1 00:00:04,640 --> 00:00:11,080 Speaker 1: From Bloomberg News and iHeartRadio. It's the Big Take. I'm Westkasova. 2 00:00:11,600 --> 00:00:24,880 Speaker 1: Today Apple looks to expand its global reach. The story 3 00:00:24,880 --> 00:00:28,760 Speaker 1: of Apple's rise to become the world's most valuable company 4 00:00:29,000 --> 00:00:33,360 Speaker 1: two point four trillion dollars is also the story of 5 00:00:33,400 --> 00:00:38,839 Speaker 1: its relationship with China. Apple's vast manufacturing operation there and 6 00:00:38,920 --> 00:00:42,440 Speaker 1: its connections to thousands of suppliers, means it can turn 7 00:00:42,479 --> 00:00:46,800 Speaker 1: out hundreds of millions of iPhones for customers around the world. 8 00:00:47,320 --> 00:00:51,720 Speaker 1: But Bloomberg's chief technology correspondent Mark German reports that Apple's 9 00:00:51,800 --> 00:00:56,160 Speaker 1: singular relationship with China is changing. What you saw Apple 10 00:00:56,240 --> 00:00:58,840 Speaker 1: do in China over the last ten fifteen years, you're 11 00:00:58,840 --> 00:01:02,920 Speaker 1: seeing that same book begin in India. I asked Mark 12 00:01:03,000 --> 00:01:05,959 Speaker 1: to tell us how shifts in the global economy and 13 00:01:06,240 --> 00:01:10,960 Speaker 1: rising tensions between Washington and Beijing have Apple looking to 14 00:01:11,000 --> 00:01:15,120 Speaker 1: expand its operations outside China and try to replicate its 15 00:01:15,200 --> 00:01:19,479 Speaker 1: success in other fast growing economies, and later in the show, 16 00:01:19,760 --> 00:01:23,720 Speaker 1: senior reporter Debbie Wu in Taipei talks about why that 17 00:01:23,920 --> 00:01:27,240 Speaker 1: might not be such an easy thing to do. There 18 00:01:27,240 --> 00:01:31,319 Speaker 1: will be a pretty significant consequence if Apple is really 19 00:01:31,400 --> 00:01:34,880 Speaker 1: looking to the couple from China entirely. That's really not 20 00:01:34,920 --> 00:01:41,440 Speaker 1: going to happen. Mark. When we think about manufacturing in China, 21 00:01:41,920 --> 00:01:45,600 Speaker 1: Apple is certainly one company that immediately comes to mind. 22 00:01:46,520 --> 00:01:50,880 Speaker 1: This incredibly complex supply chain that they built too and 23 00:01:51,000 --> 00:01:54,320 Speaker 1: from China is like nothing that's ever been done before. 24 00:01:54,880 --> 00:01:58,760 Speaker 1: Can you give us a sense of how important is 25 00:01:58,960 --> 00:02:03,720 Speaker 1: this supply chain to Apple's success? Apple supply chain is 26 00:02:03,720 --> 00:02:08,040 Speaker 1: a monster, right, It is this sprawling operation, and the 27 00:02:08,080 --> 00:02:10,960 Speaker 1: supply chain is so much more than what people think of. 28 00:02:11,040 --> 00:02:12,840 Speaker 1: Right when you think of the supply chain, when you 29 00:02:12,919 --> 00:02:15,840 Speaker 1: think of Apple manufacturing, you think of the idea of 30 00:02:15,960 --> 00:02:19,800 Speaker 1: millions and tens of millions of iPhones, iPads other devices 31 00:02:20,240 --> 00:02:24,600 Speaker 1: being popped out of a massive factory in China ship 32 00:02:24,639 --> 00:02:28,440 Speaker 1: to consumers arriving on their doorsteps. But there's so much 33 00:02:28,480 --> 00:02:31,600 Speaker 1: more to the supply chain. It starts actually a lot earlier. 34 00:02:32,120 --> 00:02:36,240 Speaker 1: One process is actually the development of the manufacturing equipment 35 00:02:36,560 --> 00:02:40,760 Speaker 1: alongside the development of the product that's created between Apple 36 00:02:41,040 --> 00:02:44,639 Speaker 1: as well as its final manufacturing partner. Those partners are 37 00:02:44,680 --> 00:02:52,360 Speaker 1: companies like Foxcon, Pegatron, Quanta, Gertech, and others. These are 38 00:02:52,400 --> 00:02:56,200 Speaker 1: all these partner companies that Apple essentially contracts with to 39 00:02:56,320 --> 00:02:59,160 Speaker 1: make the devices in Chenna. That's exactly right. Those are 40 00:02:59,200 --> 00:03:03,360 Speaker 1: their contract manufacturers for a process known as FATP. That's 41 00:03:03,440 --> 00:03:07,320 Speaker 1: final assembly, testing and packaging. But that's really the last 42 00:03:07,400 --> 00:03:10,000 Speaker 1: part of the supply chain. There's a whole process before 43 00:03:10,040 --> 00:03:15,320 Speaker 1: the products are actually manufactured. That's component sourcing. That's component production. 44 00:03:15,880 --> 00:03:19,560 Speaker 1: That's mining of different materials, metals and minerals that go 45 00:03:19,639 --> 00:03:23,720 Speaker 1: into the components and the products, things like tungsten and gold. 46 00:03:24,240 --> 00:03:26,880 Speaker 1: That happens over a number of years before a product 47 00:03:26,960 --> 00:03:30,919 Speaker 1: is manufactured. And that's something that happens globally. There's parts 48 00:03:30,919 --> 00:03:33,760 Speaker 1: of the iPhone, the iPad, and the watch and the 49 00:03:33,800 --> 00:03:37,240 Speaker 1: mac and Apple's other products that are sourced globally from 50 00:03:37,240 --> 00:03:41,280 Speaker 1: places even like the US to Europe to Japan, and 51 00:03:41,360 --> 00:03:45,560 Speaker 1: Apple pulls all those components together to do that final assembly, 52 00:03:45,840 --> 00:03:49,280 Speaker 1: to do that mass manufacturing in China, and the idea 53 00:03:49,320 --> 00:03:53,040 