NYT Bestselling Author of Apple in China

Patrick, Apple managed to succeed in China where so many other western companies, Google, Facebook, even Amazon struggled or failed. That's a rare story in tech. What did Apple do differently in China that allowed it not just to survive, but to thrive when so many others didn't?

That's funny. I would actually push back against the question. Some of the companies that didn't do well in China did so because they're involved with services. Google, Facebook, right, that's content. And that gets heavily censored by the Chinese Communist party. And to be honest, Apple has not succeeded where they have failed. In other words, iTunes store does not exist. Apple TV does not exist. You can't have third party apps, even like ChatGPT that do AI that are Western. Right? And that's not Apple. But Apple embeds OpenAI into some of its, its features. So they've succeeded in a different way. I would say it's not that Apple succeeded in China where others failed. It's that Apple saw something in China where that other builders of hardware didn't see. Most builders of hardware looked at China in early 2000s and saw scale possibilities and low cost, high margin for them. Apple saw China and understood that there were unconstrained design potential, that everything Jony I've wanted to do was made possible by ubiquitous labor, hardworking labor, dynamic labor in China, and an ability to build factories basically custom made for Apple just at an enormous quantity. And more than that, so, so quickly, I mean, I have stories in the book where, you know, an Apple executive is looking at a field of garbage while Terry Guo says there's your ipod factory and the Apple executive's having something like a panic attack because he doesn't realize just how quickly a factory can go from literally piles of dirt and garbage to up and running with tens of thousands of workers inside. So Apple really did sort of unlock the potential of what was available in China. But they did so in combination with Foxconn and Terry Guo. And it's the meeting of those two companies that really results in the iPhone and the world's most valuable company.

Tim Cook is often praised as the world's greatest operator, but someone argue he made a Faustian bargain with China. Do you think Tim Cook prioritized profits over principles? And if so, do you think history will judge that as a brilliant leadership or moral failure?

That is a great question. And the final chapter of my book is called Unwritten Legacy, essentially going right after that question. Because look, I think Tim Cook can lay claim to being the world's greatest operator. The irony is that the company that made the world's most sophisticated supply chain made the rookie and calamitous mistake of putting all its eggs in one basket. The basket turned out to be a surveillance state with the rise of Xi Jinping. I'm sympathetic, however, that by the time that had happened, Apple had just so consolidated into China that there wasn't a whole lot they could do. I mean, I'll talk to people from Apple today that say, I understand your thesis, but where else should we have gone? Where else could we go now? And that's just realism. I mean, that's like a realpolitik. I mean, there just is no place on the planet that has the combination of cost, quantity and scale. I don't know that anybody can match any of those three, let alone those three, in stunning combination. So I think it's fair to say that Apple, I don't know about Tim Cook personally, but did strike a Faustian bargain with China. And that's why I say that the company has been captured by China, because they really are stuck there. There's not another place on the planet where they could achieve those three metrics or even really get close to it. And China is where it is because Apple has invested just hundreds of billions of dollars over the last 25 years into the country to make it so. So even if you say, well, why don't they just do the same playbook in India? I would say, well, yeah, great, call me in 2050 and tell me how it worked out. Because that's the kind of timeline that we're talking about.

Right. Thank you. And thanks for your help with the. There's a lot of talk about US China decoupling, supply chain diversification, and companies pulling out of China. If Apple was suddenly forced out of China tomorrow, what would actually happen to the company, to the global economy, even to everyday consumers?

That's a great question that is on the level of, like, war, right, for who wins if Taiwan is annexed by China? What I'm trying to say by that is that's extremely complicated, involves a multitude of factors, and I'm not sure any one person, let alone myself, would be able to sort of factor in all the things that could go on. But if they were somehow forced out, first of all, it would be a disaster, obviously for Apple, but it'd be a disaster for China. I mean, if Apple were kicked out, they are such a poster child of operational excellence in China that that would send shockwaves to every boardroom that has any sort of interest in Manufacturing in China. And that is worth knowing because that creates a measure of safety. Right. The reason why that's not going to happen is that Apple has such influence. Whether it's direct or indirect, people look up to Apple. And so if for some reason they had real problems, despite years and years of having great influence in the country, other companies would accelerate their plan B or come up with a plan B immediately. So the consequences for China, I think, could be quite poor. And they would actually, of course, reverberate to the highest levels. Washington would retaliate. I mean, that's how big the consequences would be. But I also think, yeah, there would be no iPhone that year. You know, I don't know that there'd be an iPhone the next year or the year following, maybe even the year following that. I mean, I'm really pessimistic about Apple's chances to sort of successfully diversify to a place like India, not just with the iPhone assembly, which is what they're doing, and it's not much of an achievement, but the whole depth and breadth of the supply chain. But one of the reasons why they can't do it is just that China continues to offer such. Being such an excellent partner. So. So if you took that off the table and just necessity is the mother of invention, you had to go to India, you had to build in Mexico, then, yeah, things would happen at a rate that we're just not going to see otherwise. And so I guess there's some optimism there that, you know, you would have to develop things more quickly. But there are just. It would be staggering in terms of what an education it would be for supply chain officials to realize just how much has been built in China over the last 25 years and what sort of investments, time, people, factories, machines, it would take to actually equate to what China already has. So, yeah, just to sum it up, that's on the level of complexity of war games over what happens if Taiwan were invaded.

