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Tim Cook and Apple Bet the Farm on China, But Then Coronavirus Hit

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By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

The WSJ published a feature today on Apple’sits dependency on China, Tim Cook and Apple Bet Everything on China. Then Coronavirus Hit.

As a Apple user, I have written about the steady crapification of its products, particularly the decline of its MacBook line, where functionality, features, and reliability have been sacrificed in pursuit of a misguided design ethos (see Design Genius Jony Ive Leaves Apple, Leaving Behind Crapified Products That Cannot Be Repaired). As just a short roster of ways Apple has disappointed its serious laptop users: the company introduced butterfly keyboards prone to failure (and double downed on defending the unsuccessful design); replaced the plethora of different laptop ports with USB-C ports only (forcing customers to use dongles or an external hub in order to communicate with external devices); and scrapped the magSafe connector (so that clumsily tripping over one’s power cord can now be a catastrophic event).

Apple is also the villain in the right to repair story, as its policies force customers to employ its  overpriced repair services – rather than those of independent third parties, or buy new products – rather than replacing a defective or worn-out component. This policy costs all of us money, and also contributes to the mountain of eWaste worldwide. How did Apple manage to get consumers to pay hundreds or thousands of dollars for replacement machines when batteries fail? (see, e.g.,  Apple Blinks on Right to Repair: Or Does It?; Rotten Apple: Right to Repair Roundup; Apple to California Legislators: Consumers Will Hurt Themselves if Provided a Right to Repair; and Apple Battery Debacle: Yet Another Reason to Support a Right to Repair).

Apple and China

The WSJ feature focuses on another Apple fail: its over-reliance on China. Which now looms even larger, as the coronavirus crisis escalates.

From the Journal:

Long before the coronavirus struck, Apple Inc.’s operations team began raising concerns about the technology giant’s dependency on China.

Some operations executives suggested as early as 2015 that the company relocate assembly of at least one product to Vietnam. That would allow Apple to begin the multiyear process of training workers and creating a new cluster of component providers outside the world’s most populous nation, people familiar with the discussions said.

Senior managers rebuffed the idea. For Apple, weaning itself off China, its second-largest consumer market and the place where most of its products are assembled, has been too challenging to undertake.

Now, the spread of coronavirus is revealing basic flaws with globalisation as it’s evolved, particularly extended supply chains, just in time production, and a host of other “modern” business practices I won’t explore further here.

To be sure, the WSJ notes that before the coronavirus struck, Apple’s decision to bet the farm on China has yielded benefits for the company. I’ll point out the obvious: That’s often the case, at least in the short-term, when one fails to diversify risk properly:

China has been a critical factor in Apple’s soaring market value. The country provides a stable, efficient, low-cost manufacturing base with an abundant network of suppliers that have helped cement Apple’s profitability.

Apple Chief Executive Tim Cook continues to play down the need to significantly change Apple’s supply chain. During an interview Thursday with Fox Business Network, he said unpredictable events are a facet of modern business and noted that Apple’s operations team has previously navigated earthquakes, tsunamis and other challenges.

I see a worrisome problem here, one I recognize from the butterly keyboard debacle: a tendency to double down rather than reverse or change a decision when it’s obvious change is necessary:

“The question for us is: Was the resilience there or not? And do we need to make some changes?” Mr. Cook said. “My perspective sitting here today is that if there are changes, you’re talking about adjusting some knobs, not some sort of wholesale fundamental change.”

Jerri-Lynn here: I offer no unique insight here. Others have noticed that Apple’s China exposure  is a huge problem at this time. According to the WSJ:

Factory production has been crippled as China has shut down activities and sought to contain the outbreak, and Apple warned investors it won’t meet its own sales estimates in the current quarter. Since that warning, Apple’s market value has declined by more than $100 billion.

“No executive will admit in a public forum: We should have thought about” the vulnerability to China, said Burak Kazaz, a Syracuse University supply chain professor and former researcher at International Business Machines Corp. “But from this point on, there are no excuses.”

What Next?