Speaker 1: of the Apple supply chain was to outsource everything, and 54 00:03:53,160 --> 00:03:56,520 Speaker 1: this started over twenty years ago under Tim Cook when 55 00:03:56,520 --> 00:03:59,880 Speaker 1: Steve Jobs returned to the company in the late nineteen nineties, 56 00:04:00,200 --> 00:04:02,640 Speaker 1: the idea being to move away from in house Apple 57 00:04:02,680 --> 00:04:06,920 Speaker 1: manufacturing and to do contract manufacturing. It lessens the costs 58 00:04:06,960 --> 00:04:10,480 Speaker 1: for Apple, it lessens the risk, and you're passing over 59 00:04:10,880 --> 00:04:15,120 Speaker 1: this very key part of the manufacturing process to companies 60 00:04:15,120 --> 00:04:18,640 Speaker 1: that actually specialize in this type of thing. That's the 61 00:04:18,680 --> 00:04:21,640 Speaker 1: Fox cons, Pegatron's quantas of the world. Right, there are 62 00:04:21,640 --> 00:04:25,200 Speaker 1: specialists in this mass manufacturing. And at the time they 63 00:04:25,200 --> 00:04:27,720 Speaker 1: were building this, China was the place to do it 64 00:04:27,760 --> 00:04:30,479 Speaker 1: because they had the technical ability and they were able 65 00:04:30,520 --> 00:04:34,240 Speaker 1: to do it much more cheaply than you could manufacture 66 00:04:34,400 --> 00:04:37,479 Speaker 1: in the US. That's right. Apple started with fox Con 67 00:04:37,760 --> 00:04:40,880 Speaker 1: in China in the early days of the iPod. Actually 68 00:04:41,240 --> 00:04:44,680 Speaker 1: the first iPods are actually produced in Taiwan, and now 69 00:04:44,720 --> 00:04:48,839 Speaker 1: you have facilities in China and elsewhere in Asia, and 70 00:04:48,880 --> 00:04:50,840 Speaker 1: the idea being that these are the people who know 71 00:04:50,920 --> 00:04:54,640 Speaker 1: how to do it at cost, at quality, and also 72 00:04:55,000 --> 00:04:57,880 Speaker 1: in quantity. And so it was very important as Apple 73 00:04:57,960 --> 00:05:01,440 Speaker 1: was driving its consumer business with the iPod, It's laptops 74 00:05:01,440 --> 00:05:04,000 Speaker 1: and then eventually the iPhone and the watch and the iPad, 75 00:05:04,680 --> 00:05:06,800 Speaker 1: to be able to produce in these large quantities, they 76 00:05:06,800 --> 00:05:08,599 Speaker 1: needed a place to do it, and China was the 77 00:05:08,600 --> 00:05:11,760 Speaker 1: place to do it while hitting all those necessary factors. 78 00:05:12,040 --> 00:05:14,760 Speaker 1: And of course they want to enjoy their large margins, 79 00:05:15,080 --> 00:05:18,080 Speaker 1: which on some products can top fifty percent and China 80 00:05:18,160 --> 00:05:20,800 Speaker 1: was the way to help make that happen. More recently, 81 00:05:21,080 --> 00:05:24,280 Speaker 1: you write though, that some cracks started to show up 82 00:05:24,360 --> 00:05:28,240 Speaker 1: in this system. First when President Trump was in office 83 00:05:28,360 --> 00:05:32,200 Speaker 1: and trade and political tensions between the US and China 84 00:05:32,360 --> 00:05:35,400 Speaker 1: got worse, and then Trump was taking aim at Apple 85 00:05:35,520 --> 00:05:38,920 Speaker 1: because they were making products in China instead of the US. 86 00:05:39,520 --> 00:05:42,440 Speaker 1: And then a couple of years later when the pandemic 87 00:05:42,520 --> 00:05:48,920 Speaker 1: hit and China's COVID zero policies froze up manufacturing. Can 88 00:05:49,000 --> 00:05:54,360 Speaker 1: you describe how both of those things affected Apple's business. Yeah, 89 00:05:54,400 --> 00:05:57,880 Speaker 1: the Apple supply chain was really unbreakable. For the first 90 00:05:57,920 --> 00:06:02,200 Speaker 1: twenty years, things really, you know, went full steam without 91 00:06:02,240 --> 00:06:06,400 Speaker 1: a hitch. They were successfully able to launch several generations 92 00:06:06,440 --> 00:06:11,440 Speaker 1: of the iPod, the Mac, the iPhone, the Apple Watch. 93 00:06:11,480 --> 00:06:15,760 Speaker 1: Everything was really great until around twenty eighteen, twenty nineteen, 94 00:06:16,440 --> 00:06:19,359 Speaker 1: when Trump was in office in the US and his 95 00:06:19,560 --> 00:06:24,839 Speaker 1: whole anti China push and the tariffs, that really started 96 00:06:24,839 --> 00:06:27,200 Speaker 1: to show the cracks in the armor of the Apple 97 00:06:27,200 --> 00:06:30,479 Speaker 1: supply chain. And it was twofold. On one hand, the 98 00:06:30,560 --> 00:06:35,200 Speaker 1: worry from Apple and investors and consumers in China that 99 00:06:35,279 --> 00:06:39,159 Speaker 1: the tariffs that Trump was attempting to put on Apple devices, 100 00:06:39,200 --> 00:06:42,680 Speaker 1: including the iPhone, the Mac and the Apple Watch. These 101 00:06:42,680 --> 00:06:47,880 Speaker 1: tariffs could be several percentage points consumers. Apple shareholders were 102 00:06:47,880 --> 00:06:52,159 Speaker 1: worried that this would raise the costs of Apple products 103 00:06:52,240 --> 00:06:55,400 Speaker 1: and of course hurt demand. That was one part of it, 104 00:06:55,680 --> 00:06:58,279 Speaker 1: but it was twofold. The other part of it was 105 00:06:58,440 --> 00:07:01,839 Speaker 1: in the middle of all the issues, the economy in 106 00:07:01,960 --> 00:07:03,880 Speaker 1: China took a little bit of a hit because of 107 00:07:03,920 --> 00:07:06,599 Speaker 1: these concerns. That really happened at the end of twenty 108 00:07:06,720 --> 00:07:10,400 Speaker 1: eighteen early twenty nineteen. And what that did is that 109 00:07:10,440 --> 00:07:14,720 Speaker 1: really hurt sales in China, hurt the Chinese economy, which 110 00:07:14,760 --> 00:07:18,160 Speaker 1: in turn hurt that final supply chain. And so the 111 00:07:18,240 --> 00:07:21,680 Speaker 1: combination of the economic issues in China with the tariff 112 00:07:21,720 --> 00:07:25,360 Speaker 1: issues between the US and China really brought the Apple 113 00:07:25,440 --> 00:07:28,760 Speaker 1: supply chain in terms of mass manufacturing, right to the 114 00:07:28,760 --> 00:07:32,000 Speaker 1: forefront and brought it into question. But you know, as 115 00:07:32,040 --> 00:07:37,400 Speaker 1: twenty nineteen went around, it continued, things really calmed down 116 00:07:37,560 --> 00:07:41,040 Speaker 1: and normalized. Apple started to get lots of breaks with 117 00:07:41,080 --> 00:07:45,640 Speaker 1: the Trump administration on tariffs. Apple basically created a dog 118 00:07:45,640 --> 00:07:49,800 Speaker 1: and pony show in Texas where it manufactured the parts 119 00:07:49,960 --> 00:07:53,880 Speaker 1: of the MacPro that's their highest end desktop computer. Right. 120 00:07:53,920 --> 00:07:57,720 Speaker 1: They built those parts in China and then did final 121 00:07:57,760 --> 00:08:02,120 Speaker 1: assembly in packaging in test of that very low quantity 122 00:08:02,160 --> 00:08:05,800 Speaker 1: machine at a plant by a company called Flex in Texas. 123 00:08:06,360 --> 00:08:10,360 Speaker 1: Tim Cook came there, Trump came there, Ivanka Trump. They 124 00:08:10,360 --> 00:08:13,920 Speaker 1: held a whole press conference. Trump was very happy it 125 00:08:13,960 --> 00:08:17,080 Speaker 1: had no issue because of that, showing that made in 126 00:08:17,120 --> 00:08:20,560 Speaker 1: America manufacturing promise to give Apple breaks on those tariffs. 127 00:08:20,760 --> 00:08:23,200 Speaker 1: So things were fine over the course of twenty nineteen 128 00:08:23,880 --> 00:08:26,680 Speaker 1: because of the diplomacy between Apple CEO Tim Cook and 129 00:08:26,760 --> 00:08:30,080 Speaker 1: President Trump at the time. Then end of twenty nineteen hit, 130 00:08:30,440 --> 00:08:32,960 Speaker 1: early twenty twenty hit, and we all know what happened there, 131 00:08:33,280 --> 00:08:37,199 Speaker 1: the COVID pandemic that led to major shutdowns and delays 132 00:08:37,320 --> 00:08:42,400 Speaker 1: and Apple supply chain in China, and really the COVID issues, 133 00:08:42,440 --> 00:08:46,640 Speaker 1: the COVID zero policy in China really came to ahead 134 00:08:46,640 --> 00:08:49,560 Speaker 1: with Apple at the end of twenty twenty two with 135 00:08:49,679 --> 00:08:53,160 Speaker 1: the launch of the iPhone fourteen Pro, and that was 136 00:08:53,200 --> 00:08:58,600 Speaker 1: supposed to be Apple's big splashy kind of reinvented iPhone exactly. 137 00:08:58,640 --> 00:09:01,200 Speaker 1: The iPhone fourteen Pro was supposed to be this major 138 00:09:01,280 --> 00:09:04,880 Speaker 1: launch for Apple. You've had it improved displays, you had 139 00:09:04,960 --> 00:09:08,040 Speaker 1: the dynamic Island. You had this forty eight megapixel camera 140 00:09:08,160 --> 00:09:10,960 Speaker 1: on the back, you had new space black and deep 141 00:09:11,000 --> 00:09:14,080 Speaker 1: purple colors. This was a really hot phone with a 142 00:09:14,080 --> 00:09:17,120 Speaker 1: ton of demand, but unfortunately for Apple, they could not 143 00:09:17,160 --> 00:09:21,880 Speaker 1: fulfill that demand because new COVID waves hit China right 144 00:09:21,960 --> 00:09:24,760 Speaker 1: at the height of the production and launch of the 145 00:09:24,800 --> 00:09:29,640 Speaker 1: iPhone fourteen Pro, and Apple's operations team had made the unfortunate, 146 00:09:30,120 --> 00:09:34,760 Speaker 1: I guess in hindsight, decision to do mass manufacturing of 147 00:09:34,800 --> 00:09:39,599 Speaker 1: the iPhone fourteen Pro at a single place in China, 148 00:09:39,679 --> 00:09:44,200 Speaker 1: at fox Con one set of facilities. Those facilities went 149 00:09:44,320 --> 00:09:48,319 Speaker 1: down for about a month because of the COVID zero policies, 150 00:09:48,800 --> 00:09:53,000 Speaker 1: which seriously delayed iPhone fourteen production, hurt Apple sales for 151 00:09:53,040 --> 00:09:55,839 Speaker 1: the holiday quarter, hurt their growth for the key Q 152 00:09:56,040 --> 00:09:58,720 Speaker 1: one holiday quarter, and that all comes down to the 153 00:09:58,760 --> 00:10:01,880 Speaker 1: decision to source at one plant in China. So everything 154 00:10:01,960 --> 00:10:04,080 Speaker 1: was good for the first twenty years, right, but the 155 00:10:04,120 --> 00:10:06,480 Speaker 1: first three to five years have been pretty rough for 156 00:10:06,520 --> 00:10:10,480 Speaker 1: the Apple supply chain. Did it make Apple executives start 157 00:10:10,520 --> 00:10:16,120 Speaker 1: to rethink their dependency on manufacturing so many of its products, 158 00:10:16,280 --> 00:10:20,440 Speaker 1: especially the flagship iPhone in China alone. I believe the 159 00:10:20,520 --> 00:10:25,640 Speaker 1: rethink of where Apple should conduct mass manufacturing. It didn't 160 00:10:25,640 --> 00:10:29,200 Speaker 1: start with these COVID zero policies. This actually predated COVID. 