 0:13:01.719 then Apple is shame into making changes and it sort 0:13:01.720 --> 0:13:04.320 of plays the role of White Knight improving factory conditions 0:13:04.320 --> 0:13:07.120 across China's supply chain, and then journalist win's an award, 0:13:07.160 --> 0:13:08.679 and then two years later someone does the next thing 0:13:08.679 --> 0:13:10.360 in a different factory, and so on and so forth. 0:13:10.400 --> 0:13:13.160 But we're totally overlooking questions of Apple strategy, like what 0:13:13.200 --> 0:13:16.240 did they quote unquote discover in China that nobody else discovered? 0:13:16.480 --> 0:13:19.000 And so really the book is an attempt to do that. 0:13:19.080 --> 0:13:21.880 So the first thing I'd push back on is Tim 0:13:21.880 --> 0:13:24.800 Cook is very often called the architect of the China strategy, 0:13:25.080 --> 0:13:27.200 and it's not to discredit him to say that he 0:13:27.400 --> 0:13:30.160 is not the architect. Nobody is the architect. Basically, what 0:13:30.240 --> 0:13:33.480 happens is really the supply chain itself, with or without 0:13:33.480 --> 0:13:37.080 Apple was moving to China. And so the basic history 0:13:37.080 --> 0:13:40.240 of the eighties and nineties PC boom, like predating Windows 0:13:40.320 --> 0:13:43.959 ninety five and then coming after, is that the fight 0:13:44.120 --> 0:13:48.600 for computer dominance is exclusively based on things that are 0:13:48.640 --> 0:13:53.559 boring logistics, manufacturing, distribution, right, because everybody's using Windows, everybody's 0:13:53.640 --> 0:13:56.240 using Intel chips, and nobody's thinking about design. There is 0:13:56.240 --> 0:13:59.000 no equivalent of Johnny I've at Dell, at Compac, at 0:13:59.040 --> 0:14:02.240 any of these companies, and so it's really this mundane war, 0:14:02.480 --> 0:14:06.960 and it's driven by largely American and later Taiwanese contract manufacturers, 0:14:07.360 --> 0:14:09.480 and so they are the ones who, in competition with 0:14:09.559 --> 0:14:11.960 each other, start going to Asia to sort of oust 0:14:12.040 --> 0:14:14.520 each other right and gain market share, and eventually they're 0:14:14.520 --> 0:14:17.560 the ones who really find China. So when Apple is 0:14:17.600 --> 0:14:21.040 doing their own outsourcing moves, they're working in multiple countries 0:14:21.160 --> 0:14:25.200 before the armies of flexible, ubiquitous, low paid labor in 0:14:25.320 --> 0:14:28.120 China really win out. So my story has this five 0:14:28.200 --> 0:14:31.320 part chapter called Apple's Long March to China. It really 0:14:31.320 --> 0:14:33.600 tells you that the candy called iMac that I'm sure 0:14:33.640 --> 0:14:35.680 both of you and all of your listeners remember, like 0:14:36.200 --> 0:14:39.080 that was made out of Korea by LG who then 0:14:39.120 --> 0:14:43.560 expanded to Mexicali and Wales. Fox Con is brought on 0:14:43.640 --> 0:14:45.880 as a second supplier, and that's in China, but it's 0:14:45.960 --> 0:14:50.360 also in the Czech Republic, and it's also curt in California. 0:14:50.440 --> 0:14:53.560 But when you've got these operations in multiple countries, especially 0:14:53.640 --> 0:14:56.440 once China enters the World Trade Organization two thousand and one, 0:14:56.600 --> 0:14:58.040 all you have to do is look at an Excel 0:14:58.080 --> 0:15:01.640 sheet and realize that the efficiency, cost, the scale and 0:15:01.840 --> 0:15:05.400 anything China is winning. And so Apple begins to really 0:15:05.440 --> 0:15:08.680 consolidate everything into China. And around two thousand and three 0:15:08.720 --> 0:15:11.560 when the iPod Mini becomes the most ubiquitous product Apple's 0:15:11.560 --> 0:15:13.840 ever created, and then there's just no question that when 0:15:13.880 --> 0:15:15.720 the iPod nano is invented, that's where it's going to 0:15:15.720 --> 0:15:17.240 be built, and when the iPhone comes out, that's where 0:15:17.240 --> 0:15:18.840 it's going to be built. So it really is just 0:15:18.880 --> 0:15:22.480 like stumbling into greater and greater volumes and success in China. 