Apple in China: How hundreds of millions of iPhones were born with ‘crazy’ meticulousness

Meticulous to every detail

Apple’s principle when looking for suppliers has always been meticulous attention to detail. The FT source said that suppliers in China will be questioned by Apple engineers and then by management until they are exhausted.

Engineers will go from one level of management to another of the supplier to dig into every detail before forcing them to sign a contract that commits to building components to design and standards. exclusively in very large quantities.

“I’ve never seen such a level of attention to detail as Apple has,” a former Apple employee told the FT.

In fact, this principle comes from Tim Cook himself when this CEO does not want to have any obstacles even with the production of a screw that costs only a few pennies.

“If you send Tim Cook a report, he will scrutinize every word and even ask you to explain every detail. It’s amazing how he can go from the general strategy level down to the detail level, and then come back like that,” a former Apple executive told the FT.

It is thanks to this crazy meticulousness that Apple is able to push suppliers to keep up with development. With the popularity of the Apple ecosystem as well as the iPhone, the apple house can produce a large number of components for hundreds of millions of products with such good quality that resellers will regret it.

Besides, Apple’s expansion in the international market makes the company more advantageous in terms of negotiation.

“When it comes to negotiations, Apple is like an asshole. Suppliers can blush when they say they can’t meet Apple’s requirements, but in the end, the one who has to go to the water is never the apple house,” said three former Apple employees in charge of negotiations.

But Apple’s toughness also brings practical benefits to both sides. By the time supplier Foxconn started assembling components for iMacs in 2000, it had $3 billion in revenue and was half as much as rival Flextronics. However, in 2010, this figure had reached $98 billion and was more than the combined revenue of Foxconn’s five biggest competitors combined.

Foxconn’s Gamble

The FT reported that Apple’s expansion was welcomed by the Chinese government by creating more jobs, training local experts, receiving more orders from international corporations and was a prerequisite for a industrial boom. later technology.

Localities where Apple has a supply base often enjoy tax incentives, rental complexes that include worker housing, warehouses, and proximity to highways and planes.

In 2009, the Beijing government launched a large economic stimulus package worth $1.4 trillion in concessional loans, with half of which was poured into infrastructure development to quickly revive the economy after the recession. global crisis in 2008.

This was also the time when Apple had a breakthrough with the iPhone 4 as well as launching the first iPad in 2010.

Around this time, Foxconn received an assembly order from Apple after founder Terry Gou had a meeting with Tim Cook. Gou himself said that Apple is underestimating its capabilities and its sales will explode even more.

Gou’s confidence led to Foxconn building large factories in Zhengzhou, later known as “iPhone city”, and Chengdu, later known as “iPad city”.

Gou’s gamble was correct as annual sales of the iPhone quadrupled between 2009-2011 to 93 million units, and the iPad hit 15 million units in its first nine months of launch.

In October 2010, Foxconn’s factory in Shenzhen alone had up to 500,000 employees producing for Apple with tremendous productivity. Wharton expert Ken Moon said that the productivity of Chinese workers in this period was up to 300% and many times higher than that of all other workers in the world.

Apple itself has estimated that since 2008, it has trained at least 23.6 million workers.

Not only that, Foxconn also provides cheap labor costs along with an abundant, well-trained labor force that can fulfill orders whenever Apple wants.

CEO Tim Cook once likened that Apple cannot manufacture in the US just because it lacks the necessary supply chain.

“All the parts suppliers in the US probably won’t be enough to fill the auditorium where I’m speaking. But in China, you’ll need an area the size of several cities to fill the suppliers,” Tim Cook admitted.

No way out

The FT reported that the relationship between Apple and China is a win-win. Sources from three employees who used to work for both Apple and competitors said that when other smartphone manufacturers want to chase the missing apple, they have to rely on supply in China.

To do this, one of the prerequisites is to sacrifice a part of the technology copyright to be able to speed up production.

“They all have to accept trade-offs,” said Asymco director Horace Dediu.

On the Apple side, in order to maintain a strong supply, they also help factories in China get more contracts, and at the same time help China’s manufacturing technology to be developed, thereby indirectly transforming the device segment. electronically from the West.

According to Bloomberg Intelligence, up to now, China accounts for 70% of smartphone production in the world. More specifically, the supply chain system of this economy is at a level that is difficult for any market to copy in the short term.

“This is an extremely complete and efficient sourcing ecosystem in China,” admits D/D Advisors founder Jay Goldberg.

For a visual comparison, in 2021, the number of enterprises with ISO 9001 quality certification in China is 426,716 organizations, accounting for 42% of the global total. This number in the US is only about 25,561 and in India it is 36,505.

But this excessive bondage is causing Apple trouble as China rises to become the world’s second economy. Pressure from American politicians forced Apple to move production elsewhere to limit the development of technology in China, but this is not easy.

“Changing a whole supply system is not easy for Apple. You can’t just move your manufacturing plant somewhere else when you don’t have a supply chain with a standard that’s been built for many years in China,” Goldberg said.

For example, at the Foxconn factory, if they want to install an ultrasonic welding machine (Sonic Welder), just call any operating company to build the line as well as hire labor in China. However this cannot be done easily anywhere else in the world.

“China has a lot of supply companies, especially those working in niche markets that no other market in the world has such capability,” Mr. Goldberg emphasized.

“Apple has grown in China as much as it can, and as a result, they’re becoming inseparable… The truth is, there’s no way out,” said Aaron Friedberg, author of “Getting China Wrong.” .

(To be continued)

*Source: FT