Apple In China

This morning I finished reading Apple in China, a fascinating book about the interdependence between Apple and Chinese manufacturing. The book makes clear that the company might never have reached a $3T market cap without the contributions of Foxconn and support from the Chinese government. In turn, China might not have developed into a sophisticated manufacturing powerhouse without Apple’s training, investment, and partnership.

Having worked with OEMs (Original Equipment Manufacturers) and ODMs (Original Design Manufacturers) in China, I found the book cast light on aspects of manufacturing I hadn’t fully appreciated.

Apple Pyramid (Image credit: ChatGPT)

Iconic products like the iPhone come to life at Apple through the push and pull of four teams. At the top, the Industrial Design (ID) team defines the look and feel. Next, the Product Design (PD) team ensures the product works as intended. The Manufacturing Design (MD) team then decides which components and assembly partners will bring the product to life. Finally, the Operations (Ops) team scales production—optimizing supply chains, adding backup vendors for resilience, and driving competition among suppliers.

The ID and PD teams often get the spotlight. But after reading the book, it’s clear the MD and Ops teams deserve just as much credit—if not more. 

A fascinating read

As the book notes, China’s rise as the world’s factory was built on a unique political and economic system:

China was actually a more decentralized nation than America. China featured federalism on steroids, contrasting widely with Soviet Communism. Beijing sets the goals in substance and pace, but it's up to the provinces, municipalities, and counties to figure out how they meet them. The system - which the scholar Chenggang Xu calls a "regionally decentralized authoritarian regime," or RDA - is an enormous meritocracy for  officials from provincial governors down to the local cadres. They're are given wide latitude to incentivize businesses and work with them hand in glove to achieve fast growth and high employment. As Xu puts it: "The central government has control over personnel, whereas subnational governments run the bulk of the economy; and they initiate, negotiate, implement, divert, and resist reforms, policies, rules, and laws." Such decentralization allowed for experimentation on a grand scale: what worked in Guangdong could be replicated in Shanghai. But Beijing was often patient: It waited for the results of these experiments rather than rushing ahead of them. This combination of decentralized decision making, experimentation, and gradual adoption of new policies played a critical role in how China became a manufacturing powerhouse. 

Behind any big success, there are unsung heroes, hard trade-offs, and difficult compromises.