0:15:22.760 --> 0:15:24.400 And I give all sorts of credit to China. I mean, 0:15:24.400 --> 0:15:26.320 people think it's an anti China book. If they haven't 0:15:26.320 --> 0:15:28.520 read it, it really isn't. There's only one place that 0:15:28.560 --> 0:15:30.320 Apple could have succeeded the way they did, and it's 0:15:30.320 --> 0:15:34.080 because China had tailor made policies. We're leading industrial clusters, 0:15:34.120 --> 0:15:37.360 we're leading industrial policy and hardworking people that would do 0:15:37.360 --> 0:15:39.320 this for twelve hours a day, six days a week. 0:15:39.840 --> 0:15:41.920 Is the book an anti Apple book? I mean you 0:15:41.960 --> 0:15:45.120 say it's not an anti China book. Apple who's created 0:15:45.320 --> 0:15:50.440 literally trillions of dollars in value for Americans. It's created 0:15:50.680 --> 0:15:54.320 thousands and thousands of amazing, high paid jobs that are 0:15:54.400 --> 0:15:58.160 much better than the jobs that are at the assembly 0:15:58.440 --> 0:16:01.760 or factories that exist in China. Is it an anti 0:16:01.800 --> 0:16:02.400 Apple book? 0:16:03.320 --> 0:16:05.720 No. Anyone thinking it's an anti Apple book will be 0:16:05.720 --> 0:16:08.240 in for a rude awakening because you'll quickly realize that 0:16:08.520 --> 0:16:10.240 for starters, when I say I spoke to more than 0:16:10.240 --> 0:16:13.040 two hundred people, I'm only counting the people with Apple experience. 0:16:13.040 --> 0:16:16.440 Then I spoke to other people as well, in supply chain, academics, journalists, 0:16:16.440 --> 0:16:18.440 that kind of stuff. But it is told through the 0:16:18.480 --> 0:16:20.840 eyes of the people in the weeds on the grounds, 0:16:20.880 --> 0:16:24.920 you know, directing Apple's success. Right, So the first chapters 0:16:24.960 --> 0:16:26.760 in particular, I mean, the first part is called Saving 0:16:26.760 --> 0:16:29.680 Apple is really just a story of Apple's genius in 0:16:30.120 --> 0:16:32.640 pulling off these maneuvers and coming off the brink of bankruptcy. 0:16:32.720 --> 0:16:35.280 They are literally days away from missing payroll. In nineteen 0:16:35.360 --> 0:16:37.320 ninety six, I think I reveal for the first time 0:16:37.360 --> 0:16:40.200 they'd even hired a Chapter eleven lawyer. And then as 0:16:40.240 --> 0:16:42.040 the sort of hail Mary move, once they've got a 0:16:42.040 --> 0:16:44.560 bit more money after selling a factory in Colorado, they 0:16:44.640 --> 0:16:47.000 bring back Steve jobs. And really the first narrative is 0:16:47.040 --> 0:16:49.160 just like this raw raw, go Apple, Can they do it? 0:16:49.320 --> 0:16:51.320 And even in two thousand with the dot com bust, 0:16:51.400 --> 0:16:53.840 like they're close to bankruptcy again and Gateway literally tries 0:16:53.880 --> 0:16:57.240 to acquire them. So the story is one of sleepwalking 0:16:57.320 --> 0:17:01.320 into a geopolitical reality. Really, as China changes, I mean, 0:17:01.360 --> 0:17:04.200 I don't criticize anyone at Apple for moving to China 0:17:04.240 --> 0:17:06.560 in the early two thousands. That's what everybody was doing. 0:17:06.680 --> 0:17:09.160 I would even say there was an American consensus rather 0:17:09.200 --> 0:17:11.960 than some bipartisan effort, that going to China was good 0:17:12.000 --> 0:17:14.560 because you were going to inculcate the next great democracy, 0:17:14.680 --> 0:17:17.000 you know, and maybe in a hubristic or arrogant way. 0:17:17.040 --> 0:17:19.040 But like Americans would have said, that's what we did 0:17:19.040 --> 0:17:22.080 for Taiwan, that's what we did for Korea, Germany, et cetera. 