There’s always a great deal of commentary about Apple. Much of it has centered recently on its dependence on sales of its iconic smart phones.
But that’s only part of the problem: the company is stuck in a strategy that is bound to lose, as reflected in multiple articles today in the New York Times and Wall Street Journal.
Apple relies almost entirely on Foxconn, a Taiwanese company, to make its phones in China. It’s clear that as China and the United States move into a more competitive stage of their technological and economic relationship, Apple needs to hedge its bets by figuring out to start creating other places it can manufacture.
But a major element of that strategy appears to be falling apart. FoxConn made a big splash in 2016 by announcing plans for a $10 billion facility in Wisconsin that would start the process of helping Apple diversify its manufacturing. Ground was broken in 2018. But now it turns out that Foxconn does not think it is possible to conduct major manufacturing at the facility, as this article shows. “The global market environment that existed when the project was first announced has changed,” Foxconn said in a statement. It says it will turn the facility into a research center and still hire 10,000 Americans so that it can retain its rich incentives from the state of Wisconsin. But no one really believes it can hire 10,000 researchers.
So for now, Apple is stuck with its manufacturing in China, where it is coming under serious competitive pressure. As work by Vassar professor Zhou Yu shows, the suppliers of all the components that go into Apple phones have created clusters of companies that support Xiaomi and Huawei Technologies, two other makers of smart phones. The Chinese competitors have learned how to leverage this supply base and manufacture phones that are customized to Chinese tastes. Apple has bowed in that direction but still makes design decisions at headquarters in California. “Apple’s struggles in China have prompted some analysts and former employees to suggest a radical change: End the one-size-fits-all-markets approach and aggressively push Apple to differentiate its gadgets and software in China from its offerings elsewhere,” writes Tripp Mickle in the Journal in an article that is unfortunately behind a reg wall.
But there’s little evidence that Apple is willing to do that. So Apple is caught in a serious trap, particularly if Beijing and Washington start layering on more tariffs. It can’t diversify its manufacturing base and it is losing ground in its second-largest market to domestic competitors. Certainly Apple, with a couple hundred billion dollars parked offshore, could afford to make liquid crystal display screens in Wisconsin and start diversifying its manufacturing base and it could shift some decision-making from California to China. If Tim Cook wants Apple to be strong in five to 10 years, he needs to start making the right moves soon.
