Dangerous Dependency: Apple & the Rise of China | Patrick McGee

In Episode 416 https://hiddenforces.io/podcasts/dangerous-dependency-apple-rise-of-china-patrick-mcgee of Hidden Forces, Demetri Kofinas speaks with Financial Times correspondent Patrick McGee about the integral role Apple played in helping to build China's advanced manufacturing ecosystem—and the geopolitical interdependencies and national security risks now baked into that relationship. McGee's book "Apple in China" tells two stories. First, it chronicles Apple's ascent from being nearly bankrupt in the mid‑1990s to becoming the world's most valuable company within just 15 years. Second, it traces China's historic transformation from an underdeveloped economy with Third‑World cost structures and armies of unskilled laborers to the world's largest economy (by purchasing power parity) and the hub of the most advanced manufacturing base on the planet. By the time this episode is over, you will have learned exactly how Apple off-loaded almost all its manufacturing to Asia by the late 1990s and early 2000s and then consolidated that entire operation inside mainland China. You will also learn how the same supply chain mastery that turned Apple into the world's most valuable company has left it existentially dependent on a single authoritarian state whose political goals now diverge sharply from Washington's. It's an incredible story with profound implications for all of us who depend on China's manufacturing prowess and intricate supply networks to sustain our way of life. Whether we can extricate ourselves from this web of interdependencies—and the extent to which we should even want to—is one of a number of topics we explore extensively in the episode's second hour. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Joining our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 05/01/2025

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode is Patrick McGee, a Financial Times correspondent and author of "Apple in China," a book that tells two parallel and symbiotic stories. The first is about the consumer electronics and services firm Apple and its rise from near bankruptcy in the mid 1990s to becoming the world's most valuable company in a span of only 15 years.

• 0:42Demetri Kofinas?

  The second story is about China and its historic transformation from being an underdeveloped economy with third world cost structures and armies of unskilled laborers to becoming the world's largest economy when measured by purchasing power parity with the most advanced manufacturing base in the world. By the time this episode is over, you will have learned exactly how Apple offloaded almost all its manufacturing base to Asia by the late 1990s and early 2000s, and then consolidated that entire operation inside mainland China. You will also learn how the same supply chain mastery that turned Apple into the world's most valuable company has left it existentially dependent on a

• 1:24Demetri Kofinas?

  single authoritarian state whose political goals now diverge sharply from Washington's. It's an incredible story with profound implications for not just Apple, but all of us who depend on China's manufacturing prowess and intricate supply networks to sustain our way of life. Whether we can extricate ourselves from this web of interdependency and the extent to which we should even want to is one of a number of topics we explore extensively in the episode's second hour. If you want access to all of this conversation, go to hiddenforces.io/subscribe and join our premium feed, which you can listen to on your mobile device using your favorite podcast app, just like you're listening to this episode right now.

• 2:09Demetri Kofinas?

  If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q and A calls with guests, access to special research and analysis, in-person events and dinners, you can also do that on our subscriber page. If you still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. And with that, please enjoy this remarkably timely and profoundly eye-opening conversation with my guest, Patrick McGee.

• 2:47Demetri Kofinas?

  Patrick McGee, welcome to Hidden Forces.

• 2:51Speaker 01

  Thanks, Dimitri.

• 2:52Demetri Kofinas?

  I'm excited to have you on. Are you excited?

• 2:55Speaker 01

  I'm really pumped. I mean, I've just started giving book talks and I think this is my first podcast. But I mean, this book has been in my head for two years. And for six months, we've been going through various edits and just playing this long waiting game that if you're a newspaper journalist, you're just not familiar with. You know, you write something and it comes out in the newspaper the next day. So to finally be able to sort of go through everything and express myself about it, I'm absolutely thrilled.

• 3:16Demetri Kofinas?

  Oh, I know you're excited. You know, I deal with a lot of authors and guests and I can tell you're especially excited. And I'd be excited if I was you too, because as I was telling you, I think this book is, besides the fact that it's obviously timely, it also addresses a very important blind spot in the public's understanding of not only Apple, its history, its identity, which I think is fascinating, we'll get into, and the sources of its rise to become the largest company by market capitalization in the world. But also, it fills very important or it illuminates a very important blind spot in people's understanding of China and the supply chains that feed its ecosystem of advanced manufacturing that are really,

• 3:59Demetri Kofinas?

  in my opinion, in this book does a great job of showing this. The most, not only the most advanced in the world, but they are the only game in town. There is no substitute. And then I think it's something that it's one thing to conceptually be aware of that idea. You know, it's something that's talked about by some folks in the media. It's another thing to really take the time to read the book and to understand not just how that's the case, but how it got to be the case and why that is a long process that needs to happen. And what's fascinating also is because Apple plays a central role in that story. Not only is the story of Apple's rebirth after Steve Jobs' return in the mid to late

• 4:41Demetri Kofinas?

  1990s, sort of a way of tracing the industrialization and rise of China as this, not just industrial powerhouse, but again, the only game in town for advanced manufacturing of this sort. It also played an integral role in actually seeding that knowledge into China's domestic ecosystem and creating the demand pull. I mean, that's the other thing, you know, the demand pull that created the competitive pressures for companies like Foxconn to become such huge players in the space.

• 5:07Speaker 01

  Absolutely.

• 5:08Demetri Kofinas?

  So before we get into all of that, which is, I think, just very exciting to get into. And I think also one more thing I should say is that there'll be an opportunity, especially in the second hour, to reckon with, and I want people to actively reckon with soberly the implications of what we're talking about here, because we're in the midst of a trade war with China and the rest of the world. There's a lot of talk about deglobalization, reindustrialization, bringing jobs back home. And I just want people to really have that top of mind as we're going through step by step, the story of Apple and the story of China. So before we get into all that, Patrick, what's your story? Tell us a little bit about you and how you got into this business as a journalist and also this business of, you know, investigating and coming to understand the rise of Apple as a international juggernaut.

