Buzz
Back in 2012, during Joe Biden's tenure as Vice President under Barack Obama, he questioned Tim Cook over dinner: Why can't Apple manufacture iPhones in the USA? At that moment, Biden, along with leaders from tech giants like Netflix, Google, and Facebook, dined with Cook.Everyone at the table grasped the immense challenges of producing iPhones, or broadly, any consumer electronics, in a U.S. facility. Major contractors in Asia, such as Foxconn, have built city-sized factories with extremely cheap labor forces, running continuously to achieve high production rates. Not to mention the significantly lower labor costs for the workforce.Biden's inquiry puts Cook in a tight spot. He's the architect of Apple's outsourcing strategy to China, a trend that raised concerns in the Obama administration. However, Cook, a savvy political operator, handled it better than his predecessor. When Obama posed a similar question to Steve Jobs, Jobs' response adorned the front page of The New York Times: 'Those jobs aren't coming back.' Cook, on the other hand, made an announcement that Apple would commence manufacturing some Macs in the USA by the end of the year.
Since then, Apple's dependence on China not only persisted but escalated. One might have expected Apple, under Donald Trump's administration, to reshore jobs from China to the USA. Surprisingly, Apple flourished into a trillion-dollar company. Even when Trump urged companies to leave China, calling the supply chains 'foolish,' Apple surpassed the $2 trillion mark. All thanks to Tim Cook.
In crafting the colorful iMac, Tim Cook employed a strategy similar to HP, Dell, and Compaq at the time: outsourcing production abroad. During Cook's tenure at Compaq, he formed a friendship with Terry Gou, the founder of Foxconn. Initially, Foxconn dealt with small items like TV knobs and joystick connectors for Atari. However, by the late '90s, they entered the PC component manufacturing scene, producing components such as casings for Compaq. Their factory swiftly grew in Shenzhen, becoming a hub for various components.Upon Cook's arrival at Team Apple, the manufacturing model proved more efficient than anything in the U.S. They sold a significant property in Colorado in 1996. Post-Cook, they temporarily halted production in Ireland, closed down manufacturing lines in California, and increasingly delegated more production to China, starting with laptops and webcams. Currently, Apple's Elk Grove facility in California is repurposed for recycling and device repairs.Major PC players like Dell and Compaq also outsourced manufacturing and critical design decisions for cost-effective yet indistinct PCs. Cook's approach was to compel Foxconn and suppliers to adapt to the stringent requirements set by Steve Jobs and Jony Ive. Apple engineers designed specialized manufacturing tools for their products and frequently flew to China, not for meetings but to stand in factories, inspect quality, identify hardware improvements, and uncover bottlenecks in the production line.In the supplier role, companies sell components to various entities, but Cook aggressively commits to acquiring future components, outpacing competitors by several years. This ensures Apple's computers possess elements unavailable to other brands.
Terry Gou, the visionary founder of Foxconn, eagerly embraced Apple's demands. Foxconn routinely constructed multiple factories to produce whatever Apple desired. Jon Rubinstein, returning to Apple as the Vice President of Hardware Engineering during Jobs' tenure, vividly recalls a moment in 2005 when he and Gou surveyed an empty plot in China for a new factory in Shenzhen, aimed at manufacturing the highly promising iPod Nano. Despite the initial lack of infrastructure, within a few months, substantial structures and production lines emerged. 'In the U.S., you wouldn't even have the permits in that timeframe,' Rubinstein exclaimed.Jobs and Ive indulged in expensive tastes, intensifying the importance of negotiating prices with suppliers. To create a beautifully designed USB port cover for the MacBook, Jony Ive's team incurred a cost of around 15 cents, while competitors used off-the-shelf components costing approximately 5 cents. To achieve the desired financial efficiency, an anonymous source revealed that Tim Cook's team negotiated prices down to four digits after the decimal point.Apple's influence over suppliers continued to surge after the iPhone's debut. The Foxconn-manufactured iPhone sold 4 million units in just the first 200 days. By 2009, Apple compelled manufacturers in Asia to align with its terms, or else you couldn't play in Apple's league. As an anonymous manager put it, Apple 'crushed their suppliers.'After Jobs' passing, there were doubts about Apple's stability in the following 2 years. However, the real challenge was ensuring the smooth operation of the supply chain in China. Managers had to struggle to acquire enough milling machines, computer-controlled laser cutting machines. Every millimeter was scrutinized to find ways to save money, even the choice of adhesive was meticulously discussed.