The issue of course is not what Apple has done. The key question is of course: what should it do next? And here, the WSJ discusses just how limited its options are:

Apple has recently started to experiment with small production moves out of China. These attempts, including plans to assemble wireless earbuds in Vietnam and produce iPhones in India and Mac Pro computers in the U. S., have laid bare a number of difficulties.

A clean break with China is impossible. Apple relies on a workforce of more than three million indirect workers in China. Its top manufacturer, Taiwan’s Foxconn TechnologyGroup, 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 population in China has allowed suppliers to build factories with a capacity for more than 250,000 people. The number of migrant workers in China, who do much of Apple’s production, exceed Vietnam’s total population of 100 million. India is the closest comparison, but its roads, ports and infrastructure lag far behind those in China.

Apple is in for interesting times, as the fallout from the current crisis continues.

Coda: Offshoring Production of Drugs Now Appears Boneheaded

I’ve been expecting this latest news for the last couple of weeks. in February, India slammed shut its borders, to Chinese visitors or to foreigners who had recently been in China (see this report in the Economic Times, Coronavirus: India cancels valid visas to Chinese, foreigners who visited China in last two weeks).

Thus far, there have been no major outbreaks of coronavirus in the country – with the latest, only the sixth reported positive test, reported today in the western state of Rajasthan, a major tourist destination. The patient is an Italian national, according to Al Jazeera  (see Six coronavirus deaths in US, China cases slow: Live updates). Today, India decided to cancel all visas to nationals of Iran, South Korea, or Japan, grated on or before 3 March (see this account in India Today, Coronavirus outbreak: Govt cancels Visas for Italy, Iran, Japan and South Korea, issues new travel advisory).

What caught my eye  as I was compiling today’s Links: India’s decision to stop exporting generic drugs, in order to save supplies for its own population. China and India are the leading sources of world pharma production. As Reuters reports in Global supplier India curbs drug exports as coronavirus fears grow:

India, the world’s main supplier of generic drugs, has restricted the export of 26 pharmaceutical ingredients and the medicines made from them, including paracetamol, as the coronavirus outbreak plays havoc with supply chains.

“Export of specified APIs and formulations made from these APIs… is hereby ‘restricted’ with immediate effect and till further orders,” the Director General of Foreign Trade said in a statement here on Tuesday, without explaining the extent of the restrictions.

The list given by the government, of 26 APIs and their formulations, account for 10% of all Indian pharmaceutical exports.

“Irrespective of the ban, some of these molecules may face shortages for the next couple of months,” Dinesh Dua, chairman, Pharmaceuticals Export Promotion Council of India, told Reuters.

“If coronavirus is not contained, then in that case there could be acute shortages,” Dua said.

When the lessons of the current outbreak are examined, one thing that will surely stand out is the dependence on offshore production of pharmaceuticals necessary to treat people who fall sick.

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35 comments

  1. Mike Mc

    Have used Macintoshes professionally since 1987 (Mac Plus!), sold serviced and repaired them from 1999 to 2010, then repaired them for a large land grant university from 2010 to today (retiring later this year).

    Still prefer them to Windows boxes of all kinds, but no illusions. Apple become the behemoth it is, for now anyway, by relentlessly pursuing perfection according to Chairman Jobs and then profits according to Chairman Cook.

    Coronavirus and climate change among other factors may have just reshuffled the deck for major IT manufacturers (including smartphones and Alexa/Ring garbage). We’ll see in a few more months.

    1. Tom Bradford

      I’ve never used a Mac or anything by Apple but would agree that they’re probably better than Windows boxes of all kinds. However the problem there tends to be Windows rather than the boxes and I get around that by using Linux. This gives me access to boxes I can tinker with, upgrade and repair to meet my needs and access to a plethora of OSs all with their slants to particular uses and needs.

    2. IdahoSpud

      I have never been a fan of Apple. I’m an old guy who has been building his own PCs for decades, so this distaste for Apple goes back quite a ways. In the 1980’s I was disgusted by their highly litigious nature. Apple vainly attempted to use the legal system to retain a monopoly on the Graphical User Interface that Xerox (Not Apple) had invented.

      Microsoft had introduced the Windows operating system to make the PC less clunky and not require typing in command lines. Apple’s sales collapsed when they lost their monopoly, and so they sued Microsoft for daring to offer Windows.

