Cook can kowtow to the regime all he likes, but Beijing has a far broader nationalist and mercantilist agenda to pursue.
Apple’s holier-than-thou CEO Tim Cook likes to promote himself as one of the enlightened. Here he is in the company’s 85-page ESG report, a waste of shareholder funds if I ever saw one:
[W]e want to leave the world better than we found it in everything we do. By leading with our values, we hope to be a ripple in the pond that inspires a far greater change.
So here’s some coverage of Cook’s recent trip to China, a country run by an authoritarian regime with a taste for genocide, in Bloomberg News, an organization that can at times reflecting Mike Bloomberg’s own, uh, nuanced views on Beijing’s rulers.
The article (from March 25) is headlined: “Tim Cook’s Love for China Helps Xi Fight Fears of Economic Slump.”
Read on to learn that:
China’s efforts to counter the downbeat narrative about a structural slowdown in the world’s second-biggest economy got a boost from enthusiastic endorsements from chief executives of top global companies.
Days after he opened an expansive new retail store in Shanghai and pledged a fresh investment in applied research in the country, Apple Inc. Chief Executive Tim Cook on Sunday gushed, “I love it here, I love the Chinese people.”
“It’s so vibrant and so dynamic here,” Cook told journalists as he entered the opening session of the China Development Forum, a top annual gathering of business leaders and Chinese officials.
Those comments were (as Bloomberg reports) retweeted by Hua Chunying, an assistant foreign minister, who clearly appreciated their propaganda value.
At a time when the U.S. is (quite rightly) worried about the technological challenge posed by China, not to speak of the country’s long tradition of intellectual property theft, it was not reassuring to read that Apple is investing more in “applied research” there.
Writing for the Financial Times in January 2023, Patrick McGee (my emphasis added):
Over the past decade and a half, Apple has been sending its top product designers and manufacturing design engineers to China, embedding them into suppliers’ facilities for months at a time.
These Apple employees have played integral roles co-designing new production processes, overseeing the minutiae of manufacturing until things were up and running, and keeping close tabs on suppliers to ensure compliance.
Apple has also spent billions of dollars on custom machinery to build its devices, developing niche expertise that its rivals did not even know about, let alone compete with.
It has transformed the company and the country. “All the tech competence China has now is not the product of Chinese tech leadership drawing in Apple,” O’Marah says. “It’s the product of Apple going in there and building the tech competence.”
These operations played such a salient role that the unassuming character behind them, chief operating officer Tim Cook, would succeed Steve Jobs as CEO in 2011. It was Cook who shifted Apple’s production from the US to China, where he established unparalleled efficiencies that underpinned Apple’s ascent . . . Cook and his company are now under intense pressure from investors and US politicians to “decouple” from China and accelerate a diversification strategy that already has some products assembled in Vietnam and India.
Apple declined to comment on this story. But interviews with 25 supply chain experts, including nine former Apple executives and engineers, suggest the iPhone maker has few viable paths out and none in the short term.
And it’s clear to those who know the company well where responsibility lies. “Supply chain all goes back to one guy: Tim Cook,” says a former Apple veteran. “This mess is his fault. This isn’t just ‘the buck stops at the top’, it’s that ‘the buck stops with the guy who headed the supply chain.’ And Tim is the master of supply chain.”
Apple is beginning to diversify out of China, but it has a long, long way to go. As McGee noted in January 2023:
More than 95 per cent of iPhones, AirPods, Macs and iPads are made in China, where Apple also earns about a fifth of its revenue — $74bn last year [2022].
China will, of course, notice diversification efforts.
Bloomberg also reported this:
Apple has faced expanding restrictions on iPhone use at government agencies and state-backed companies and sales of the smartphone tumbled 24% in the first six weeks of the year.
By contrast, Huawei’s unit sales in China increased by 64 percent over the same period, helped by the success of its Mate 60 line, which as Reuters reported in February has become “a symbol of China’s technological resurgence despite Washington’s ongoing efforts to cripple its capacity to produce advanced semiconductors.” Patriotic buying is a thing.
More than that, Apple may be running into the problem faced by the German companies who have invested billions in China. They are now facing increasing pressure in their Chinese business from local competition. When a Chinese product is comparable to (and probably cheaper than), say, its U.S. or German counterparts, Chinese consumers are more than willing to buy it.
And it’s also worth following reports on the restrictions being introduced on the use of Apple devices in Chinese government agencies and state-backed companies (which could mean a lot of companies). These restrictions, which extend to devices made by other foreign companies too, are not a specific attack on Apple (although because of its large market share in China, Apple was bound to take quite a hit) but an effort to boost demand for a high-end technological product made despite U.S. controls in this area. Nevertheless, Beijing was probably happy to use these restrictions to “remind” Apple of its Chinese exposure, and perhaps even to send a signal that diversifying too far out of China might have . . . consequences.
Cook can kowtow to the regime all he likes, but Beijing has a far broader nationalist and mercantilist agenda to pursue, and, especially at a time of tension between the U.S. and China, that agenda will matter much more to it than Cook’s flattery. Although the risk of reprisal is real enough, Apple needs to speed up the diversification of its production, and it should slam the brakes on investment in “applied research” in China too.
Whether it will is a different matter.