Apple’s growth to a $3 trillion company can be traced back to its success with the iPhone, the manufacturing the supply of which is largely China-based.
Now, with Donald Trump’s tariffs looming over the tech giant’s supply chain, diversifying from China is likely “painful”, but “overdue”, according to a Reuters report exploring author Patrick McGee’s ‘Apple in China: The Capture of the World’s Greatest Company’.
McGee interviewed over 200 people former engineers and executives to lay out how Apple became so dependent on China for its manufacturing (most of its products and parts are manufactured there), sales (around 17 per cent), and consequently success.
How Apple became dependent on China
The report noted that it was Terry Gou aka “Uncle Terry”, founder of Taiwanese parts manufacturer Hon Hai Precision Industry (i.e. Foxconn), who led the charge. In the mid-90s, Gou and his peers “shaped” what has today become China’s export driven model by establishing factories on the mainland. In return they got subsidies, infrastructure support, and cheap local labour, it added.
Apple began by otsourcing production of its iMacs to Foxconn in 1999, then its iPod in the early 2000s. Further, unlike other MNCs like Volksvagen and Samsung (which took the joint venture or subsidiary route), Apple invested in local companies and taught them how to make their devices.
According to Apple CEO Tim Cook, the tech giant has created 50 lakh (5 million) local jobs in China (most in manufacturing).
The impact has been two fold — Apple’s strategy enabled transfer of technology and knowledge, something that McGee’s book points at for the rise of rivals such as Xaiomi and Huawei; and also edged out its Taiwanese partner with local Chinese makers such as BYD Electronic International and Luxshare Precision Industry making increasing cuts of the profits compared to Foxconn (profit margins down to 2.8 per cent from 11 per cent in 2015).
China also contributes greatly to Apple’s sales figures — up to 17 per cent of the total; and by 2027 expect to sell $77 billion worth of products in the overall Chinese market (including the mainland, Taiwan, Hong Kong and Macau).
Donald Trump’s Tariffs Force a Strategy Shift for Apple
Now, United States President Donald Trump‘s tariffs have forced a strategy shift for Apple.
While smartphones are currently exempt and US-China trade escalations have showed signs of mellowing, Tim Cook has made moves to diversify from China. He said that majority Apple products would be made in India and Vietnam, and has promised to bring $500 billion worth investments to the US.
Notably, however, this will be a long and costly process. Importing from India would come at 10 per cent tariffs, while manufacturing in the US would hike prices by at least three times the current costs.
(With inputs from Reuters)