• 5:50Speaker 01

  So I'll make my first 25 or so years really quick, which is just that I'm Canadian. So I was raised in Calgary, Alberta, sort of sometimes known as Canada's Texas. I went to University of Toronto where I studied religion and anthropology, but I was a Mac person from the earliest days. I mean, we got the Tangerine iMac in 1999 and I wanted to go to film school at the time. I was using iMovie, which is like a sort of unimpressive, you know, asset of knowledge, if you will, for making films, but that's where I was starting as a 16-year-old. And the problem with studying religion is when you graduate, you know, there's no job offers, right? I spent four years declining the question, you know, I'm not going to be a priest. I was not studying theology. I was studying religion. Religion is a really interesting lens to view art history, you know, history, wars, the 20th century. I

• 6:32Speaker 01

  studied a lot of Sigmund Freud, Claude Levy Strauss, these sorts of big thinkers. And then I became a journalist, just because reading and writing was sort of the only thing I was interested in. And at first, I was a financial reporter, a bond reporter, and eventually I got plucked to go work for the Wall Street Journal in New York. And after just 18 months of being there, the Financial Times sort of came calling and sent me to Hong Kong to cover Asian markets. And that was really my big introduction to China. I mean, I was in Hong Kong when the umbrella revolution took place, right? Where for the first time in my life, I was looking up to people that were a decade younger than me as they protested in the streets for democracy. And it was heart wrenching to watch because you supported them so much, but you also knew this just is not going to turn out

• 7:13Speaker 01

  well. And it hasn't. You know, I mean, that was the best city I've ever lived in, Hong Kong. And it breaks my heart that it's been really taken over by Beijing. But in retrospect, right, a great introduction to the real China, if you will. Then I spent three years reporting on the Volkswagen scandal, living in Germany, reporting on German car industry. That was important for the sort of foundation for this book, because that was the first time I was going in and out of factories all the time. And understanding that even if you were buying something like a Porsche, you know, maybe 25% of that car is actually built, you know, something like the engine and maybe some of the detailing of the seats and things like that are done by Porsche. But it's a supply chain, right? It's a global supply chain. And I just didn't have an understanding of how that operated. So I sort of took that

• 7:56Speaker 01

  knowledge. And when I came to California to cover Apple, it sort of laid the foundation that I was already interested in China and China's authoritarian turn under Xi Jinping. And I was interested in how things got made through my work on German industry. So when I got to reporting on Apple, Apple's a really tough company to report on. I mean, the PR spokespeople are sort of hostile to you in a certain sense. I sort of compare them to intelligence agencies where they extract information from you, but offer nothing in return. And it took a while to learn how to report on them. And it was only late in my four years as an Apple reporter that I really got invested in the Achilles heel of the company, which is that everything is built in China. And even when you hear

• 8:38Speaker 01

  a statistic like 90%, it's really more than 90%, really all roads lead through China. So that just felt like an incredible story where I was sort of leveraging the knowledge I gained as a reporter for the previous 12 years in three different continents. And it just all came together really well into a wonderful book pitch two years ago. And then it's been sort of off to the races since then.

• 8:57Demetri Kofinas?

  Excellent. So a couple of things I want to mention, then we'll continue with the questions. I also grew up with Macs. And in fact, in high school, up until maybe the very end of high school, I had an Apple Duo, a Mac Duo, which was then it was considered very thin, a very thin laptop. It was black and white in order to save space. But eventually, it just became too difficult having Macs because there was a compatibility issue, which Steve Jobs began to address when he came back with his famous partnership with Microsoft. Remember that speech he gave where he said, we have to get over this idea that in order for Apple to win, Microsoft has to lose?

• 9:33Speaker 01

  Yes.

• 9:34Demetri Kofinas?

  Also, people are interested in the whole Hong Kong story. We had Joshua Wong on during the protest movements, who was one of the lead, who has since been one of the lead advocates in the pro-democracy movement in Hong Kong. He's since been imprisoned. And Wolfgang Schäuble was on the show. And that's a great episode if you want to learn about the whole, the whole German predicament since we brought that up. So this is very interesting. One more sort of observation and question before we get into the book, or maybe it's a good way to start the book, I guess, instead of asking the general question about it, which is that Apple was always a company that prided itself on being vertically integrated and kind of building with the two Steve, Steve Jobs and Steve Wozniak called the whole banana. When did that change?

• 10:16Speaker 01

  So it's a great question. And my answer, I think, is pretty nuanced, which is that it changed before Steve Jobs came back in 1997. So Apple adopted a global outsourcing strategy in 1996. So that's before Steve Jobs comes back. It's before the acquisition of NeXT, and it's crucially before Tim Cook comes back. And nobody seems to be familiar with that. So after my introduction, the first chapter is laying out just how close Apple came to bankruptcy in the spring of 1996. We've always thought 1997 was the worst year. That's because we're taking Steve Jobs' word for it. And sort of, you know, he does this thing when he tells stories that he puts himself at the center of every story, right? People think he came up with multi-touch glass and things like that. And, you know, the more people have digged into really any of these things, the more he realized like

• 10:59Speaker 01

  he's a real genius and he pushes people beyond their limits and such. But he's not, you know, the originator of so many of these ideas.

• 11:05Demetri Kofinas?

  Including the original graphical user interface.

• 11:07Speaker 01

  Oh yeah, I mean, that's probably the most famous example. So yeah, if you take that idea or that sort of anecdote in history, you can just understand that actually that can sort of be copy and pasted to any number of things where you think Steve Jobs is at the center. And I don't want to discredit the guy. He's obviously brilliant, but nevertheless, there's too much credit given to him. So basically, what happens is, I mean, Apple is four or five days away from even making payroll in 1996. And they have to sell this facility that I have in Colorado, Fountain, Colorado, where they're making Macs and some of the laptops. And they sell it for around $200 million. And it's just enough to buy a couple of months of time because they're so close to being bankrupt. I think the book reveals for the first time that Apple had actually

• 11:48Speaker 01

  hired Chapter 11 lawyers to at least go through what the possibilities were. And it's the sale of that factory that buys them some time. And then they do an oversubscribed bond sale and are able to sort of negotiate with some Japanese lenders to stave off, you know, give by themselves a few more weeks. And then it's in that crisis period that the CEO at the time, Gil Amelio, ends up buying Next, and that's what brings back Steve Jobs. So I don't want to give too much credit to Gil Amelio, but he's probably been discredited more than he deserves. He actually did some major things in finance. Under him, they adopted the global outsourcing strategy. And he realized they need a new operating system. And that's why they brought back Steve Jobs through the acquisition of Next.

• 12:29Demetri Kofinas?

  Yeah. How important was that acquisition as well? I mean, you don't really talk about it much in the book, but the acquisition of Next, just in order to obtain its operating system, was that also in any way consistent with the future actions and strategy of the company to focus on the software and sort of outsourcing the hardware?

• 12:46Speaker 01

  Well, not to blow your mind, I think it's probably the most consequential acquisition in American corporate history. Apple is dead without that acquisition. I mean, not only do they not have an operating system, which is the whole way you distinguish yourself as Apple, but you don't get Steve Jobs, and you don't get 300 employees. I mean, one of the employees compared these 300 to like, the ones that, you know, the Spartans that saved Greece, right? Like, we're talking about handpicked people that made it through the next era with Steve. Some of these people are absolutely foundational to the turnaround that Apple is able to orchestrate in the early 2000s. Now, the only caveat I should say is the joke was that Next acquired Apple for negative $400 million, right? Because Next was so powerful under Steve Jobs that they all got elevated.

