Not long ago the China Macro Reporter highlighted a Wall Street Journal op-ed by former Deputy National Security Advisor, Matt Pottinger, in which he wrote:
- ‘Beijing’s message is unmistakable: You must choose.’
- ‘If you want to do business in China, it must be at the expense of American values. ‘
Now The New York Times, in a terrific piece of investigative reporting, describes how Apple is indeed caught in such a dilemma:
‘Two decades ago, as Apple’s operations chief, Tim Cook spearheaded the company’s entrance into China, a move that helped make Apple the most valuable company in the world and made him the heir apparent to Steve Jobs.’
- ‘Apple now assembles nearly all of its products and earns a fifth of its revenue in the China region.’
‘But just as Mr. Cook figured out how to make China work for Apple, China is making Apple work for the Chinese government.’
- ‘Behind the scenes, Apple has constructed a bureaucracy that has become a powerful tool in China’s vast censorship operation.’
‘Mr. Cook often talks about Apple’s commitment to civil liberties and privacy.'
- 'But to stay on the right side of Chinese regulators, his company has put the data of its Chinese customers at risk and has aided government censorship in the Chinese version of its App Store.’
This is a corollary of ‘When you owe the bank a small debt, the bank owns you. When you owe a great amount, you own the bank.’
- In this case, Apple is the bank. And, Xi Jinping in a very real sense owns Apple.
‘Soon after Tim Cook was hired by Apple's founder Steve Jobs in 1998 to whip the company's U.S.-focused supply chain into shape, he made a bold decision,’ reports the Nikkei Asian Review.
- ‘Within two years he began shutting Apple's U.S. factories and outsourcing production to China.’
‘His decision drove down costs and gave Apple the resources it needed to develop its next blockbuster products, the iPod and iPhone.’
- ‘It also created a competitive manufacturing base, capable of mobilizing hundreds of thousands of workers with just a phone call.’
Fast forward: ‘For Apple, a clean break with China is impossible,’ writes The Wall Street Journal.
- ‘Apple relies on a workforce of more than three million indirect workers in China.’
- ‘Its top manufacturer, Taiwan’s Foxconn Technology Group, hires hundreds of thousands of seasonal employees in China, many of whom manually insert tiny screws and thin printed circuit boards during the iPhone assembly process, people familiar with the process said.’
- ‘Tens of thousands of experienced manufacturing engineers oversee the process.’
- ‘Finding a comparable amount of unskilled and skilled labor is impossible, said Dan Panzica, a former Foxconn executive.’
‘ "The massive and complete supply chain ecosystem in China is key to the iPhone maker's success, but it has also created a gigantic organism that would struggle to move somewhere else," says Jeff Pu, a veteran analyst at Hong Kong-based GF securities,’ reports the Nikkei Asian Review.
- ‘ "It is impossible for suppliers to move away from China in just one night ... It might take at least 10 years and we still would not be done moving," Pegatron CEO S.J. Liao recently said.’
This is if Apple really wants to move away from China. As Willy Shih of Harvard Business School notes:
- "When you are making so much money, and the formula is work so well as it has for Apple for so many years, it's hard to change."
So while it may be difficult to feel sorry for the $2 trillion, largest company in the world, it is at least understandable how little Tim Cook can do short of leaving China and tanking Apple.
- Mr. Cook rode the same wave of globalization that those in many, many other companies did.
- He just did it too well.
And now Apple is the bank and China holds the big one.
- Hard to see a way out of this for Apple.
Stand by for more critical reports on Mr. Cook’s caving to Mr. Xi.