161 00:10:29,480 --> 00:10:32,439 Speaker 1: I think this is something that they had considered probably 162 00:10:32,480 --> 00:10:35,079 Speaker 1: since the beginning of the supply chain, right or a 163 00:10:35,120 --> 00:10:38,360 Speaker 1: little after the beginning, at least for a decade, but 164 00:10:38,480 --> 00:10:41,080 Speaker 1: something that really came to the forefront at the time 165 00:10:41,200 --> 00:10:44,880 Speaker 1: of the Trump tariffs. That's when they became really to 166 00:10:45,080 --> 00:10:47,640 Speaker 1: understand that they may need to diversify a bit more. 167 00:10:48,000 --> 00:10:51,320 Speaker 1: But obviously these COVID zero policies you brought that even 168 00:10:51,440 --> 00:10:54,120 Speaker 1: closer to the forefront. And what did that look like 169 00:10:54,200 --> 00:10:58,080 Speaker 1: inside Apple, after all of these years of building the 170 00:10:58,160 --> 00:11:01,720 Speaker 1: supply chain almost entirely lay around China, to begin to think, 171 00:11:02,480 --> 00:11:08,360 Speaker 1: how do we move this beast as you describe it elsewhere? Right, Certainly, 172 00:11:08,520 --> 00:11:11,400 Speaker 1: I believe the company thinks that it's supply chain is 173 00:11:11,640 --> 00:11:16,400 Speaker 1: resilient and very strong. The supply chain is a strong beast. 174 00:11:16,800 --> 00:11:20,640 Speaker 1: Despite everything that happened, the iPhone twelve at the height 175 00:11:20,679 --> 00:11:23,560 Speaker 1: of COVID was only delayed a few months. The MacBook 176 00:11:23,600 --> 00:11:25,480 Speaker 1: Air last year was only delayed about a month and 177 00:11:25,480 --> 00:11:29,800 Speaker 1: a half. The iPhone fourteen pro situation that supply situation 178 00:11:30,000 --> 00:11:33,040 Speaker 1: was resolved in a matter of weeks. So it has 179 00:11:33,080 --> 00:11:35,800 Speaker 1: been resilient, as Tim Cook likes to say. And it 180 00:11:35,880 --> 00:11:38,600 Speaker 1: doesn't appear that we're going to have more COVID zero 181 00:11:38,640 --> 00:11:41,400 Speaker 1: issues in China from here. It doesn't appear we're going 182 00:11:41,440 --> 00:11:44,719 Speaker 1: to have more terriff related issues anytime soon. But this 183 00:11:44,760 --> 00:11:48,320 Speaker 1: pattern certainly is a bit concerning, and it's unclear what 184 00:11:48,360 --> 00:11:50,719 Speaker 1: can happen. Anything can happen at this point between the 185 00:11:50,840 --> 00:11:55,240 Speaker 1: US and China from a diplomacy standpoint, from a COVID standpoint. 186 00:11:55,800 --> 00:11:58,120 Speaker 1: Right now, things are calm, but who knows what could 187 00:11:58,120 --> 00:12:00,840 Speaker 1: happen in a day from now, a year now, or 188 00:12:00,880 --> 00:12:04,160 Speaker 1: a decade from now. More with Mark German after the 189 00:12:04,200 --> 00:12:15,800 Speaker 1: break Mark. Apple depends on China not just as a 190 00:12:15,880 --> 00:12:21,680 Speaker 1: manufacturing base, but also to access their enormous consumer market 191 00:12:21,880 --> 00:12:26,960 Speaker 1: for their products. If Apple were to significantly move its 192 00:12:27,120 --> 00:12:30,920 Speaker 1: production away from China, would that hurt its ability to 193 00:12:31,559 --> 00:12:36,080 Speaker 1: reach Chinese consumers? Absolutely? If Apple did a wholesale move 194 00:12:36,080 --> 00:12:39,280 Speaker 1: out of China, it's very possible that they would be 195 00:12:39,320 --> 00:12:42,760 Speaker 1: harmed tremendously. They bring in seventy five billion a year 196 00:12:42,840 --> 00:12:45,200 Speaker 1: plus at this point, nearly twenty five percent of their 197 00:12:45,200 --> 00:12:49,000 Speaker 1: annual revenue from China, and part of that ability to 198 00:12:49,040 --> 00:12:53,319 Speaker 1: sell to China uniquely as a US corporation is what 199 00:12:53,400 --> 00:12:57,199 Speaker 1: it injects into the economy with a million plus people 200 00:12:57,200 --> 00:13:00,240 Speaker 1: in the supply chain working on Apple products, with its 201 00:13:00,280 --> 00:13:04,240 Speaker 1: offices and employees in China, so it really is a 202 00:13:04,280 --> 00:13:07,240 Speaker 1: partnership between Apple and China. And if Apple moves out, 203 00:13:07,320 --> 00:13:09,120 Speaker 1: China may not hold up its end of the deal. 204 00:13:09,520 --> 00:13:14,480 Speaker 1: Apple's largest competitor in China is Huawei. Why has Huawei 205 00:13:14,640 --> 00:13:19,200 Speaker 1: not been able to establish a bigger foothold and even 206 00:13:19,240 --> 00:13:23,720 Speaker 1: overtake Apple inside China itself? The consumers in China are 207 00:13:23,760 --> 00:13:27,640 Speaker 1: addicted to Apple products, the iPhone, the Apple Watch, the iPad, 208 00:13:27,760 --> 00:13:32,840 Speaker 1: even the Mac now extraordinarily hot sellers in China. You know, 209 00:13:32,960 --> 00:13:36,360 Speaker 1: the iPhone started off just in the US, then it 210 00:13:36,440 --> 00:13:41,720 Speaker 1: expanded to Europe, it expanded to Australia, but China came 211 00:13:41,760 --> 00:13:44,560 Speaker 1: a little bit later. The really key thing for Apple 212 00:13:44,600 --> 00:13:48,000 Speaker 1: in terms of the revenue you see today was twofold 213 00:13:48,240 --> 00:13:51,760 Speaker 1: and these were both Tim Cook initiatives. Tim Cook struck 214 00:13:51,760 --> 00:13:54,600 Speaker 1: a deal in the early twenty tens with a carrier 215 00:13:54,720 --> 00:13:58,600 Speaker 1: called China Mobile