• 13:30Speaker 01

  And I think it's something like in 1998, like five of the seven executive team members are from Next. You know, one of the non-Next people is Tim Cook, but I mean, that's how it's sort of a reverse takeover.

• 13:43Demetri Kofinas?

  Yeah, I remember actually Walter Isaacson recounting this part of Apple's history in his book and describing Jobs as being rather Machiavellian in the way that he befriended Gil Amelio and sort of like stabbed him in the back by siding with the board to replace him.

• 14:00Speaker 01

  Yeah, that's quite tricky. I mean, Gil Amelio is so clearly not the right person. He has certain skill sets, but he's got no charisma. He's not a product guy. And the thing that Steve Jobs does, which is he lies about it, which is really what makes his bad. You know, like when you say the cover up is worse than the crime. Well, the crime in this case was Steve Jobs, as part of the acquisition, got 1.5 million shares of Apple. And I think it's July 1997, maybe it's May 1997. He sells all but one of those 1.5 million shares. I mean, it's a huge vote of unconfidence in Gil Amelio. But when Gil Amelio confronts him about it, he lies about it.

• 14:37Demetri Kofinas?

  Yeah, I remember there's like actually a part of your book where he threatens to sell his one remaining share because he was having a fight with some of the employees.

• 14:43Speaker 01

  That's later. Yeah, that's a hilarious anecdote.

• 14:46Demetri Kofinas?

  All right. So walk me through now, Jobs comes back to Apple. He takes over the reins in 1997. He was made officially CEO.

• 14:54Speaker 01

  Yes.

• 14:54Demetri Kofinas?

  How do we go from there? And Tim Cook was hired, I believe, in 1998. How do we go from there to where we are today? In other words, what is Apple's initial foray into China? And maybe even before that, what is its initial foray into outsourcing manufacturing? Moving away from trying to make the whole banana?

• 15:12Speaker 01

  So what people don't understand, because generally what happens if you're doing a quick review of Apple is people will say Tim Cook came in 1998, sold off all of Apple's manufacturing assets and moved everything to China. That's kind of true, but that actually took place over seven years. So as I said, before Steve Jobs even came on board, they already adopted a global outsourcing strategy. So at the time, like from the early 1980s up until really into the early 2000s, Apple had facilities in California, Singapore and Ireland. It sort of had this like tri-continent strategy where you were like at the continent level assembling things locally.

• 15:48Demetri Kofinas?

  And they also made their own processors at the time. It was the Power PC. That was before even Intel, the relationship with Intel.

• 15:53Speaker 01

  It's a partnership with Motorola, I believe. Yeah, I don't go into huge detail into it, but you're right. They were doing their own circuit boards. So in 1996, that's when they began to sell that stuff off. So big assembly lines in Ireland, big assembly lines in Singapore, that all gets shifted to companies like Nat Steel in Singapore. But they're sticking with this triple-continent strategy. And so what happens is when they build the candy-colored iMac, Steve Jobs wants to build it himself, right? He wants Apple to build it. And they don't have the capability of doing that. I mean, Apple has no experience building a CRT, a cathode ray tube. And so they use their analog television supplier, which is LG in South Korea. And for a time, Apple is doing some of the assembly itself, but basically, once it becomes

• 16:34Speaker 01

  successful, they take themselves out of the equation and LG is asked to replicate the triple-continent strategy. So LG in Korea plays this unheralded and major role building the iMac. In fact, they designed so much of the manufacturing processes that a Korean executive says that they basically designed it and Steve Jobs demands a retraction. But LG then sets up facilities in Wales. This is basically to take over from Apple's Ireland operations and it sets up in Mexicali and that's basically to take over Apple's California operations. And this is sort of crucial because basically what happens is their international expansion is a fiasco. So in Wales, the production line becomes known by the Welsh workers as the toaster line for its propensity to catch fire.

• 17:18Speaker 01

  And in Mexico, there's a literal fire where production is shut down for an entire Basically, what happens is a guy named Terry Guo of Foxconn calls up Tim Cook and says, "Let me fix this." And my argument is the meeting of the minds between Johnny Ive and Steve Jobs is what makes Apple products unique. The meeting of the minds between Tim Cook and Terry Guo is what makes them ubiquitous. So it's a totally critical phone call. And Foxconn is basically asked to do the triple continent strategy as well. So they come on as a second supplier to the candy-colored iMac, and they end up building them in China in 2000, so that's pretty crucial, but also in the Czech Republic, a history that really nobody knows anything about, and Fullerton, California.

• 18:01Speaker 01

  And then basically what happens is for several years, you have a host of production in those three countries, but you also have even more for other computers, the iMac G4, which some people might remember looks like a sunflower. That's happening in Taiwan. The first iPod, first, in fact, three iPods are made by Inventec in Taiwan. And basically what happens is the more you're comparing internationally, the rates of labor, the flexibility of labor, the ubiquity of that labor, China is just winning out here, there, everywhere. They are giving away free land, free machinery. They are making it so, so easy to choose China. And so as China enters the World Trade Organization in 2001, it just becomes this totally obvious thing where, well, of course, we should replicate operations in China.

• 18:44Speaker 01

  And then once you've done that, well, of course, we should close down these other facilities. And so between really 2000 and 2004, Apple really begins to consolidate everything into China. So just to sort of finish this off, in 1999, zero products are made in China. By 2009, virtually all of them are. And my argument of the book is that that 10-year process is a geopolitical event on the scale of the Berlin Wall falling. But it's happened in a place where there's no real media. It's a censored media landscape, and all the people involved on the Apple side are stricken by NDAs and haven't really told their story. And of course, my point is, until now.

• 19:23Demetri Kofinas?

  You know, I love this. I mean, I'm trying to think about, as you were talking there, I was trying to think about, how did I want to phrase the next question? Because one of the things that comes across while reading the book that's, I think, really important to understand is that this is not a story about margins.

• 19:37Speaker 01

  Yes.

• 19:37Demetri Kofinas?

  It's a story about margins.

• 19:39Speaker 01

  Good point.

• 19:39Demetri Kofinas?

  But it's not fundamentally a story about margins. You know, most of the way that we think about globalization and outsourcing is companies looking to lower their costs. But actually, what seems to have been the primary driver here was almost even, not even Apple, it was really Steve Jobs's maniacal perfectionism around design and manufacturing and wanting it the way he wanted it. And China was able to give him what he wanted. Those supply chains, that ecosystem that was built out there was in many ways sort of the response of being in the pressure cooker. I'm not saying all of what happened in China, I'm talking about specifically here, the part that played a role for Apple, which bled into so many other manufacturing chains, was really a sort of response of being in the Jobsian pressure cooker. Do you agree with that?