Great. These are going to be great clips. Thank you. Okay, let's see what I got next.

Interesting questions, by the way, are great. I can't tell you how sick I am. And, you know, I continue to answer it, but where did the book idea come from? You know, like, that's how most podcasts start. So stuff that makes me think on the spot, it's like, challenging, but it's fun. Yeah, yeah, yeah.

And by the way, if there's questions you want me to ask you and we can make some clips.

Well, no, in a sense, what I'm Saying is the very nature of them being unexpected is what makes this fun. And if I don't know the answer, I won't answer.

But yeah, it's great. It's funny because some people, most people want to know the questions before, but I like a couple people haven't wanted to and I like that.

Yeah, well, I think if you're trying to do it for video, you want the oh shit, you know, reaction. Why would you, why would you not want the authenticity? I mean, I'm not a politician, I'm not, I don't need anyone's vote.

Yeah, yeah, that's kind of a double one. Apple has had an incredible run in China, but the landscape is shifting. Competition from Huawei, new regulations, rising nationalism. What do you see as the biggest risks and opportunities for Apple in China over the next five to 10 years?

You know, my book is not about artificial intelligence, but in terms of, of just being overtaken by the likes of Huawei, Xiaomi, Oppo, Vivo, specifically in China, AI is the biggest risk. The biggest risk because Apple can't rely on ChatGPT the way that they do here. In other words, if I show you my iPhone here, I have an action button. The action button just brings up ChatGPT. I've effectively displaced Siri on my own phone. So the fact that Siri is, to quote Satya Nadella, dumb as a rock, doesn't matter to me because I just rely on a third party provider. The problem is ChatGPT doesn't exist in China. So Apple is effectively being forced to work with someone like Alibaba or Baidu. Now they wouldn't have to do that if they sort of had skin in the game by having their own LLM that was world leading, but they don't. So what's not a problem in the US I think is a major problem in China because my story is about how Apple over the last 25 years has really built up China's competence in, in hardware excellence by training, teaching, auditing, supervising, handholding, and indeed investing tens of billions of dollars into these factories, hundreds of factories across four major industrial clusters in China to get things up and running. AI is more important than hardware, perhaps. I mean, I read books on AI that compare it as a human invention to fire. Right. Not many inventions get compared to fire. So are you telling me that the next 25 years is going to be that Apple's going to work hand in glove or with AI researchers in China to sort of take the best graduates from Caltech, mit, you know, hire from SpaceX and, and meta, do whatever, do whatever they can. And to, to work with all these researchers to make sure that they have world leading AI. That doesn't strike me as a good possibility. But if that is not going to happen, then they might just be behind in AI. In which case Chinese consumers who already have a sense of nationalism and a sense that Apple is no longer the indigenous product they've always thought it was because Apple sort of being forced to, you know, invest more in America, invest more in India, etc. Well then I think it's just one more reason why Chinese consumers might very well pick a local competitor instead. So I believe the latest figures is that Apple has something like 17% market share in China. I would expect that to fall the single digits in the next three to four years.

These are going to be great takes. Okay, let me see. Apple, China. Okay. A lot of my audience are startup founders or operators who want to understand how global giants navigate foreign markets. What lessons from Apple's strategy in China, in smaller companies or even startups apply when entering new challenging markets.