      Apple’s Super Bowl commercial with the Orwellian 1984 theme showed a stunning lack of awareness. however the plebes seemingly bought into it. I’m not a big fan of the Windows/Intel semi-monopoly, but I’ve been happy to always have alternative vendors and pricing on parts. I’ve also been able to upgrade/swap parts made by other manufacturers over the years.

      At least with a Windows/Intel machine you have the option of running the Linux operating system or using a CPU manufactured by someone besides Intel. As for motherboards and memory, you have half a dozen excellent manufacturers to select from. With Apple, you get none of that, and their pricing reflects their monopoly. Thus the epic lack of self-awareness in that 1984 commercial.

      The “blunders” with iPhone batteries and stance on right-to-repair are simply the most recent symptoms of Apple’s decades-old greed and hubris. Apple wants to ensure that all your old devices to go in the landfill, so that you will purchase a new Apple product.

      I partially agree. I believe that all Apple and its products need to go in a landfill. They are the Boeing of the computing scene.

    1. False Solace

      That’s Roubini’s prediction, that China will distract its population from economic troubles brought on by coronavirus with some military escapades vs the US. They already allowed a bunch of rumors to spread on social media that the US created and released the virus so the population is primed.

      1. cnchal

        The Chinese peasants have more intelligence than you give them credit for. Not one would believe that. They know their elite are as corrupt and inept as our elite. Wait till they find out they have been lied to again when they go back to work and massively spread this thing again.

        That this started in a spot where a Chinese biological laboratory has it’s front door is being brushed aside at the moment for this theory that it comes from an animal at some sort of local animal market. My guts tell me that this has been caused by an accidental release from the lab, and it is due to typical “quality” issues in China. It wasn’t that long ago that they blew up half a city by accident, so disasters in China are epic.

        The praise for China and the draconian measures taken to try and corral this virus is like praising the arsonist for trying to put out a fire in his house after setting the whole neighborhood on fire.

        Still flying = Total Fail

          1. Massinissa

            Read up on the ‘mandate of heaven’ and what happens when the contemporary imperial dynasty loses it.

            It always involves millions of people putting on bandanas and kicking the current dynasty out.

  3. Arizona Slim

    And here I am, typing this comment on a desktop PC that was made in Tucson. Yeah, I know. Parts came from all over the world. Most likely, from Asia.

    1. Frank

      If we are not good enough to build it, then we are not good enough to buy it.
      Every computer and printer I have ever used was bought used for 1/10 or less the retail price. Search for used computers, or computer repair in local urban areas. Many do mail order.

      1. NancyBoyd

        In the 1980s I worked in a career where I routinely had access to salary census data for Silicon Valley companies, and I well remember assemblers in Santa Clara being paid enough that at the very least two could share a 1-BR apartment. That was in the 1980s. Assemblers were mostly women, and they weren’t paid a lot but, unfortunately for them, they were paid more than slave labor.

  4. rd

    I have been utterly baffled for over a decade now about why the US and US companies would want to be come reliant on manufacturing an entire ocean away.

    I have long felt that NAFTA provided an excellent opportunity to re-allocate manufacturing within driving distance of the US. Lower cost jobs happen in Mexico (possibly include the rest of Central America as well) while higher cost jobs occur in US and Canada. Use automation for efficiency as needed.

    Supply chains would be short and would involve countries that are not global competitors, but neighbors instead. Trucking, rail, and short plane flights would be all that would be needed to move goods around. The better jobs south of the border, especially if they included other Central American countries, would likely greatly reduce illegal immigration making the border wall largely irrelevant.

    I think the next 6 months are going to expose the Pacific supply chain as not robust or resilient and force a rethinking.

    1. templar555510

      Oh come on . To make the current iPhone it costs $339 and it sells for $1000 . That’s why. Years ago some nerds at Harvard did a study on this one product and calculated that it could be made in the US with a handsome profit of 45% , but in China 65% . Who knows maybe Covid 19 will blow all this to smithereens . I’m English. Typhoid was a killer and no-one at the top wanted to do anything about it until whoops, the Queen’s consort Albert became infected and died and then suddenly public health became an issue and much work was undertaken – proper sanitation being the main one – which helped all and sundry. Maybe if a few of the ‘ top people ‘succumb to this virus their present mentality of invulnerability will succumb too.