0:17:22.160 --> 0:17:24.560 I mean after World War Two. So there was all 0:17:24.600 --> 0:17:27.320 sorts of reasons to move to China. The problematic decision 0:17:27.440 --> 0:17:30.679 was that once Xijinping comes into power, Apple is not 0:17:30.720 --> 0:17:34.840 an innocent bystander. As Xixhinping hardens his tone and becomes 0:17:34.880 --> 0:17:38.080 more belligerent, he attacks Apple within thirty six hours of 0:17:38.119 --> 0:17:40.800 taking the reins in March twenty thirteen, and that was 0:17:40.840 --> 0:17:43.240 the point at which Apple could have made a strategic 0:17:43.280 --> 0:17:47.160 decision to diversify its supply chain to India or something. Instead, 0:17:47.280 --> 0:17:49.720 they ramp up their rewards for shareholders in the form 0:17:49.720 --> 0:17:52.680 of buybacks and dividends, and they doubled down in China, 0:17:52.880 --> 0:17:56.840 appointing a team to basically understand Chinese culture, understand Chinese politics, 0:17:57.000 --> 0:17:58.919 and come up with a way of demonstrating to the 0:17:58.920 --> 0:18:01.600 country and it's efficial. Look, we're really really in this 0:18:01.640 --> 0:18:02.760 for China, as it were. 0:18:03.080 --> 0:18:07.000 What exactly was Apple's pitch to Chinese leadership? And I 0:18:07.000 --> 0:18:09.280 guess how did it change over time? How much of 0:18:09.320 --> 0:18:11.840 it was about, Oh, we're going to create jobs that 0:18:11.880 --> 0:18:16.280 will pay more than agricultural wages, better standards of life, 0:18:16.440 --> 0:18:21.800 maybe relatively, versus the strategic value of building up China's 0:18:21.840 --> 0:18:27.639 tech sector and all this strategic semiconductor technology and things 0:18:27.720 --> 0:18:29.520 like that. How did it shift over time? 0:18:30.440 --> 0:18:33.320 So it's a fascinating narrative, And really the first four 0:18:33.359 --> 0:18:35.800 parts of the book leading up to twenty thirteen are 0:18:35.840 --> 0:18:38.760 just foundation buildings, so you sort of understand the history 0:18:38.760 --> 0:18:41.240 of Apple and what sort of problems they're having. Essentially, 0:18:41.280 --> 0:18:43.600 what happens is when chies in paying at tax Apple, 0:18:43.920 --> 0:18:46.000 you can understand why he's upset with the company. It 0:18:46.080 --> 0:18:49.960 looks like an exploitative power because their margins. Apple margins 0:18:50.119 --> 0:18:52.320 have gone from something like one percent in two thousand 0:18:52.359 --> 0:18:55.159 and three to twenty five percent in twenty twelve. But 0:18:55.160 --> 0:18:56.840 at the same time, if you look like a company 0:18:56.880 --> 0:18:59.760 like Fox con foxhon in absolute dollars made more money 0:18:59.760 --> 0:19:01.560 than Apple for each of the first four years of 0:19:01.600 --> 0:19:04.760 the twenty first century. But as they get more involved 0:19:04.760 --> 0:19:07.400 with Apple, their margins collapse from double digits to about 0:19:07.400 --> 0:19:09.439 one or two percent. And so you can just do 0:19:09.480 --> 0:19:11.800 this with really any company working with Apple, and it 0:19:11.840 --> 0:19:14.440 looks like they're not in it for China, right, They're 0:19:14.440 --> 0:19:17.040 not doing anything for the country. And Apple it takes 0:19:17.040 --> 0:19:19.159 them two or three years, but they totally flip this 0:19:19.240 --> 0:19:21.880 narrative on its head. So out of fear that Beijing 0:19:21.920 --> 0:19:23.600 is going to force Apple to operate a bunch of 0:19:23.680 --> 0:19:26.080 joint ventures, right, these fifty to fifty companies where China 0:19:26.119 --> 0:19:28.400 owns the other half, and then they mimic the technology 0:19:28.440 --> 0:19:30.080 and eventually oust you. I mean, this is what happened 0:19:30.080 --> 0:19:33.040