• 20:20Speaker 01

  So absolutely. This is fundamental to the book, and I think this is something that nobody really understands. So let me just quickly lay it out. Year in, year out, nobody had the skills in China to execute what Steve Jobs and Johnny Ive wanted for their products. I mean, they just did not have that skill set. Most of these products are being put together by migrants coming from the hinterlands, who, instead of working 14 hours under the hot sun, toiling in the agricultural fields, they come to work in the factories. Well, they don't have the skill set. It's not like they have the experience with translucent plastics and miniaturizing circuit boards into making it into the iPod. So what happens is Apple begins to send plane loads of engineers, eventually, you know, first into dozens of factories, but eventually into hundreds of factories.

• 21:02Speaker 01

  And if you think about the caliber of talent at Apple, we are talking about the best employees, the best engineers in America, coming out of places like Caltech, Stanford, MIT, hired from Dell, Motorola, et cetera. And they are just doing the Ivy League equivalent of hardware engineering training and teaching the Chinese how to do this, that, and the other thing. So, you know, the term for this is tacit knowledge. Difficult to define tacit knowledge, difficult to write it down, but we're talking about experiential know-how in the art of making. Taking things in the logistics and orchestration of these things. And of course, none of this investment is taking place in America. So we're taking the talent of America and we're scaling it all in China.

• 21:45Speaker 01

  And I can make that point over and over, and I do in lots of interesting ways. And if we go into the 2010s, obviously, it just radically accelerates because the iPhone becomes so big. But the key thing I want the listener to understand is not that China offered tech competence. Apple had to go build the tech competence in China. And now it's being weaponized against us if we fast forward two decades.

• 22:05Demetri Kofinas?

  What they offered was a radical willingness.

• 22:08Speaker 01

  Oh, my gosh.

• 22:08Demetri Kofinas?

  To do what Jobs wanted and what Jobs needed. And there's another great story in the book about how United Airlines set up dedicated flights to China.

• 22:16Speaker 01

  Yes, both to Chengdu and to Hangzhou. Yep.

• 22:18Demetri Kofinas?

  Because reflecting the number of engineers that Apple needed to send to China on a regular basis.

• 22:24Speaker 01

  Yeah, United is basically told by Apple, look, we will book enough first class seats three times a week for you to fly. Essentially, the longest flights that United offers on the planet. We will buy enough first class tickets that if the rest of the plane is empty, you will still make a profit.

• 22:39Demetri Kofinas?

  Yeah, so I just really want people to really sit with that for a moment. Like, what was the competitive advantage? It wasn't even cheap labor. It was a willingness to do it, a willingness to actually develop the skill set to sort of actualize and manifest the vision of this company and its unique founder and leader.

• 22:55Speaker 01

  If I could add one thing, because on the one hand, yes, that's China. But in particular, that's Foxconn, that's Terry Guo. Terry seems to understand better than anybody else. Okay, I might actually lose money on this deal. And in a great scenario, I'm earning two or three percent margins. But oh, my God, are we getting the training of a lifetime? And so he even plays Apple to some degree where, you know, this is an anecdote from Tony Fadell. If people don't know, that's the senior vice president, sometimes known as the Pod Father, right? If there's one guy behind the iPod, it's Tony Fadell. John Rubinstein won't be happy with me for saying that, but that's what I would say. And what he finds is that they would train a bunch of engineers to do, you know, X, Y, and Z. And then they would come back, you know, to the factory or whatever and find that it's a whole new cohort of engineers that are there.

• 23:39Speaker 01

  And Apple has to train that team as well because Terry has taken them and, you know, put them on the compact line, right? Put them on the HP line. And so Terry understands the value of the training. And so he's like routinely switching up who Apple is training as if a new semester has started.

• 23:52Demetri Kofinas?

  Well, we're going to get to Foxconn because it's such an important part of the story. And I love how Guo is always sort of there to say, I got this. Just give me the opportunity. Put me in, coach. I mean, you really get that sense of him as a character. You mentioned a number of the pieces of the important sort of products that we're familiar with. You mean, you didn't mention iPhone, but it's there. Obviously, this is the single most important thing that Apple has ever created. And we're going to talk about that and the ecosystem that came out of it. You mentioned the iPod. You mentioned the G4, which had this very difficult, long and sunflower-like neck that Jobs wanted, again, with his sort of obsession with design. But the most important story that sort of kicks off all of this is the iMac. Talk to me about the story of the iMac and tell the story of From Soup to Nuts

• 24:34Demetri Kofinas?

  and how that integrates and folds into this larger story of offshoring manufacturing to Asia and eventually to China.

• 24:40Speaker 01

  So, Apple, again, almost fails in 1996. And it almost fails again in 1998 because the iMac, and nobody really knows this, the iMac almost doesn't make it. I mean, the first Johnny Ive design of the iMac, and Johnny Ive, if he needs an introduction, this is the chief designer for industrial design, the person that really, you know, made the look and feel of all your favorite Apple products between the late 90s. And I think 2019 is when he left, right? He is knighted in the UK. His importance is hard to overstate. He's like the spiritual partner, if you will, of Steve Jobs.

• 25:09Demetri Kofinas?

  And he was there before Jobs came back. Jobs hadn't hired him.

• 25:13Speaker 01

  No, and the funniest thing is, well, first of all, the person who did hire him said that on his own tombstone, it's going to say, herein lies the man who hired Johnny Ive, right? Just to give you a sense of how important Johnny Ive is.

• 25:24Demetri Kofinas?

  It was almost kind of like his relationship with John Lasseter in the way that he sort of like found somebody who he was almost kind of like an intellectual partner or someone that shared his values.

• 25:33Speaker 01

  Yeah, my own analogy is, now I'm thinking of their name, Paul McCartney and John Lennon. Right? They just have that sort of tennis match, you know, mental exchange. And all these brilliant ideas come out of that. The iMac, so the original design for the iMac.

• 25:51Speaker 01

  Is kind of a catastrophe. I mean, my chapter on it is called Unmanufacturable. And it's a pretty detailed narrative of how close this computer came to not being built at all. And you alluded to this a few minutes ago. Basically, what happens is in March 1998, this is originally the idea that Steve Jobs wants this computer shipping. It's at a total standstill where the ID designers have requested this, this, and this. And the product designers are unable to execute what they want. They can't build them. And it's not that they can't build them in mass quantities. They can't build one of these things in the lab. And so Steve Jobs sort of catches wind of this and attends a meeting that he wasn't scheduled to come in.

• 26:32Speaker 01

  And he goes on a tirade that one of the participants described as he compared it to a mob run fish market in New Jersey. So he's just yelling at these people. And can I swear on your podcast, Dimitri? Absolutely. Okay, so he threatens to sell his one fucking share of Apple stock. And he just complains about the engineers unseriousness and all this kind of stuff. And an untold story is, in the Walter Isaacson telling, I should perhaps say, he alludes to this meeting and says that, you know, what Steve Jobs said is like, look, it has to be this way. And the engineers say, we don't want to do it. And he says, well, I'm the CEO. And so they do it. I mean, that's nonsense. What actually happens is that Steve Jobs sends the blueprints and sends a team of engineers to his favorite design consultancy called Acorn. And Acorn spends a few hours with it and concludes, you don't have a quality product.