that gave Apple access to about a 216 00:13:58,640 --> 00:14:02,640 Speaker 1: billion new consumers because that at the time the largest 217 00:14:02,679 --> 00:14:05,520 Speaker 1: carrier in China. Still to this day and most people 218 00:14:05,520 --> 00:14:08,839 Speaker 1: don't know this, the vast majority of iPhones are not 219 00:14:08,920 --> 00:14:12,079 Speaker 1: bought through Apple, either Apple Online, Apple over the phone, 220 00:14:12,120 --> 00:14:15,560 Speaker 1: or Apple retail. They're actually bought through the carrier stores 221 00:14:15,600 --> 00:14:19,440 Speaker 1: and the carrier websites, so that relationship incredibly important, not 222 00:14:19,480 --> 00:14:22,560 Speaker 1: only in China but globally. And then in twenty fourteen, 223 00:14:23,080 --> 00:14:25,800 Speaker 1: that was the real big one. That was the iPhone six. 224 00:14:26,320 --> 00:14:29,680 Speaker 1: If you remember, the iPhone screen size really didn't change 225 00:14:29,760 --> 00:14:33,000 Speaker 1: much between the first several generations, the original to the 226 00:14:33,040 --> 00:14:35,640 Speaker 1: iPhone five S. With the iPhone five they moved from 227 00:14:35,680 --> 00:14:38,160 Speaker 1: that original three and a half inch screen to a 228 00:14:38,200 --> 00:14:40,400 Speaker 1: four inch screen, which is very small compared to what 229 00:14:40,480 --> 00:14:43,360 Speaker 1: we have today. But the iPhone six Apple really up 230 00:14:43,400 --> 00:14:46,160 Speaker 1: the ante. They came out with two new models. The 231 00:14:46,280 --> 00:14:48,560 Speaker 1: base iPhone six, they moved from a four inch phone 232 00:14:48,760 --> 00:14:51,000 Speaker 1: to a four point seven inch phone, which was quite 233 00:14:51,000 --> 00:14:53,160 Speaker 1: a leap. But on top of that, they released the 234 00:14:53,200 --> 00:14:56,240 Speaker 1: iPhone six Plus that was with a five point five 235 00:14:56,280 --> 00:15:00,800 Speaker 1: inch screen. People in China wanted the biggest they can get, 236 00:15:00,840 --> 00:15:03,720 Speaker 1: the Android phones the China made phones at the time. 237 00:15:04,040 --> 00:15:07,600 Speaker 1: Those had giant screens. People in China really wanted to 238 00:15:07,720 --> 00:15:10,880 Speaker 1: use one device, right. They don't want to carry a smartphone, 239 00:15:10,960 --> 00:15:13,560 Speaker 1: a tablet, in a computer. They wanted one device that 240 00:15:13,560 --> 00:15:15,000 Speaker 1: could do it all. And to do it all, you 241 00:15:15,040 --> 00:15:17,480 Speaker 1: need the biggest screen you can get. So the iPhone 242 00:15:17,520 --> 00:15:21,360 Speaker 1: six plus extraordinarily hot seller in China. So the bigger 243 00:15:21,400 --> 00:15:23,840 Speaker 1: and bigger they've gone on the screen sizes, the better 244 00:15:23,840 --> 00:15:26,240 Speaker 1: and better they've done, not only in China but elsewhere. 245 00:15:26,520 --> 00:15:30,000 Speaker 1: So they've really been doing things to reach the Chinese market. 246 00:15:30,200 --> 00:15:33,520 Speaker 1: They've also done new software features, things that the people 247 00:15:33,560 --> 00:15:36,600 Speaker 1: in China are wanting to install on their phones. But 248 00:15:36,640 --> 00:15:39,280 Speaker 1: there's also some things that Apple has done that have 249 00:15:39,400 --> 00:15:42,440 Speaker 1: really been done to appease China, things that are not 250 00:15:42,560 --> 00:15:45,960 Speaker 1: necessarily so pleasant in order to keep this relationship flowing. 251 00:15:46,240 --> 00:15:49,440 Speaker 1: I'll give you an example. Some of the iTunes features, 252 00:15:49,520 --> 00:15:52,280 Speaker 1: the Apple Books features, some of the app Store features 253 00:15:52,760 --> 00:15:57,120 Speaker 1: those are not available in China. Other features have been 254 00:15:57,240 --> 00:16:01,040 Speaker 1: implemented at the behest of the Chinese government. Last year, 255 00:16:01,280 --> 00:16:05,040 Speaker 1: Apple changed its air drop feature to help the Chinese 256 00:16:05,040 --> 00:16:09,720 Speaker 1: government avoid people spreading protest information against the Chinese government. 257 00:16:10,240 --> 00:16:12,480 Speaker 1: Using this air drop feature, which allows you to send 258 00:16:12,520 --> 00:16:17,120 Speaker 1: files at short distance between devices. Apple eventually said that 259 00:16:17,160 --> 00:16:19,600 Speaker 1: feature was a global feature, and they made it global, 260 00:16:20,120 --> 00:16:23,280 Speaker 1: but it's no secret that they released it in China first, 261 00:16:23,360 --> 00:16:25,880 Speaker 1: and it was designed for China before they expanded it. 262 00:16:26,560 --> 00:16:31,680 Speaker 1: So now we're seeing India rise as a consumer market. 263 00:16:32,160 --> 00:16:36,920 Speaker 1: India's population now rivals or in some measures, actually exceeds 264 00:16:37,040 --> 00:16:41,040 Speaker 1: Chinese population. Now, is there a chance that Apple starts 265 00:16:41,120 --> 00:16:44,640 Speaker 1: doing what you're describing they're doing now in China in India, 266 00:16:44,760 --> 00:16:50,680 Speaker 1: trying to attract that enormous consumer base by moving production 267 00:16:50,760 --> 00:16:55,400 Speaker 1: there to create the same kind of symbiotic relationship between 268 00:16:55,640 --> 00:16:58,560 Speaker 1: its products and the government what you saw Apple do 269 00:16:58,680 --> 00:17:01,400 Speaker 1: in China over the last ten fifteen years. You're seeing 270 00:17:01,440 --> 00:17:05,240 Speaker 1: that same playbook begin in India, and with a population 271 00:17:05,320 --> 00:17:08,240 Speaker 1: of well over a billion at this point and a 272 00:17:08,359 --> 00:17:11,680 Speaker 1: growing economy there, you're seeing Apple do this all over 273 00:17:11,720 --> 00:17:14,159 Speaker 1: again in India. And you saw what that did for 274 00:17:14,200 --> 00:17:17,640 Speaker 1: Apple's revenue growth when they made these moves in China. 