In November 2019, a year before the U.S. election, Trump flew to Austin to meet Cook and tour the Mac Pro manufacturing plant. In front of the press, Cook referred to the $5999 Mac Pro as 'an example of American design, American manufacturing, and American ingenuity.' Cook also showed Trump components manufactured in the U.S., and the president nodded in agreement. Many components in the machine came from Arizona and Pennsylvania, crucial states that Trump had promised would bring more manufacturing jobs to the locals.Later, Trump stated that this was an example of Apple building a factory in the U.S., but everyone knew that, in reality, this factory had been operational for 6 years.No one foresaw the day Trump and Cook would become allies. Despite Cook supporting Hillary Clinton in the 2016 election and disagreeing with Trump's policies on immigration, race, and climate change, they formed an unexpected bond. Cook attended Trump's CEO conference, had dinner at the White House, and made acquaintances with Trump's daughter Ivanka and son-in-law Jared Kushner. Gary Cohn, Trump's economic advisor until 2018, estimated that Cook flew to Washington every 4 to 6 weeks to discuss potential collaborations. '75% of the talks were about life. To be a good CEO, to get what you want, you need a personality, good communication, and listening skills, and Tim has it all.' A stark contrast to Steve Jobs.Cook was willing to do whatever it took to safeguard Apple's supply chain in China, even if it meant allowing Trump to disseminate misinformation. Trump claimed Apple planned to build three factories in the U.S., which was untrue, but Apple chose not to correct it. Apple also overlooked many other aspects of Trump.
When Apple began establishing a factory in Texas in 2013, sources revealed that local suppliers were unwilling to reconfigure their plants for a one-time project. A significant amount of components had to be imported from Asia, creating a domino effect if any issues arose. If a batch had a few faulty components, Apple's Texas plant had to wait for the next air shipment, whereas a plant in Shenzhen would have replacement parts almost immediately. Therefore, Apple had to meticulously inspect the component batch before shipping to Texas, a painstaking process.Recruitment poses another challenge. Finding individuals with skills like those at Foxconn is extremely difficult in the U.S. New hires are more likely to have worked at Costco than in an electronics manufacturing plant. There was a case where a Mac Pro motherboard would come off the production line bent. Eventually, they discovered the issue was due to a worker screwing in bolts from left to right instead of following the marked sequence. The defect rate was high, causing Apple to fall behind in delivery times and cost targets.When the Mac Pro assembly line stabilized, Apple employees transitioned to other tasks, such as the Apple Watch, but it was produced in China, not the U.S. Demand for the trash can Mac Pro was low, and the Texas plant had to start laying off workers.Nevertheless, the political benefits were significant. In September 2019, the U.S. reduced import taxes for some crucial components of the future Mac Pro. A few days later, the new Mac Pro was introduced. Trump also mentioned tax reductions for Apple. Tim Cook even gifted Trump a new Mac Pro from the production line in Texas.Concurrently, Apple also shifted the production lines for AirPods and iPads to Vietnam, expanding iPhone manufacturing in India. However, the company faced challenges in expanding production and maintaining quality control. Expanding to new regions is not an easy task. In a meeting, someone asked Dan Riccio, who was then responsible for Apple's hardware, why Apple continued to produce products in China despite issues with information concealment and poor working conditions for workers. The simple answer at that time was, 'I cannot answer that.'Even when China imposed international trade flight bans, Apple continued to charter private planes to transport hundreds of their employees to China for supervision, testing, and ensuring that new models appeared in time for the end-of-year shopping season. You cannot simply detach from China, especially at Apple's scale.Source: Bloomberg