• 27:15Speaker 01

  Like, they list all these reasons why it cannot be built. And so Johnny Ive is humbled a little bit. And they come up with a new design and they change a bunch of things. So, you know, the reasons we can go into in the, in the book, I don't think you want me to talk about plastic injection molding. But there's a bunch of reasons why it just can't be built. And the people I spoke to, I probably spoke to 14 people who worked on this product. I mean, none of these people have been talking to the media for the last two decades. There's just never been questions about how do you actually make this stuff? We spent so much time on how it functions and, you know, reviewing that. And we obviously spend time on the original design conception, but we just completely missed the story of how do you actually build these things? So I was saying 10 minutes ago that LG built it. Nobody knows that LG built it. People at Apple don't know that LG built it. And they certainly don't know that they built it on three continents. And so.

• 28:01Speaker 01

  The foundational understanding that I'm trying to bring the reader for the first several parts of this book is to get you up to speed on just how maniacal and obsessive Apple is over these designs and that this total intolerance of imperfection, intolerance for defects, begins with Johnny Ive and of course Steve Jobs and then it cascades across the entire product development cycle. So you take that mentality, that sort of famous Apple mentality, and you necessarily have to bring it to Asia. So we're not really in China at this stage, but we're bringing it to Korea. And people from the 1990s will say, you know, the reason why Asus is so good at making laptops today is because Apple trained them in the 1990s. The reason LG is who it is today in LCD television is because Apple trained them in 1990s. I mean,

• 28:43Speaker 01

  people that worked at Apple will say the training that we gave these companies is like unparalleled.

• 28:50Demetri Kofinas?

  So I have two questions there. Maybe I'm gonna have a question, but here's an observation. Again, because Walter Isaacson's book is such an important book in terms of like telling us who Steve Jobs is and his story and everything else. But here's a good example of where your book sort of illuminates parts of stories that previously sort of remained occluded. And that is, you know, like I famously learned in, maybe it was an Isaacson's book, or maybe I learned in other places, that in one of the particular MacBooks, or one of the particular, maybe it was in the iMac, I don't remember where it was, Steve Jobs was incensed that he didn't want any of the screws located outside of the unit. He didn't want to be able to actually see sort of some sort of external. And what you don't realize, you get a sense in the previous history that I'm familiar with, that sort

• 29:31Demetri Kofinas?

  of the force of Jobs's demands sort of motivated his team to figure out a solution.

• 29:37Speaker 01

  Yes.

• 29:37Demetri Kofinas?

  But again, like what you realize, especially while reading this book, is there's a whole hidden story here, which is how all this stuff was actually manufactured and that so many of the solutions actually didn't come from Apple, but came from their partners in Asia and eventually specifically in China. So let's continue this story. So we've got the story of the iMac. Eventually the iMac becomes a success and it's kind of Apple's coming out party or Steve Jobs' coming out party. And it also reemphasized and put design at the center of the company. Where do we go from here? We mentioned Korea, we've mentioned Ireland. How do we eventually get into China? And what are the initial partnerships that Apple engages in China?

• 30:17Speaker 01

  So through Taiwan is the short answer, but let me unpack that a little bit. The book doesn't quite get into this, but the reason Japan becomes an electronics powerhouse is really that when America wins World War II and is in control of more than 50% of the world's manufacturing, it begins sending engineers, okay, Washington is sending engineers to Japan to build up their electronics industry as a way of integrating the world. So if you go back to, you know, 1776, essentially, Alexander Hamilton has this idea that America needs to be a manufacturing like master, right? His quote is that it's going to cement our independence. And that idea after World War II is sort of tweaked a little bit.

• 30:57Speaker 01

  And the idea is we're going to cement interdependence through manufacturing and globalization. This is really the birth of Pax Americana. I would love to say the system that is still with us, but it's sort of on a teetering edge right now. We can maybe talk to that, talk about later. So essentially Japan becomes really, really good. You know, companies like Sony and whatnot are all born out of this era. But what happens is Japan's a fairly small island. I mean, we're talking 100 million people. And so much goes there that the yen becomes overvalued. There are labor shortages and so forth. And so Japanese companies themselves start training their former colonies. So before World War II, Korea and Taiwan are both Japanese colonies. If you're older than 35, you probably speak Japanese. And so to save on labor, to save on costs, they begin executing in those countries.

• 31:41Speaker 01

  And then what does Taiwan do, you know, two decades later, when it's hitting its own capacity constraints? It goes to the mother of all developing countries, China. So Terry Guo, founder of Foxconn, you know, founds it in a shed, 1976, little city called Dirt City in Taiwan. I mean, I don't speak Mandarin, but Dirt City is the English equivalent. And, you know, 1976, that's two years before Apple, just to sort of be clear on that. And he really gets in on the ground floor of electronics manufacturing. Taiwan and China are estranged, right? There's a civil war. I mean, this sort of foundation of modern Taiwan is that the losing side of the civil war, you know, the losers to the communists, basically. Set up a new government that lays claim to the entire area of China. But by 1987, I think it is, they had a bit of a détente.

• 32:25Speaker 01

  And so businessmen from Taiwan are able to go to China. And they end up playing this massive four decade role, building up factories and training workforces and such. And that story is pretty well told. And I think in a sense, what I'm bringing to the table is that the most successful of those companies is Foxconn. And Foxconn's biggest client is Apple. So if you already have an inkling that Taiwan played this massive role, you know, sort of building up the manufacturing sector in China. It's not much of a leap for you to understand that Apple is the one calling the shots, as it were.

• 32:55Demetri Kofinas?

  So let's talk about Foxconn. You mentioned it a little earlier when you sort of described the coming together of two important minds, Tim Cook and Perry Guo. What was the origin of that relationship? Let's flesh it out and let's tell the story of Foxconn and Apple's relationship and foray into China.

• 33:10Speaker 01

  So Tim Cook is hired by Steve Jobs in 1998. This is pretty significant because Tim Cook spent, I believe, 12 years at IBM, might be 14 years. And you have to remember that Steve Jobs hated IBM, right? The most famous ad in the computer industry ever is 1984. And it's basically portraying IBM as this Orwellian big brother that needs to be destroyed. So it's really interesting that the mature, older Steve Jobs actually begins hiring so many people out of IBM. When he comes back in 1997, that IBM itself refers to Apple as IBM West. Even Jeff Williams, who's now the chief operating officer, Tim Cook's old job, he came from IBM and loads of people did.