275 00:17:17,760 --> 00:17:19,600 Speaker 1: Their hope is it's going to happen all over again 276 00:17:19,600 --> 00:17:23,000 Speaker 1: in India, so they're focusing tremendously there. They're building up 277 00:17:23,040 --> 00:17:26,560 Speaker 1: production facilities for the iPhone and other products there. They've 278 00:17:26,560 --> 00:17:29,840 Speaker 1: done small scale manufacturing of the iPhone there, but it's 279 00:17:29,880 --> 00:17:32,960 Speaker 1: getting hotter and hotter. They're starting to produce their highest 280 00:17:33,040 --> 00:17:36,280 Speaker 1: end iPhones earlier in India. They're going to produce more 281 00:17:36,400 --> 00:17:40,040 Speaker 1: iPhones in India over time. They're working on a few 282 00:17:40,080 --> 00:17:42,840 Speaker 1: new retail stores. They're planning to open their first one 283 00:17:43,240 --> 00:17:46,040 Speaker 1: in the end of twenty twenty three, with more to follow. 284 00:17:46,240 --> 00:17:48,760 Speaker 1: I would say probably they're going to open at least 285 00:17:48,800 --> 00:17:51,399 Speaker 1: two more over the next year or two. Over the 286 00:17:51,400 --> 00:17:54,520 Speaker 1: next decade, you might see fifteen twenty stores or more. 287 00:17:54,800 --> 00:17:59,119 Speaker 1: They've recently created their own sales region internally just for India. 288 00:17:59,280 --> 00:18:02,040 Speaker 1: India used to be grouped with other emerging markets in 289 00:18:02,160 --> 00:18:05,520 Speaker 1: terms of its organizational structure at Apple grouped with Africa, 290 00:18:05,600 --> 00:18:08,679 Speaker 1: grouped with Eastern Europe, grouped at the Mediterranean, grouped at 291 00:18:08,680 --> 00:18:11,400 Speaker 1: the Middle East. Those have broken off into their own 292 00:18:11,440 --> 00:18:13,640 Speaker 1: region as one group, and now India is a stand 293 00:18:13,680 --> 00:18:17,720 Speaker 1: alone region. Reporting to Mike Fenger, who under CEO Tim 294 00:18:17,720 --> 00:18:22,360 Speaker 1: Cook is Apple's head of sales, India is clearly prominent 295 00:18:22,400 --> 00:18:26,520 Speaker 1: and clearly Apple's imminent future, both on a sales standpoint 296 00:18:27,320 --> 00:18:31,400 Speaker 1: and on a product manufacturing standpoint. So we've seen coverage 297 00:18:31,520 --> 00:18:36,199 Speaker 1: lately about how Apple maybe leaving China for India or 298 00:18:36,240 --> 00:18:38,760 Speaker 1: other countries. But it seems like what you're describing is 299 00:18:38,800 --> 00:18:40,600 Speaker 1: that they're not going to leave China. They're simply going 300 00:18:40,640 --> 00:18:44,960 Speaker 1: to grow even bigger to include India without having to 301 00:18:45,080 --> 00:18:48,680 Speaker 1: significantly scale back in China. Is that right? I don't 302 00:18:48,720 --> 00:18:53,000 Speaker 1: believe that Apple has any imminent plans to significantly scale 303 00:18:53,000 --> 00:18:56,719 Speaker 1: back in China. Maybe they scale back twenty percent, twenty 304 00:18:56,720 --> 00:19:00,280 Speaker 1: five percent, maybe even fifty percent, and they build up 305 00:19:00,320 --> 00:19:02,919 Speaker 1: more infrastructure in India, But I believe the idea is 306 00:19:02,920 --> 00:19:06,760 Speaker 1: to build in redundancy and expansion rather than make a 307 00:19:06,800 --> 00:19:10,520 Speaker 1: wholesale removal of its operations from China. There is too 308 00:19:10,600 --> 00:19:12,760 Speaker 1: much at risk for Apple to do something like that. 309 00:19:13,119 --> 00:19:17,160 Speaker 1: When you look ahead, what do you see for Apple's manufacturing. 310 00:19:17,200 --> 00:19:20,680 Speaker 1: Do you start to see it manufacturing in many, many 311 00:19:20,760 --> 00:19:24,840 Speaker 1: more countries or how do they manage the supply chain 312 00:19:24,840 --> 00:19:28,720 Speaker 1: when it becomes even more complicated across nations and regions. 313 00:19:29,320 --> 00:19:32,480 Speaker 1: So right now, most every Apple product you buy, it's 314 00:19:32,480 --> 00:19:34,479 Speaker 1: going to say made in China, whether that's in the 315 00:19:34,520 --> 00:19:37,480 Speaker 1: software settings or on the back of the phone, or 316 00:19:37,520 --> 00:19:39,720 Speaker 1: the top or bottom of the phone, it's going to 317 00:19:39,800 --> 00:19:42,200 Speaker 1: be made in China. But I think in five ten 318 00:19:42,280 --> 00:19:45,680 Speaker 1: years from now, it'll be a crapshoot. Maybe someone's phone 319 00:19:45,720 --> 00:19:49,120 Speaker 1: says made in China. Maybe someone says made in India. 320 00:19:49,320 --> 00:19:53,040 Speaker 1: Maybe one in Vietnam, one in Thailand, one in Malaysia. 321 00:19:53,280 --> 00:19:56,840 Speaker 1: Maybe someone's max has made in Ireland or made in Texas. 