      1. Tom Bradford

        Or rather than succumbing to the virus try to flee to their expensive bolt-holes in New Zealand and find the airports closed.

        1. California Bob

          Or finding their pilots with a fueled-up G600 idling on the tarmac decided they would rather fly their wives and children to New Zealand instead of their employers.

      2. Shiloh1

        How much would it cost if manufactured in U.S. per standard labor and environmental laws, say just outside Fort Wayne, Indiana? About $450? Not good for virtue-signaling Tim Cook, rest of C-suiters or stockholders, however.

      3. California Bob

        Americans largely would not tolerate the toxic effluent from electronics manufacturing. The Chinese peasants have no say.

        1. John Wright

          Electronics manufacturing is still occurring in the USA.

          As I remember from my previous task, small scale builds of printed circuit assemblies are still occurring in Silicon Valley to ready the build process to be moved to Asia.

          The previous Sn-Pb (tin-lead) solder used in printed circuit assembly has been replaced with non-Pb bearing tin-silver-copper alloys.

          Toxic metals such as cadmium and hexavalent chromium have been removed from electronics manufacturing.

          So electronics manufacturing should be cleaner than before.

          Where is the evidence that electronics manufacturing produces toxic effluent that Americans would not tolerate?

  5. John Wright

    Apple may be the poster child for a company dependent on Chinese manufacturing, but the entire electronics industry is very much tied to China for lower level electronic components.

    Around seven years ago my job involved getting newly developed printed circuit assemblies assembled in Asia.

    I remember the German branch of a printed circuit board manufacturer closing as their Chinese branch was expanded.

    And I suspect even more capacity has been added to China and East Asia after my experience.

    It is far more than Chinese product assembly and electronic components that could be at risk. I suspect many mechanical components (for example plastic molded parts, metal castings) are sole sourced in China.

    Large companies frequently self insure against catastrophic loss.

    In essence, the multinationals are self insuring against supply chain disruption while they avoid diversification and redundancy in their supply chains.

    One could suspect many executives of firms with “Designed in the USA” on their products are very nervous that the Corona virus will move all around Asia and shut down production.

    These executives will probably push for an increase in pay due to additional stress.

  6. Chauncey Gardiner

    Might be time for the board to consider another CEO. Tremendous creativity and talent in Silicon Valley across disciplines from product engineering and design to supply chain management, etc. Concentration of a company’s supply chain is another form of leverage and risk, and as the article pointed out was the CEO’s decision. BTW, whatever happened to that Foxconn plant in Wisconsin that was so heavily subsidized by Wisconsin taxpayers?

      1. Left in Wisconsin

        Completely insane publicly-funded highway overbuilding to serve the facility but thus far the big nut of state aid is untouched because the operation is still small. That article says Foxconn is still on track to build the Gen 6 facility here (already a major downgrade from the original plan) but I thought the local scuttlebutt was that even that was unlikely at this point.

  7. Noel Nospamington

    The crapification of MacBooks hardware also includes removing dedicated function keys with the touch bar, refusing to support touch and pen input displays, and increasing underpowering of the processors and memory.

    The crapification of MacBook software has to do with the steady decline of MacOS as Apple moved social media and other crap from the application layer to the OS layer, and the recent removal of 32bit support for legacy software.

    MacBooks used to be commonplace in the tech industry among developers, especially in silicon valley. But all of this crapification has resulted in a majority of developers ditching their older MacBooks for cheaper and far better Windows/Linux based laptops.

    The decline in the number of Mac developers will eventually greatly impact the number of new applications available in the Apple eco-system (Macs, iPhones, iPads, and Apple Watches).

    There has also been many other bad decisions Apple has made, including not allowing for encrypted iCloud backups, and removing legitimate apps from their App Store which might offend their undemocratic Chinese masters.

    1. Arizona Slim

      I saw the same thing happening in Tucson coworking spaces.