• 33:49Speaker 01

  So loads of the big names came from IBM, but the operations group writ large has, I think, hundreds and hundreds of people that come from IBM. So there's a maturing of Steve Jobs that's notable there. Now, by the time he's plucked to run operations for Apple, Tim Cook has been at Compaq. Compaq at the time in 1998 is the world's best computer maker. So, you know, the PC wars have been going on for 15 years. IBM has actually been sort of taken out of the equation at this point and Compaq has emerged as the winner. And, you know, they've done it for reasons that like from a Steve Jobsian perspective are kind of boring, right? Did Compaq have a better user interface, a better design? No, nothing like that. They all relied on Intel chips, they all relied on. Microsoft Windows, the PC game had become kind of boring in the sense that it was all about logistics,

• 34:33Speaker 01

  distribution and manufacturing. And the 1990 story of the PC boom is that as these contract manufacturers are fiercely competitive on price with each other, more and more of that work shifts to Asia. So Apple is actually kind of the last holdout. I mean, if you want to say Apple, you know, sort of gave up on America or something, it's actually pretty unfair. They're the ones that bet on America more than anybody else until because everybody else had moved to Asia, they just couldn't compete at all and they were near bankruptcy. So that decision to outsource is made out of complete desperation at the lowest point. So it is quite unfair, I think, to portray Apple in a negative light for adopting the outsourcing model. If they hadn't, they would have died. And if you want to blame somebody, it's the PC industry. I don't know that you wanted to blame someone, but it's just worth knowing that Apple is sort of off scot-free,

• 35:18Speaker 01

  if that's the allegation.

• 35:19Demetri Kofinas?

  Also, the success of Microsoft Windows and the disintermediation of the PC in general made that even more difficult to resist for Apple.

• 35:27Speaker 01

  Yeah, I mean, the 1981 IBM PC is the catalyzing event for electronics globalization. So I don't know how much further we want to go, but basically like Steve Jobs dissects an IBM PC in 1981 when it just came out. He's fearful that it's going to have all these advantages that Apple has, dismisses it as a piece of junk. He completely misses that the significance of the IBM PC is how it is put together. And how it's put together, it's sort of bandaged together with all these existing parts. It basically allows for what Thomas Friedman later calls "the world is flat", meaning that instead of doing things in some proprietary in-house way, it builds these huge competitive advantages by basically allowing anybody to create this, that, or whatever part.

• 36:10Speaker 01

  And as a result, there's all sorts of competition that's not happening on its balance sheet and it reaps the rewards. The problem, of course, is that it didn't have an exclusive arrangement with Microsoft and it gets cloned like literally within a year. And so IBM sort of like, the key decision that sort of makes IBM such a great builder of PCs is also the thing that leads to its own demise. So there's all sorts of irony and great examples there. Anyway, my point is that by the time Tim Cook comes on board, he's been at Compaq for six months. Compaq- Is at the time the largest client of Foxconn. So Foxconn's Terry Guo and Tim Cook already know each other. And so when Tim Cook makes this pretty mysterious move to go to a company that still looks like it's going to be bankrupt, Terry Guo is intrigued. And when you get those fires of the iMac, the toaster line in Wales,

• 36:55Speaker 01

  and the literal fire in Mexico, Terry Guo senses opportunity and he realizes sort of better than anybody, probably even better than Apple, this company is different. We need to learn from them. We need to win those deals. And so he offers like unprecedentedly low margins to take over those orders. And you know, people from ID, people from PD within Apple begin to train the hell out of Foxconn.

• 37:17Demetri Kofinas?

  So obviously Terry Guo himself was an important part of Foxconn's secret sauce. And again, another leader with incredible will and determination and vision, incredible vision, and a willingness to sacrifice and take risks because he could see the long term way ahead of everybody else.

• 37:32Speaker 01

  Yep.

• 37:32Demetri Kofinas?

  What else was it that made Foxconn such a special company that made them so unique? And that ultimately explains why Apple wanted to partner with them?

• 37:40Speaker 01

  So the answer is a little bit wonky. So this is the difference between OEM and ODM. So in the late 1990s, all the Taiwanese manufacturers of computers aren't content just assembling computers. That's really low margin. So what they want to be is an ODM, which is original design manufacturer. What that means is that they do R and D and they hire more expensive engineers and they do more of the design. So imagine if you're Dell, if you're HP, if you're any PC clone, this is kind of brilliant. Not only have you outsourced and offloaded from your balance sheet manufacturing, but the Taiwanese companies are basically giving you a literal catalog and saying, which design do you want? Right? So if you're Dell, you don't need Johnny I. The Taiwanese are doing it for you.

• 38:22Speaker 01

  And they're doing it for you in ways that are really helpful and efficient for them. And yes, it's higher cost for them, but the margins on design and R and D are much, much higher. So basically, everybody is going in that direction. So the companies in question here are Quanta, Invantec, Asus. Companies like Pegatron aren't yet born yet, but they have predecessor organizations and they're all going in that direction. Terry Guo says, no, I'm going to move heaven and earth. To do whatever the manufacturer wants for me, but only in this like assembly and assembly adjacent tasks. So Foxconn becomes really vertically integrated to take on anything that the client wants. But they're not going to compete with them ever. So the problem with the ODM model is those companies begin to brand PCs themselves.

• 39:07Speaker 01

  Right? And then they're actually competing directly with HP, with IBM, et cetera. And so during times of component shortages, the PC brands from the West begin to complain, wait a minute, you seem to be giving the scarce parts that you have to yourself rather than to us. And Foxconn is never going to do that. There's never going to be a computer that says Foxconn on the outside, right? Competing with Apple. So it's more this like strategic decision. And in explaining this, I say, you know, there's not that Foxconn is really interested in low margin assembly. It's not, but it lures you in with that idea. And then by doing more and more vertical integration, it's sourcing the parts itself. And so there's something called PPV. I think it's product purchase variance. So what happens is Foxconn would say, yep, we bought all these, you know, nuts and bolts for for a dollar each.

• 39:52Speaker 01

  So please pay us a dollar each. But actually Foxconn was able to buy them at scale for 30 cents each. And they're making that 70% margin. So they really try to like lure you in and then sort of change the script later. But they meet their match in Apple, who really doesn't allow them to do that. And if you just, you know, go find a Bloomberg terminal and look at Foxconn margins from the time they partnered up with Apple in 2000 to the time, you know, the iPhone goes ubiquitous, I mean, their margins fall something like 80%.

• 40:19Demetri Kofinas?

  Well, to be clear, when you're saying that Apple didn't allow them to do that, Apple did allow them to source the materials themselves eventually.