322 00:19:57,080 --> 00:20:00,960 Speaker 1: The final assembly is going to be much broader, with 323 00:20:01,040 --> 00:20:04,520 Speaker 1: more redundancy, but still the majority of the products made 324 00:20:04,520 --> 00:20:08,520 Speaker 1: in China, particularly the iPhone. I believe Mark German, thanks 325 00:20:08,560 --> 00:20:12,359 Speaker 1: for coming on the show. Thanks so much. When we 326 00:20:12,480 --> 00:20:20,560 Speaker 1: come back, a closer look at Apple's expansion into India. 327 00:20:28,400 --> 00:20:31,639 Speaker 1: As Mark German told us, Apple is looking to further 328 00:20:31,880 --> 00:20:37,560 Speaker 1: expand its massive manufacturing empire, but that might not be 329 00:20:37,960 --> 00:20:42,520 Speaker 1: so easy to do. A Bloomberg Intelligence analysis concludes it 330 00:20:42,520 --> 00:20:46,239 Speaker 1: would take eight years to move just ten percent of 331 00:20:46,359 --> 00:20:50,600 Speaker 1: Apple's production out of China. I asked my colleague Debbie 332 00:20:50,600 --> 00:20:55,680 Speaker 1: Wu in Taipei, she covers tech and supply chains, why 333 00:20:55,840 --> 00:20:59,280 Speaker 1: it would take so long for Apple to begin to 334 00:20:59,480 --> 00:21:02,920 Speaker 1: deco full a bit from China. I'm not sure whether 335 00:21:02,960 --> 00:21:06,159 Speaker 1: Apple is planning to the couple from China per site, 336 00:21:06,240 --> 00:21:10,600 Speaker 1: because China after or remans a major market for Apple. 337 00:21:11,280 --> 00:21:14,720 Speaker 1: And also Apple is still making most of its S 338 00:21:14,720 --> 00:21:19,400 Speaker 1: gadgets inside China, so there will be a pretty significant consequence. 339 00:21:19,560 --> 00:21:23,359 Speaker 1: If Apple is really looking to the couple from China entirely, 340 00:21:23,680 --> 00:21:26,959 Speaker 1: that's really not going to happen, at least not overnight. 341 00:21:27,480 --> 00:21:30,960 Speaker 1: I always like to remind people that Fox Come first 342 00:21:31,200 --> 00:21:34,399 Speaker 1: went into China in nineteen eighty eight, so let's some 343 00:21:34,560 --> 00:21:39,240 Speaker 1: more than thirty years ago. In Central China employees about 344 00:21:39,320 --> 00:21:43,640 Speaker 1: two hundred thousand people, even not India low season. Think 345 00:21:43,680 --> 00:21:48,480 Speaker 1: about which other country cannot provide Apple and Fox Cong 346 00:21:48,800 --> 00:21:52,840 Speaker 1: such a sheer amount of workers during a peak season. 347 00:21:53,240 --> 00:21:55,359 Speaker 1: I don't think you can name a lot of countries. 348 00:21:55,760 --> 00:21:59,320 Speaker 1: India has become a natural choice for Apple to a 349 00:22:00,080 --> 00:22:04,440 Speaker 1: versify some of its production too. Apple certainly seems to 350 00:22:04,480 --> 00:22:08,119 Speaker 1: think so, Debbie. Earlier this month, you reported that Foxcan, 351 00:22:08,280 --> 00:22:12,560 Speaker 1: one of Apple's manufacturing partners, plans to invest about seven 352 00:22:12,720 --> 00:22:16,480 Speaker 1: hundred million dollars on a new plant in India. Can 353 00:22:16,640 --> 00:22:20,760 Speaker 1: India move quickly enough to ramp up high quality production 354 00:22:20,880 --> 00:22:24,639 Speaker 1: that Apple requires. This is not just like depending on 355 00:22:25,240 --> 00:22:29,680 Speaker 1: india stub population. We are talking about a comprehensive ecosystem 356 00:22:29,720 --> 00:22:33,000 Speaker 1: as well, So it's not just like Okay, foxcon has 357 00:22:33,080 --> 00:22:35,560 Speaker 1: moved to India and then India will be able to 358 00:22:35,800 --> 00:22:39,840 Speaker 1: ramp up iPhone production. It does need a entire ecosystem, 359 00:22:40,000 --> 00:22:43,840 Speaker 1: So in China's case, it's not just foxcun but it's 360 00:22:43,880 --> 00:22:48,560 Speaker 1: a comprehensive ecosystem made up of hundreds and thousands of 361 00:22:48,880 --> 00:22:53,359 Speaker 1: component suppliers. So because they are all inside the Chinese border, 362 00:22:53,560 --> 00:22:58,240 Speaker 1: these component suppliers have the adequate infrastructure including a highways, 363 00:22:58,240 --> 00:23:04,680 Speaker 1: and then logistics including trucks, and then the meticulous logistics 364 00:23:04,720 --> 00:23:08,600 Speaker 1: plannings to help them get their components to a like 365 00:23:08,800 --> 00:23:11,560 Speaker 1: need to BA. This is all very important for Apple 366 00:23:11,640 --> 00:23:15,840 Speaker 1: because Apple has to execute a very very brutal cycle 367 00:23:16,040 --> 00:23:19,200 Speaker 1: or for launching a new generations of iPhone on a 368 00:23:19,320 --> 00:23:23,600 Speaker 1: early basis. They simply cannot afford to miss cycle. Three 369 00:23:24,000 --> 00:23:28,600 Speaker 1: of Apple's major iPhones suppliers are now in India rounding 370 00:23:28,680 --> 00:23:33,919 Speaker 1: assembly operations, but most of the component suppliers still haven't 371 00:23:34,000 --> 00:23:38,000 Speaker 1: quite set up manufacturing operations in India, so that will 372 00:23:38,080 --> 00:23:42,359 Speaker 1: lead to a more kindly and more costly operations for 373 00:23:42,480 --> 00:23:46,119 Speaker 1: Apple in the country. If India wants to become a 374 00:23:46,119 --> 00:23:49,800 Speaker 1: proper ecosystem in itself, then it will have to first 375 00:23:49,920 --> 00:23:53,639 Speaker 1: lure more Apple components suppliers to a country to be 376 00:23:53,720 --> 00:23:57,280 Speaker 1: able to build up a proper infrastructure within the country 377 00:23:57,320 --> 00:24:01,600 Speaker 1: to help the ecosystem to be able to run and 378 00:24:01,720 --> 00:24:05,760 Speaker 1: coordinate with each other smoothly like they do in China. 