Apple in China: Overthrow Nokia, change the whole economy

In 2007, Swedish phone maker Nokia had 900 million users worldwide. Their dominance was so strong that Forbes magazine then had to publish a cover article with the question: “Can anyone catch up to this phone empire?”.

That same year, Apple released the first iPhone, and just 16 years later, Steve Jobs’ empire of 1.2 billion users made Nokia a thing of the past. Many people at that time thought that the Swedish phone company did not have enough software development power and vision like founder Steve Jobs or design wizard Jony Ive to fight back.

But according to the Financial Times (FT), Apple’s touch-screen phone with superior software is not the only strength of the Apple house to usurp Nokia. Steve Jobs’ empire is said to have surpassed Nokia in terms of hardware production before the iPhone was even offered for sale. To do that is thanks to a risky bet on China.

Change an entire economy

Researcher Kevin O’Marah recalls his embarrassment when in mid-2007, Apple suddenly out of nowhere ranked 2nd in the Top 25 enterprises with the strongest supply chain in the world “The Supply Chain”. Top 25”.

“Everybody was surprised. And I was like, ‘What? This is not reasonable at all. They didn’t have much of a reputation in the industry,'” O’Marah recalls.

In fact, this ranking is a harbinger of Apple’s dominance over the next seven years. Besides the story of the vision and product software, Apple has really put a big bet on the supply chain in China.

Many people still mistakenly believe that Apple is only “outsourcing” in China, but in fact, the apple house has poured billions of dollars and countless resources to build a complex supply and production network. So deep that it’s hard to pull out now.

For more than 15 years, Apple has sent its top technologists and designers to China, training and developing its factories for months. It was these employees who played an important role in supervising and co-designing the stable operation of the supply chain at factories.

In addition, Apple also spends billions of dollars to build specialized equipment for its supply system, and develop niches that their competitors have not noticed, let alone compete. .

“The competition of the Chinese technology industry today is not natural. It’s all thanks to the investment and success of Apple that has promoted that competitiveness,” said expert O’Marah when talking about the apple’s gamble that not only toppled the Nokia empire but also changed a whole world. economy.

The general designer of this gamble, Tim Cook was chosen by Steve Jobs as the CEO’s successor in 2011. It was Tim Cook who pioneered the shift of Apple’s production from the US to China.

But this overwhelmingly successful move of Apple also left the biggest consequence for Steve Jobs’ empire, that is, they were too dependent on the Chinese market, where the rules of the game were not the same as in the US.

Currently, more than 95% of Apple’s iPhones, AirPods, Macs and iPads are manufactured in China. This is also the market that accounts for one-fifth of Apple’s total revenue, about $74 billion in 2022. This is almost in stark contrast to rival Samsung, which has been cutting back its production activities sharply. export in China.

Even at a time of rising US-China trade tensions, Apple continues to invest more in this market.

According to FT, the consequence of this move is that CEO Tim Cook is under pressure from the US government to shift less production to Vietnam and India. Still, interviews with 25 FT supply experts, including nine former Apple executives and engineers, show that there’s little that Apple can do to leave China.

The FT said that the story here is not simply about where it is good to move but also in who will be responsible for this damage.

“Apple’s supply chain strength is all thanks to Tim Cook. This means that this is the CEO’s own fault, and asking to move means Apple leaders also have to accept their responsibility,” a former Apple employee told the FT.

iPhone is a “broken” fast item?

Apple is not the first Western company to outsource in China. At the time Tim Cook started tapping this market in 1998, HP or Compaq already had operations here.

However, unlike the corporations that went before, when only choosing from what is available to save costs and make quick profits, Apple has its own way. Tim Cook has transformed what is available in China to design into an Apple-standard supply chain, combining all the pieces into a complex ecosystem of enormous scale but still flexibility. High.

In the 2007 supply chain rankings, all the companies like P&G, Toyota or Walmart in the top 1 had a Peer Ranking Score that was at least twice as high as Apple in the top 2. However, when comparing inventory turnover (Inventory Turns), Apple is at the top.

CEO Tim Cook himself once described inventory as a “monster” thing, no different from Apple’s electronic products that will spoil after a few days like food. Even before the iPhone launch, Apple’s inventory turnover rate was 2.5 times higher than that of Nokia and even 12 times that of Coca Cola.

In addition, Apple also invested and guided hands-on to build a highly innovative production network, laying the groundwork for China’s future technological boom. Meanwhile, rival corporations of this period only gave factories a contract and asked them to “do it themselves”.

“Apple has invested more heavily in devices than any other company I have seen in the world, but they do not own them completely, they put it in other people’s factories to form a network. production and supply for themselves”, O’Marah expert recalls.

The FT reported that the total value of devices used to make Apple products in China increased from $370 million in 2009 to $7.3 billion in 2012.

Former Nokia executive Horace Dediu and now Asymco chief marketing officer said that the 2012 figures show that the total value of Apple devices in China is higher than the total value of buildings or stores globally. of Apple combined.

Thanks to this strong investment, Apple has launched products that cause fever for consumers. In 2008, for example, the company released the MacBook Pro line that was manufactured from a block (Block) instead of a combination of many different parts, which according to its designer Jony Ive was “to a degree never before. in this industry”.

To do that, Apple uses 3D CNC design machines. The device, which costs $500,000 each, has been used for decades, but because of its high cost, it is often only used to produce samples, not for mass production like the apple house.

According to the FT, three former Apple engineers said the company had purchased more than 10,000 CNC machines to carry out mass production, which Steve Jobs called “a whole new revolution for Notebook production”.

Soon, Apple applied this crazy production momentum to the iPhone and iPad. According to FT sources, Apple has signed an agreement with car manufacturer Fanuc to buy back its entire CNC line, and the company is still looking for other equipment to increase production.

“You can understand that even having all the CNC machines around the world wouldn’t be enough to meet our needs. Since 2009, we have only produced 10,000 components, then 500,000 next year and next year 1 million and so on. During this period, money has not been an issue as the company is willing to spend big to increase production,” the FT source said.

(To be continued)

*Source: FT