• 40:26Speaker 01

  For a time. And then what happens is Apple takes unprecedented control of its supply chain. And it begins making sure that all the raw materials and all the procurement is done on Apple's behalf to such an extent that the prices are actually obfuscated by to Foxconn or to the supplier. So Apple gets in this weird, like unprecedented control sort of stage where it has a better understanding of the cost of manufacturing than the very manufacturers it's working with. And they have to do that for two reasons. This is not just like a control thing. This is. I should say it is a control thing, but I don't just mean in a negative sense. Like, once you're making iPhones in the tens of millions, you cannot just rely on a supplier's word that they are going to get enough copper, or whatever, right?

• 41:09Speaker 01

  So, Apple has to make damn sure we're going to get all the copper. And they have to do that for the thousand components within the iPhone. And then the second thing is, Apple believes in their negotiating power better. So, they believe they can get better prices than the supplier can.

• 41:21Demetri Kofinas?

  I mean, they did something also somewhat similar, though with also some different implications, when it came to advanced machinery. Not only did they purchase the machinery and physically place it within Foxconn's facilities themselves.

• 41:33Speaker 01

  Yep.

• 41:33Demetri Kofinas?

  Which was a sort of form of foreign direct investment into China.

• 41:37Speaker 01

  Absolutely.

• 41:37Demetri Kofinas?

  Which also had huge-

• 41:37Speaker 01

  And not just Foxconn, hundreds of factories.

• 41:39Demetri Kofinas?

  Exactly. It had a huge impact on the flywheel of innovation. But also, they importantly, took that machinery away from their competitors. They were ordering equipment and basically housing it within their own factories and not allowing other companies to be able to use it, which allowed them to also keep one step ahead. Is that fair? Is that a fair description?

• 41:56Speaker 01

  Yes. So, we're jumping ahead a little bit, right? This is more when they're in China.

• 42:00Demetri Kofinas?

  So, then maybe instead of jumping ahead, walk me through that process. Do we want to jump directly to the iPhone? Do we want to talk about some of the other products, like the iPod or the G4?

• 42:08Speaker 01

  So, I would just say, just to finish off the iMac narrative, I would just say, basically what happens is Foxconn is able to come in as a second supplier to LG. And, you know, as one rival supplier says, "Foxconn kicked our rice bowl." They just offered better pricing, you know, more abundant labor.

• 42:22Demetri Kofinas?

  What was the product there? Was the G4 was the first time that they really-

• 42:25Speaker 01

  No, it was the candy-colored iMac. So, that product, you know, comes out in 1998, but Apple's making it for five or six years. And so, even though LG is doing it for the first two years, Foxconn comes on board, does it more cheaply, and really wins out on those orders. The next major product is the iPod. And I don't know that we have to go into it in great detail, other than to note that it was not made by Foxconn originally. It was made by Inventec in Taiwan. And the iPod almost failed. It took more than two years before it sold in big numbers. And during that two years, Apple considered canceling the product. Again, something that's not really known at all. The way Foxconn gets involved is that, and this is pretty fascinating, they create a replica. Unbidden by Apple, but at the time, they're worried about losing Apple as a client.

• 43:08Speaker 01

  So the iMac is the big product that they're making, but it's sort of dwindling in importance. When Apple comes out with that sunflower iMac G4, that's built by Quanta in Taiwan, and then the iPod goes to Inventic in Taiwan. So it's like the two major areas of growth are happening outside of Foxconn's walls. And they're thinking, well, what do we do to get Apple back? So they create a replica iPod, and they bring in a bunch of people from product design and operations, invite them to their factory, and they basically do a show and tell where A, they show them the product and say, look at what we've done, even without you training us, imagine what it would be like if we actually worked together on this. And B, they show them a factory of just like unprecedented space machinery and say, we're willing to do all of this for you.

• 43:50Speaker 01

  And so that's when they sort of really hook in Apple as a major partner. None of this is told, by the way. This is all based on, you know, the 200 interviews I did with the people who were actually in the meetings and stuff.

• 44:00Demetri Kofinas?

  So you interviewed people that were actually in the meeting when Foxconn revealed this reverse engineered iPod. What was the level of shock in the room from Apple engineers?

• 44:09Speaker 01

  Oh, the Apple engineers, like it had a different skin on the outside. So you could tell it wasn't made by Apple, but the way that it functioned, the way that, like the statistics of how it would work, but also the software, basically the person said, it was like our own hardware and software teams had built this. So we were just totally wowed by Foxconn. So for different reasons, because Apple was also working with Foxconn to build like aluminum clad cinema displays. Apple throws in a whole bunch of money to make Foxconn like the master of making things out of aluminum. And so the idea is formed that the iPod mini is going to be made out of aluminum. And if you are able to do, gosh, the term is escaping me right now, but the way that aluminum is made is you can code it in colors. And so the iPod mini is born and they do it in five different colors.

• 44:54Speaker 01

  And that becomes the hit product for Apple. I mean, Apple has never had a cultural relevance in the, what, three decades at that point, until the iPod comes out, such that, you know, SNL is parodying Steve Jobs. Everyone remembers the advertisements with the sort of like white silhouette and colorful background. I mean, the iPod mini just goes nuts. And the iPod mini is only around for about a year because then the iPod Nano comes out. And so Foxconn is able to really miniaturize the technology. And Apple and Foxconn are really working hand in glove at this point so that when the idea for the iPhone is born out, even though Apple technically interviews four or five different Taiwanese suppliers, it is clear as day that Foxconn is going to be the company that does it for them.

• 45:32Demetri Kofinas?

  Yeah, I remember all those. I mean, I went down memory lane a number of times during the course of of reading this book. And I remember what it was like to walk down the streets of Manhattan and to see all these silhouettes with their candy colored iPod minis or iPod nanos.

• 45:47Speaker 01

  Yes.

• 45:48Demetri Kofinas?

  It was a cultural moment. So what came next? What, again, let's walk through this progression, because I want to use it as an opportunity to tell the story of the integration of the supply chains and the advancement of Chinese manufacturing.

• 45:58Speaker 01

  So the iPod is so successful that it basically becomes more than 50% of revenue, right? I mean, just a fun way of putting that is iPod revenue is basically making Apple Computer, what it's called at the time, really not Apple Computer.

• 46:11Demetri Kofinas?

  When did they drop the computer in the name?

• 46:13Speaker 01

  I think it's in 2007. So yeah, there's this idea that, you know, Apple's going to be the company that makes the center of your digital hub. Originally, they're thinking that's the computer. Clearly, the iPhone becomes that later on. But what are we missing here? Basically, what happens is major products are being built in Taiwan, and Taiwan just is not big enough to do it, not at the scale that Apple begins building at. And so Foxconn is able to build their factories in mainland China, and they just absolutely wow Apple. So, you know, the term that's used within Apple, instead of time to market, you know, how quickly you can go from product conception to it being in someone's hands, Apple emphasizes something that they call time to money. The jargon way of putting it is time to volume.