379 00:24:06,600 --> 00:24:11,000 Speaker 1: Is some of this about just capturing India's growing consumer market, 380 00:24:11,119 --> 00:24:15,560 Speaker 1: which is now rivaling China's, That's for sure, because China's 381 00:24:15,600 --> 00:24:19,840 Speaker 1: economic growth has been slowing down, and then the target 382 00:24:19,960 --> 00:24:23,479 Speaker 1: of five percent of growth seems to be only fairly 383 00:24:23,560 --> 00:24:27,560 Speaker 1: satisfactory for a lot of investors and economists. So naturally 384 00:24:27,600 --> 00:24:30,920 Speaker 1: it's not just Apple, but Apple and also a lot 385 00:24:31,000 --> 00:24:34,800 Speaker 1: of companies in the West and also in Asia. We'll 386 00:24:34,840 --> 00:24:38,560 Speaker 1: be looking at, you know, what's the next growth market 387 00:24:38,600 --> 00:24:42,080 Speaker 1: for us, and then where can we try to capture 388 00:24:42,359 --> 00:24:46,960 Speaker 1: the most profits and growth next? And India, with its 389 00:24:47,000 --> 00:24:52,480 Speaker 1: economy yet to really take off and with the population 390 00:24:52,640 --> 00:24:55,480 Speaker 1: still have a quite a long way to go in 391 00:24:55,600 --> 00:24:59,760 Speaker 1: terms of spending power. I think the majority of our 392 00:25:00,000 --> 00:25:02,919 Speaker 1: complaints is looking at this as a great opportunity to 393 00:25:03,560 --> 00:25:07,000 Speaker 1: go into the market. Because the Moldies government is currently 394 00:25:07,240 --> 00:25:11,800 Speaker 1: offering various incentives for manufacturers to make gadgets and chips 395 00:25:11,960 --> 00:25:15,440 Speaker 1: in his country. So I think mold is also fully 396 00:25:15,480 --> 00:25:19,359 Speaker 1: aware that this is a great opportunity to attract these 397 00:25:19,640 --> 00:25:23,439 Speaker 1: foreign investments at the time that the US and China 398 00:25:24,040 --> 00:25:29,800 Speaker 1: are continuing to see a very strength relationship. When you 399 00:25:29,880 --> 00:25:33,560 Speaker 1: look ahead, I don't know, a decade from now, do 400 00:25:33,560 --> 00:25:37,160 Speaker 1: you think a lot of Apple's manufacturing will be outside 401 00:25:37,160 --> 00:25:41,119 Speaker 1: of China in places like India and Vietnam. It really 402 00:25:41,119 --> 00:25:44,360 Speaker 1: depends a lot on what's going to happen in the 403 00:25:44,480 --> 00:25:49,400 Speaker 1: US China relationship, basically the ties between the two largest 404 00:25:49,440 --> 00:25:52,840 Speaker 1: economies in the world. So I think a lot of 405 00:25:52,920 --> 00:25:59,960 Speaker 1: complaints are feeling. If the somehow the strength relationship gets improved, 406 00:26:00,400 --> 00:26:05,080 Speaker 1: and maybe it's back to era of engagement, then I 407 00:26:05,080 --> 00:26:08,119 Speaker 1: think a lot of complaints still probably would prefer to 408 00:26:08,280 --> 00:26:12,600 Speaker 1: move for production back to China, because that way it's centralized, 409 00:26:12,640 --> 00:26:17,000 Speaker 1: it's more centralized, it's more efficient, and then the costs 410 00:26:17,040 --> 00:26:19,800 Speaker 1: are lower, and then that means that you can offer 411 00:26:20,400 --> 00:26:24,960 Speaker 1: a better price for your consumers as well. So in 412 00:26:25,000 --> 00:26:27,879 Speaker 1: a way, if you continue to think about costs and 413 00:26:28,040 --> 00:26:31,800 Speaker 1: profits and what Wall Street investors would prefer, let's actually 414 00:26:32,080 --> 00:26:35,560 Speaker 1: what the most company would still like to say. But 415 00:26:35,720 --> 00:26:41,880 Speaker 1: if this tension between Washington and Beijing persists or even escalates, 416 00:26:41,920 --> 00:26:46,760 Speaker 1: I think it would drive more complaints to rethink their 417 00:26:46,960 --> 00:26:52,280 Speaker 1: manufacturing astrology, and then whether it is necessary to move 418 00:26:52,400 --> 00:26:58,440 Speaker 1: more production outside of China to mitigate geopolitical risks. Thanks 419 00:26:58,440 --> 00:27:00,560 Speaker 1: for speaking with me today, Thank you for having me, 420 00:27:02,240 --> 00:27:04,240 Speaker 1: Thanks for listening to us here at The Big Take. 421 00:27:04,440 --> 00:27:07,880 Speaker 1: It's a daily podcast from Bloomberg and iHeartRadio. For more 422 00:27:07,920 --> 00:27:12,080 Speaker 1: shows from my Heart Radio, visit the iHeartRadio app, Apple Podcasts, 423 00:27:12,240 --> 00:27:15,119 Speaker 1: or wherever you listen, and we'd love to hear from you. 424 00:27:15,440 --> 00:27:19,000 Speaker 1: Email us questions or comments to Big Take at Bloomberg 425 00:27:19,080 --> 00:27:23,560 Speaker 1: dot net. The supervising producer of The Big Take is 426 00:27:23,720 --> 00:27:29,000 Speaker 1: Vicky Bergolina. Our senior producer is Katherine Fink. Our producer 427 00:27:29,119 --> 00:27:34,639 Speaker 1: is Federica Romanello. Our associate producer is Zeneb Sidiki. Philde 428 00:27:34,680 --> 00:27:39,040 Speaker 1: Garcia is our engineer. Our original music was composed by 429 00:27:39,160 --> 00:27:44,320 Speaker 1: Leo Sidrin. I'm Westkasova. We'll be back tomorrow with another 430 00:27:44,359 --> 00:27:44,840 Speaker 1: Big Take.