Apple Did WAY WORSE Things in China...
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One of the quotes that really, really stuck with me from the book is, here, I'll just read it. It's not merely that Apple has exploited Chinese workers. It's that Beijing has allowed Apple to exploit its workers so that China can in turn exploit Apple. Can you explain that? Yeah, that's sort of the essence of the book. So in the two years I took off to write the book,

Whenever I just talked to a layperson and said, this is what I was writing, they always assumed the same thing, which is like, oh, right, the Foxconn suicides, the tedium of assembling Apple products, et cetera. And they would rightfully say that because that's the only story we've covered over the last 25 years. We've never really looked at...

What Apple's strategy is, how they operate with Chinese officials, the relationship between Foxconn, basically, like not just being the producer of their products, the assembler of their products, but really their political arm from the years 2003 to 2012 and how that changes. I mean, just so many unanswered, really unquestioned things about the narrative. And so I basically tried to flip that narrative on its head to look at like,

If it's so obvious that these jobs are bad and that Apple's exploiting workers, like why would that be allowed to happen? And of course, the answer is technology transfer, that Apple was an epic contributor to China's advancement in electronics over the last 25 years. Yeah, I think people who who aren't familiar with your work have no idea what when you say, you know, Apple's contributed to technology transfer, contributed to China's economy, like the scale of that.

is a little bit hard to imagine. Can you explain that a bit? Yeah, you're pushing me to give you two numbers, but before I give them, I need to explain the backdrop here. So we have to remember that Apple is almost 50. They turned 50 this April. And for the first half of their life, they really did manufacture their own products. I mean, the electronic supply chain, especially the one we know, did not exist when Apple was founded by two steeds in a garage in 1976.

So their founding ethos is that you control your own destiny through manufacturing. And people remember Steve Wozniak's skill set. He could take apart circuit boards and reassemble them with better parts and sort of both make them cheaper and make them run faster at the same time. That was sort of his genius. Steve Jobs was the marketing guy and the visionary. So when they begin to become extremely successful in the late 70s and throughout the early 80s, they're manufacturing their own products down to the circuit boards.

The companies that are founded a decade later that have cloned the PC, they're not like that. They begin to...

focus only on operational efficiencies, but they're doing it through outsourcing because the likes of SEI, Celestica, Jabil, Selectron, these are like these Foxcons of their day. Some of them are still around. Most of them are still around. But they're not really orchestrating the product the way that Apple does. They're just relying on these companies to build their products and even to some extent design their products and then just badge them with a Western logo.

And so it's not in their founding DNA that these PC companies that follow IBM to really care about manufacturing. And the result of this is that they do so well using Windows and Intel chips and all these third parties to assemble their computers that by early 1996, Apple is nearly done for. I mean, they're really just trying to sell the company, you know,

They're not able to sell the company, but there is no plan B and they're days away from bankruptcy. I think I revealed for the first time that they literally hired a chapter 11 loyal. I mean, it was that dire. Steve Jobs comes back as a sort of Hail Mary for the company. I mean, he doesn't even want the CEO position when they give it to him. That's a position he'd never had before. And so you'd think, well, why wouldn't he want the CEO position? It's because he thought the company was about to die and he didn't want to oversee its demise. Instead, what happens is Johnny Ive and him, the design team, they come up with a translucent iMac.

And there's this realization immediately that Apple doesn't have the skill set to build it, particularly because it's a monitor, right? The computer stuffed inside. So they use their monitor manufacturer, which is LG. And when it becomes America's best selling computer, LG is, you know, expands in two different or three continents altogether outside of outside of Korea. So they begin to build it in Korea.

I hope I'm not getting this wrong now, Wales and Mexico. And then Foxconn comes on board as a second supplier and Foxconn's Taiwanese, but they operate in China and in the Czech Republic and in Fullerton, California. The reason I'm going through this history is that LG and Foxconn do not know how to build the computer.

So they need to be trained. So this is the origins of Apple sending out its best manufacturers, its best engineers to Asia to train all of these forces how to actually accomplish this stuff.