• 46:55Speaker 01

  So nobody can match Foxconn in how many or how quickly you can go from product conception to building hundreds of thousands or millions of these devices. And so Foxconn just wows the hell out of Apple. And you could also say that China wows the hell out of Apple, right? There's all these anecdotes about what's called China speed. I mean, one example that's not in the book, I talked to an engineer who said, you know, we were in this big facility and all this machinery needed to be removed. And we thought, okay, yeah, well, they should be able to get it done in two or three weeks. They show up the next morning and it's all gone. And it's just inexplicable speed. The engineers have no idea how the task was accomplished that quickly. But that's the sort of thing that Foxconn was doing routinely when it came to setting up a production line, expanding that line. You know, it'd get to the stage where Apple would realize, oh, we really need another production line for

• 47:39Speaker 01

  more of these orders, and then find out that Foxconn, on their own initiative, Had already done it, right? Just to make sure that they win those orders. And that gets to the point where in 2010, I mean, you know, Foxon's able to go sign these deals to move more production in line with Beijing's directive to sort of, you know, make sure that growth is happening across the whole country. And again, I mean, Foxon is just making bets on Apple's success that Tim Cook and top executives at Apple don't yet believe in. And Terry Guo just sees it and he realizes if I build these factories, I am going to get the orders. And so

• 48:10Demetri Kofinas?

  And the know how.

• 48:11Speaker 01

  Monopolize the supply chain. And the know how, that's the thing that nobody understands. Yeah, absolutely.

• 48:16Demetri Kofinas?

  So we haven't really talked much about Tim Cook, but he's there the whole time. And I think this also, again, reading your book is helpful in thinking about why he became CEO of Apple. You understand how important Tim Cook actually was. You know, it's also interesting. I mean, do you remember when Steve Jobs had that interview with, that he gave at the time that he was at Next? And he talked about why companies sort of go into obsolescence is they, they go from being product companies to being process companies and they elevate the people that we're going to process. Yeah. That irony is remarkable when it comes to the, to the elevation of Tim Cook as CEO.

• 48:49Speaker 01

  Yeah, no, it's a little bit nuts. I mean, I guess one thing like insofar as I have to give a sort of defense as to why I was writing a book about the manufacturing and operations of Apple. Like, why would you want to look into that area? Just think of who understands this better than anybody. Apple. So when Steve Jobs dies, who's made CEO? It's the COO, right? It's the operations guru. So Apple understands better than anybody, earlier than anybody, that the success of the company is no longer just about design and product conception. It's scaling and shipping the designs that they've already come up with. So it's totally instrumental that Tim Cook becomes CEO in 2011. I think very highly of him in certain respects. I mean, I really do think he's competence incarnate. And I have some anecdotes of what he's like in a meeting just to get things done.

• 49:34Speaker 01

  He really is the sort of operational counterpart of Johnny Ive in the sense of there's no tolerance for mediocrity. But he's also a little bit cold and he doesn't have obviously the same product vision. And then my big sort of criticism, of course, is that I think Apple sleepwalked into a geopolitical dilemma of their own making. And actually, should I just, can I just tell you? I just memorized this is I love this. My favorite quote in the whole book is a former VP telling me over coffee, are you sure you're not overthinking your thesis? Because you keep talking about geopolitics. And I can tell you, I was there in the early 2000s when we were setting up the China supply chain and we weren't thinking about geopolitics at all. And like, in a nutshell, that's my whole thesis.

• 50:14Demetri Kofinas?

  Well, again, so I've got to mention a few things, and I think I'll move to the second hour. I think that's where the story of Apple dovetails with the story of globalization and the reversal of the political consensus that enabled that. And something I told you while reading the book was, I just found really striking, is that the rhetoric in the United States around globalization and trade is so far out of sync with the reality, which looks much more like the consensus of the 1990s and early 2000s. But we'll get into that. So I'm going to move to the second hour, Patrick. I want to talk about more about Tim Cook and why, for example, you compare him potentially to someone like Jack Welsh, who was very successful while he was captaining GE, General Electric, but his legacy has since been tarnished for reasons that you think may be relevant to Tim Cook's story.

• 51:00Demetri Kofinas?

  I also want to talk about the iPhone, of course. This is what's going to be really exciting. We're going to have a chance to talk about the single most important, I think there's not, there probably isn't even a debate on this, right? The iPhone is the single most consequential consumer product ever created by any company ever in the history of time, right?

• 51:13Speaker 01

  Yes. I mean, it's clearly, you're going further than me. I would just say it's the most iconic product of the 21st century. But yeah, nothing is in its volumes at all. Even if you're looking at literature or something, like how many books are sold, like, like nothing gets to iPhone. We're talking about $2 trillion of revenue since 2007.

• 51:30Demetri Kofinas?

  Yeah, I mean, even the Ford Model T, which is an iconic product, I think doesn't even begin to compare, because again, the scale wasn't available at the time. You didn't have a global marketplace, and you didn't have brand power. That's the other thing that's so important.

• 51:43Speaker 01

  Exactly. And it's not even the volumes, right? Because the craziest statistic about Apple is that even though the iPhone has never, never been more than 20% global shipments for smartphones, so 20% market share globally, it controls more than 80% of industry profits. Find me a sector where a minority player is having that sort of command.

• 52:04Demetri Kofinas?

  Yeah.

• 52:05Speaker 01

  It's incredible. And the price of the iPhone, of course, has just gone up and up and up. If you look at the PC from 1990 to the present, or 1990 to 2005, I mean, we're just talking about something that falls and falls and falls in values. And yet, the iPhone, you know, the original one was $499. Today, you're paying more than $1,000.

• 52:23Demetri Kofinas?

  Yeah, and you have also platform economics now where you can sell services through these platforms and that that changes the game as well. Yep. So as I said, I'm going to move to the second hour. We're going to talk about Tim Cook. We're going to talk about the iPhone. We're going to talk about the implications of what has occurred in China over those years. And also, among other things that I'm going to think about when we get to the second hour, I want to have a conversation about sort of what does this look like moving forward? What does this mean, just given sort of the politics in the United States, the direction of travel, the concerns around the scale of our dependency on China and Chinese supply chains? But again, we're going to cover all that in the second hour, Patrick. For anyone who's new to the program, Hidden Forces is listener-supported. We don't accept advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you.

• 53:08Demetri Kofinas?

  If you want access to the second hour of today's conversation with Patrick, head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers gain access to our premium feed, which you can use to listen to the rest of today's conversation on your mobile device using your favorite podcast app, just like you're listening to this episode right now. Patrick, stick around. We're going to move the rest of our conversation onto the premium feed. If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page.

• 53:53Demetri Kofinas?

  Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter at @Kofinas, and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.