      Back in 2012, when I first started checking them out, Mac laptops were ubiquitous. Matter of fact, I was mocked for using a (gasp!) PC laptop.

      In 2015, I joined the space I have talked about here on NC. I was there until a few weeks before it closed in 2019.

      During my four years in that space, I noticed that the Mac laptops went from being ubiquitous to, shall we say, just another part of the computing mix.

      Me? I replaced that much-derided PC laptop with a Linux-based laptop (System76), and I really like it.

      1. The Rev Kev

        Getting out of that shared workspace might be seen with dodging a Coronavirus bullet now.

        1. Arizona Slim

          I agree. Some of the nastiest recent illnesses I have had happened while I was there.

  8. Rob

    Steve Jobs made numerous comments about ‘not putting all the eggs in one basket’, he was talking about product lines, but it seems the message didn’t cross over to manufacturing.

  10. BoulderMike

    Let me add my 2 cents on Apple crapification: I hate, hate, hate that Apple has the right (read the fine print, it is there) to download an ios update file to my iPhone XS every day. There is a setting to shut off automatic installs, but not to stop Apple from downloading the update file to my phone. I either have to leave it on my phone 100% of the time, taking up some space and annoying me, or delete it. Of course, it is a futile battle as they just download it again. After I delete the ios update file a few times, Apple hides it for weeks so I can’t find it to delete. But, it is there as the “1” shows up on the General icon. Just an annoyance I know, but really why should I continually be pushed to upgrade my phone when I (a) don’t need an upgrade, and (b) don’t trust their upgrades not to break my phone.
    Apple s*cks, but Microsoft is worse. I am considering a Linux laptop when my mid-2012 MacBook Pro breaks, but I haven’t found a good alternative to the iPhone. Android is even worse IMHO.

  11. a different chris

    Haha this might be worse for England than Brexit:

    In the United Kingdom, he has been appointed a Royal Designer for Industry (RDI), an Honorary Fellow of the Royal Academy of Engineering (HonFREng), and a Knight Commander of the Order of the British Empire (KBE). In 2018, Ive was awarded the Professor Hawking Fellowship. In a 2004 BBC poll of cultural writers, Ive was ranked the most influential person in British culture.

    Wikipedia for the so-estimable Jonathan Ive. I was surprised to find that he was really born with the last name of Ive. The Jony part is, well, whatever.

  12. Mikel

    That’s the business of classwarfare.

    I’ve learned alot about my fellow Americans. That they are actually surprised and disappointed that a business engages in crapification and assorted mess.
    The country will be on the way to change once the merchant worship is toned down.

  14. vlade

    I can’t comment too much on Mac HW (I had two, one from 2009, when it was one of the most powerful laptos one could buy, and with _matte_ screen too!, the second one from 2015, which I still have, as one of the smallest/lightest laptops around that time).

    But I can, and will, comment on Apple’s SW. It’s crap. iOS does stuff that even Microsoft would not do these days (and MS is still pretty bad). I’ve lost content on my iPad few times because it decided to wipe it all out for reason I still don’t understand. Number of times I had “ghost files” on my iPad/iPhone. On iPad, it was taking capacity, and I could not do anything to it unless I entirely rebuilt the iPad (no, not restored from backup. Rebuilt all SW items individually). On iPhone, I had >2000 ghost songs, which I fortunately just managed to remove yesterday with a specialised SW (one can say this thing for Apple. Like MS, there’s a whole niche industry in fixing Apple’s f-ups), preventing me from loading the real songs there.

    Oh, and on user-friendliness? iTunes is garbage. iOS changes the UI with almost every version, breaking things (why can’t I now _entirely_ turn off wifi/bluetooth w/o going to settings or using airplane mode?) that worked for no good reason.

    And the thing that gets me on Apple the most is the sheer arogance. They never, ever, admit they were wrong.

    The only reason I have iPhone is that Android is even worse, and Google actively spies on you way more than Apple does.

  15. Olivier

    How is it an Apple issue? The entire electronics industry (minus a few bits like Intel chips) has migrated to Asia.

  16. Synoia

    So Apple bet its farm on a single point of failure. Must have a accountant at the helm.

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