This is totally different than the likes of Dell or HP or anybody else, because, you know, I like to joke, what's your favorite Dell computer from the early 2000s? Right. Because nobody has one. You probably can't even name a model. Whereas with Apple, there's like 14 different things that we could all debate about and be excited about, you know, with nostalgia 25 years after the fact. So this is not a knock against anyone in Asia for not being able to build a computer. Nobody knew how to build these things. And so you needed to be trained. So if we really fast forward the narrative. Yeah.

That's really the missing topography in our understanding of Apple. The team called manufacturing design, a team of engineers that flies to Asia to train up all these factories. And because the iPhone, first the iPod, but then the iPhone becomes so wildly successful, Apple ends up having an impact on the level of a nation builder, like a government effort to build up talent and tech competence in whole.

hundreds of factories. So the number that blows people's minds is that since 2008, Apple has trained 28 million people in the supply chain.

And when they do their own supply chain study and try to figure out how much are we contributing to Chinese factories, this is in 2015, the figure is $55 billion per year. And those are such large figures that I could not find any corporate equivalents. So I start comparing it to the chips hack. I start comparing it to the Marshall Plan. Sorry for the long-winded answer, but that's the sort of background. Yeah. No, I mean, I think it's super fascinating and definitely want to talk about the Apple squeeze. But like first about Foxconn, you know,

It's interesting that you just said that Foxconn was basically the political arm of Apple. Can you explain a little bit about how that worked and what made Foxconn as a company different from, you know, these other operators who are in China as well? Yeah, I have a pretty wonky answer in the book, so I'll try not to get too into it here. But

Foxconn is doing something different than all the Taiwanese competitors at the time in the late 1990s, which is to say they're all becoming ODM, original design manufacturers.

The design implies that instead of just offloading from the Western corporation, just think of an IBM, for instance, instead of just offloading their manufacturing, you're trying to take on their design and their research and development capabilities. If you're a Western company, to some extent, that's amazing because you're just taking more off your balance sheet and letting somebody else do it. But you can already realize how antithetical to Apple this would be. And Apple would never want to do that.

And the reason that Taiwanese are doing it is because it's higher margin to do design and R&D in addition to the assembly, right? Sort of like the whole enchilada. Foxconn is really focused on being an OEM, so original equipment manufacturer. Really, they will just move heaven and earth to produce your designs, but they're not going to compete with you and they're not going to do the design and the research. So this fits the bill for Apple because Apple wants to do all the design, all the R&D, and just really work hand in glove with Foxconn to do all of this stuff.

The reason this is relevant is that Foxconn's model, they're not excited about low margin assembly either. But their goal is to figure out everything about the product and sort of vertically integrate and do more than just the final assembly. So Foxconn, you know, we know them as a final assembly partner, but they do plastic ejection molding. They do metal stamping. They become the experts at aluminum for the product.

a certain type of monitor, and then for the iPod mini and so forth. So they take on these skill sets, and it does tend to be the lower value stuff. But what that means is that they need lots of dormitories for their people. They need lots of factories. They need a big, big footprint, and they need lots of migrant labor. As a result of that, they have lots of political connections to make that happen, and they're sort of parlaying Apple's orders

into the Chinese political system to get that stuff for free. So I quote a senior person at Apple going through a Foxconn factory in the early 2000s in Shenzhen. And he talks about, you know, quote unquote, the shithole conditions around him and the world class machinery in the Foxconn factories. And he says all the machinery was bought by this Chinese government or at least subsidized by them.

And so Foxconn has all these political connections to make things happen. So Apple is really from 2000 to 2012, really focused on the engineering efficiencies and really understanding the engineering. But it's Foxconn that is doing all these side deals to sort of build up its factories and beginning to build the industrial clusters. So around the assembly giant.

would be all these other companies that play some role in the computer. Some of them would be Foxconn subsidiaries. Some of them would be totally different companies. But Apple didn't really play a direct role in that, which is strange if you understand how obsessive they are about the details. But Foxconn was just this great trusted partner. And then to fast forward in the narrative or indeed to...

Talk about the prologue. That all changes when Apple is sort of attacked at the highest echelons of the Communist Party. And they begin to realize we need to understand this ourselves. We need to do this ourselves. And the people involved in this shift really talk about Apple going from like complete ignorance about Chinese politics to like mastering it today.

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