You know, my background is actually the study of religion and specifically the anthropology of religion. And what you find in the best ethnographers, the best accounts of anthropologists going into a foreign country and then writing about them is that they can be used to find a different thesis. So without giving to a specific example, it's if the ethnography is great, then somebody can sort of find an entirely different account of why a culture operates the way they do based on the ethnography who has a different ideology. Now this sounds obscure. The reason I'm bringing that up is that my book is not written with some sort of ideological frame of mind. I hope that Apple's biggest critics find great value in the book and I hope that their biggest supporters find value in the book. And I'm bringing this up because one funny thing that's happened as I've talked to hardware companies who have been inspired by the book to move their operations to China. Now the book, if it has a thesis, is that that's a problem. And yet I'm kind of heartened in a certain way that people have done that. Not because I like the message, but because to me I'm not an activist. The book is just trying to be a faithful account of what happened the last 25 years. It's up to somebody else what the message is. And so if you're an emerging startup person, an ideological level, yeah, I would prefer probably that you're doing something that helps sort of NAFTA on steroids, perhaps investing in America, perhaps investing in India. You know, I think the west needs to decouple, at least de risk, let's say, from China. But. But I'm not trying to force you in that direction. That happens to be my personal take. That's not really all that much in the book. And so if someone has a totally different take, I think they'll still find value in the book. You know, I mean, over and again, I'm talking about how China just has unsurpassed capabilities. And so you would find out of the book sort of, you know, how to negotiate the way that Apple negotiates, how to work with local cadres to sort of get, you know, officials in Suzhou on your side vis a vis officials in Hangzhou and work from there. So my personal take is different from what I think is found in the book. And so I'm not sure that I have specific advice other than if you're wanting to get involved in China or you're wanting to de risk from China. I think the book will satisfy you. Other. Either way. Sorry, you must have thought, where the hell is this answer going?

We got a lot of content. This is a lot of. All right, I think this is the last one. These are great. I kind of wish I had a little bit more spicier ones, but that these are great. So let me just make sure. Okay. We're now living in a world where geopolitics and tech are colliding more than ever. Semiconductors, AI, supply chains, TikTok bands. What does Apple's China story teach us about how companies should think about geopolitics when building global businesses?

Yeah, I think the book is very much about blind spots because I don't blame anyone in Apple for getting into the predicament that they're in. It would be really easy to take lots of cheap shots at Tim Cook just because the buck stops with him.

He.

He ran operations from 98 to 2011, and then he took over from Steve Jobs. And I suppose if you had to say if there was a person most responsible for getting them into the predicament, it would have to be Tim Cook. But I don't say that as a sick burn. I say that because he's the master of really looking at things on an Excel sheet. And if you look at things like on an Excel sheet, you can figure out who the best suppliers are in terms of your margin, your return on investment. I mean, just a host of things. I don't know what column you put in accidentally up arming America's biggest competitor. Right. If it doesn't fit in an Excel sheet, how do you measure it? So I think about that statement from Peter Drucker all the time. What gets measured? What gets managed? Or sorry, what gets measured is what gets managed. And I just think the book is about the blind spot of something that was absolutely not measured. And indeed we would have been absurd to measure as recently as 2012. I mean, before Xi Jinping comes in, nobody's thinking of China as the next great rival. If you read accounts of what people, politicians in the US were thinking in the late 90s and early 2000s, it would be sort of what I think of like Uzbekistan today. Like, imagine investing in Uzbekistan and someone says, whoa, whoa, whoa, let's not create a world competitor to the us you think it's Uzbekistan. I mean, that's how people thought about China at the turn of the century. America's economy was somewhere between 8 and 10 times larger than than China's. This was not considered a threat. And in a certain sense, I want to say rightly so, except that in 2020 hindsight, of course it was. So I think there's definitely a message there about thinking more about geopolitics, but that's probably more obvious now. Right. I think you can see that in all sorts of things. I mean, semiconductors is a great example. The consolidation of all chip production essentially into Taiwan, obviously in retrospect looks like a major problem and it's something that's trying to be addressed. I would also point out that, you know, Russia and Germany have historically a very contentious relationship. And yet under Angela Merkel, who at the time was really considered this great leader, I mean literally called Muti, Mother in Germany, signed up a massive deal to import natural gas from Russia. And of course, what a wake up call when Russia invades Ukraine. So I think globally we are understanding that just looking after efficiency is not enough in the supply chain. And I know supply chains sound boring, but they are the nervous system, system of capitalism. They're very important. How do you manage them? And you know, if there's something that's going to be really changing over the next five to 10 years, indeed are already changing. It's that CEOs and the like will be prizing resilience in the supply chain rather than just efficiency. But that's a great talking point that'll be hard to keep up because if you're prioritizing efficiency and your competitor is pricing resilience, the resilience guy only wins if shit hits the fan. But otherwise you're just getting better margins and better efficiency, if that's what you're prizing. And so it's. It's not an obvious thing to just continue to prioritize if indeed the world ends up being peaceful. But if something goes wrong, then you're going to. You're going to be very happy that you prioritize resiliency. So it's a. It's a give and take. It's very difficult. The people that are making these decisions make a hell of a lot more money than I do, and for good reason. Awesome.

I'm going to stop the recording.

All right. That was all right.