Apple’s China detox is painful and overdue

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By Robyn Mak Apple’s NASDAQ:AAPL success rests on the iPhone. The profitable pocket device helped turn it from a niche player in the personal computer industry into one of world’s largest companies, with a market capitalisation of almost $3 trillion. Much of that was due to its supply chain in China. Now geopolitical tensions and trade wars are calling that dependence into question.The role the People’s Republic played in the company’s rise is the focus of "Apple in China: The Capture of the World's Greatest Company". The book by Patrick McGee, who covered the company for the Financial Times, draws on more than 200 interviews with former executives and engineers – as well as other material - to provide a riveting account of how Apple came to depend on Chinese suppliers for most of its products and Chinese consumers for 17% of its sales last year. Now that it is scrambling to develop other manufacturing bases, its history holds important lessons for the two economies – and for other big manufacturers like Tesla NASDAQ:TSLA.Apple's entry into the People's Republic would not have been possible without Taiwan's Foxconn, formally known as Hon Hai Precision Industry. Founded by entrepreneur Terry Gou, the contract manufacturer and its peers were instrumental in shaping China's export-driven model in the mid-1990s by establishing factories on the mainland. They were able to do so by working "hand in glove" with local officials, benefitting from subsidies, infrastructure, and critically, flows of cheap migrant labourers from rural areas. "Uncle Terry", as Apple came to know Gou, stood out due to his political savvy, McGee writes. "They subsidised the shit out of him", he quotes one senior Apple executive at the time anonymously. Apple says the claims in the book are untrue and full of inaccuracies.The company first started working closely with Foxconn in 1999, outsourcing production of iMacs and then, a few years later, the iPod. Thanks to Foxconn's ability to assemble products at speed and scale, Apple shipped 22.5 million of the portable music players in 2005, up from less than 1 million in 2003.Apple’s arrival in China differed from that of other large companies. Multinationals from South Korea's Samsung Electronics KRX:005930 to German automaker Volkswagen XETR:VOW had previously set up wholly-owned foreign enterprises or local joint ventures. Beijing's bet w...

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