There great new business book, Apple in China, is currently number one on the business bestseller chart. Check out John Stewart’s interview with the author, Patric McGee.
As noted in my review of two-weeks ago, the fast-paced book traces how Apple’s first foray into Asia, started with Taiwan and expanded into massive facilities in China. Apple has now spent more money than the Marshal Plan teaching, training and investing into hundreds of Chinese companies to develop the skills needed to product the vast quantities of iPhones and other products. Currently they are spending $55 billion per year.
Apple is now dependent on these suppliers and facilities and cannot move production elsewhere. Ironically, in making this investment for their own products, Apple has simultaneously created the infrastructure for electronics manufacturing in China that is now competing with Apple’s own products.
The book raises pressing questions about what happens when the world’s most valuable company is intertwined with a rising superpower amid growing U.S.-China tensions.
The author notes that the first move to Asia occurred in 1994 when I was the one who brought the Newton to Taiwan to speed up its development and utilize the country’s manufacturing resources. I had recently joined Apple, and for many years prior utilized Asian manufacturing at Polaroid and other companies, not primarily because of lower labor cost, but because of the faster time to market. I just duplicated at Apple what I had done at these other companies over the years. While many companies were already utilizing Asian partners in Japan, Taiwan and China, Apple was still building their products in the U.S. and were oblivious to the opportunities.
Here’s how author Patrick McGee tells the story in his book, “Apple in China.”
Apple’s outsourcing strategy evolved when the first Apple Newton shipped in August 1993. The Newton was a proto-BlackBerry that allowed the user to take notes with a pen, read email, send faxes, and manage their calendar. But its key feature – handwriting recognition – was relentlessly mocked as unworkable. And production in Japan by Sharp was its own disaster.
Cost was one reason. Japan was rapidly losing its edge as an affordable manufacturing base due to labor shortages, climbing wages, and a soaring currency. The yen’s strengthening made exports more expensive and “drove us to look into other areas,” says a former Apple executive.
The head of the Newton division, a Belgian named Gaston Bastiaens, looked for alternatives. He turned to Phil Baker, a product development expert with fifteen years at Polaroid and earlier work bringing products to life at Atari, Seiko, and a few start-ups using handheld products. Baker’s familiarity with miniature electronics was rare, and just what Apple needed for the second-generation Newton. Bastiaens told Baker: “Look, you’ve had experience developing handheld products. We need to do it cheaply. I need you to go do it.” Baker responded: “Okay, where do you want to do it?” Bastiaens looked up at him blankly. “I have no idea.”
The Newton group had been shunned by the rest of the company, like it was a spin-off. But this curse was partially a blessing. Asking to have the Mac assembled in Asia would have been fraught with politics, but nobody really cared where the Newton was built. Baker had freedom. The United States, he says, was bureaucratic and already falling well behind Asia in cost and quality.
Baker had some experience in Taiwan and knew it could be far more affordable than Japan. Indeed, the rise of Taiwan as an industrial center had been facilitated by large Japanese manufacturers and trading companies. From the 1960s onward, Japanese businesses had invested in the island, importing machines and training their workforces to avoid rising costs at home. Taiwan had been a Japanese colony for sixty years until World War II. By the time Baker flew to the island in 1994 to interview manufacturers, the export-oriented economy was booming. He developed a relationship with Richard Lee, CEO of Inventec. Lee treated his employees well and had experience assembling calculators. Baker soon learned that the Taiwanese were more flexible and speedier than the Japanese factories he was familiar with. What the Taiwanese didn’t have was the right skill sets, so Apple began sending over its engineers to assist in bringing up quality at the factories.
Cupertino executives were “pretty oblivious to what was going on in Asia” at the time, Baker says. Even the Japanese were ignorant of how quickly Taiwan was becoming an electronics powerhouse.
Back in Cupertino, Baker called on a young creative with a boyish face, a strong jawline, and neatly styled hair to reconceive the look and feel of the Newton. The young man, newly hired by Robert Brunner, had a meticulous eye for detail and favored minimalist concepts with an understated flair. He was passionate, though he didn’t exude excitement. He was soft-spoken, carefully pausing to communicate each word clearly. The second-generation Newton he designed would earn him accolades, even with the product itself failing in the market. And that would just be the start of a storied career. Much later, Brunner would quip that no matter what contribution he, Brunner, would make in the rest of his life, his tombstone was likely to say, “Here lies the guy who hired Jonathan Ive.”
I won’t take the blame for what Apple has done since then, but I’ll take the credit for doing what was needed at the time to get the product to market in record time and doing what most consumer tech companies have been doing for nearly forty years since.
