#27 iStory: Apple in China with Patrick McGee

In this episode, Senthil sits with Patrick McGee, author of Apple in China and reporter at the Financial Times, delve into the intricate world of Apple's global supply chain, exploring the company's relationship with China, the role of Foxconn, and the impact of COVID-19 on labor conditions. They discuss how Apple's manufacturing processes have shaped the smartphone market and the ethical dilemmas the company faces in balancing profit with human rights. The conversation highlights the symbiotic relationship between Apple and China, emphasizing the complexities of modern capitalism and the lessons that can be drawn for other companies and consumers.

Patrick's website: https://appleinchina.com/
Book recommended by Patrick: Chip War: The Fight for the World's Most Critical Technology

Please visit our website, www.businessandsociety.net, for more inspiration.

Transcript

Senthil (00:01)
Welcome to Business and Society podcast. Every fortnight, we take a topic at the intersection of business and society and explore it with some of the world's influential thinkers. I'm your host, Senthil. Today's story is about one of the most admired and most powerful companies in the world, Apple. We are going to deep dive into the global supply chains behind your Apple products. My guest is Patrick McGee, a Financial Times journalist.

an author of Apple in China, a meticulously reported book that unpacks the complex supply chains and geopolitical tensions behind your iPhone or Apple products. Patrick's book is called by experts as one of the best about the Apple anyone has ever written. After reading his work, I would say his work is one of the best books about a company anyone has ever written. Full stop. Patrick, welcome.

Patrick Mcgee (00:56)
Thank you. love the second thing you said about the book, whereas when you first introduced it as a supply chain book, I think we lost half the audience. No one wants to read a supply chain book.

Senthil (01:06)
100%. I agreed caters to supply chain, enthusiasts, but the dimensions you touched spans trade, politics, consumers, markets and whatnot. So it's such a well-packed and well-researched book. And thank you so much for producing such an important book.

Patrick Mcgee (01:24)
Thank you. Yeah, I think it's rare for a book that's about a corporation to get so geopolitical. And I think it's always a big surprise when people get to part four and realize they start reading about organized crime networks in China taking over iPhone distribution. So it is a pretty wild book. And just for the record, I should sort of credit Chip War by Chris Miller, which sort of does the same thing, right? It looks at an industry, semiconductors and chip fabrication.

And just by the nature of the geopolitical nature of it, it becomes this book that has like US versus China sentiment all behind it. And I basically modeled my book pitch off of his book pitch when he was able to send it to me. So if people haven't read Chip War, that's also, you know, I sort of almost think of my book as Chip War 2.0.

Senthil (02:03)
definitely we'll leave a link to that book. And Patrick, what a difference a few weeks make. When we first scheduled this interview and agreed to speak, your book was already making waves. But since then, The Daily Show, The Economist's Best Books List and a flood of coverage. Firstly, congratulations.

Patrick Mcgee (02:04)
great.

Thank you.

Senthil (02:21)
What

are you hearing from readers and critics? Has anything surprised you about the response you've

Patrick Mcgee (02:28)
Um, that's a good question. It's a fair question. To be honest, I'm surprised that this maybe isn't a good answer. The book is pretty provocative, right? The book is pretty controversial. If you understand its claims, it takes some big swings. I mean, the book review that's got it best is the New York Times book review, which literally made me sort of like choke up in the streets of Manhattan when I read it.

Because I think the subtitle is something like McGee argues that Apple hasn't just created a conundrum for itself, but for the United States or maybe even for the West for at large because of the role they've played, essentially up arming China's entire electronic sector. I don't know that I even state that in the book so much as that is the glowing subtext. But I let readers really draw their own conclusions. And I think readers of the book can.

not along when I say it's written in a pretty neutral tone. I mean, it's pretty a matter of fact, I do treat China as a pretty ruthless authoritarian state, but I also give China all sorts of credit for being, you know, like arguably better at capitalism than we are introducing a model of capitalism that includes dynamism on this this bureaucratic side rather than just the public side, you know, the private companies going back and forth. So competition at the

provincial level, but also even at the local cadre level, for instance. So anyway, the book isn't as anti-China as I think some people think from certain sound bites or maybe from the cover of the book of a dragon bite on Apple. But I'm still not quite answering your question. I've been thrilled by the response. I guess what I was trying to get at is it's mostly people agreeing. It's mostly people reading the book and they might have different conclusions or whatever. But maybe I'm surprised by the by the

the lack of a pushback. guess maybe I thought there would be more Apple fanboys or something like that, that would try to dispute some of the key numbers or conclusions or what have you. And there sort of hasn't been any of that. And to be clear, I don't know what the pushback would be. I mean, it's a very fact-based book and it's thoroughly researched. But nevertheless, I thought it would sort of cause more argument. And I guess what I'm feeling is people accept the arguments.

and they'll accept that it's a big argument, but they agree with me. I don't think I'm giving a great answer, but like there are not a bunch of reviews that really take on the arguments and disagree. I guess that's, I'm still sort of grappling with why that is, because there's nothing intuitive about where the book takes you.

Senthil (04:53)
It is a provocative book. Now you said, your intent is not to put China in bad light. But that's one of the perceptions one could take by looking at the topic or scheme reading the book. It's easy to get such an impression. So what did you set out to achieve? Why did you write this book?

Patrick Mcgee (05:09)
I set out to do three different things. the sort cute remark I've made about this is that when Steve Jobs introduced the iPhone, you'll remember he introduced it as three products and then revealed that it was one product, right? So it was an iPod, was an internet communicator, it was a phone. And the book sort of self-consciously was supposed to be three different narratives. So one was just that it was gonna be the first history of Apple in the 21st century that really started with the near bankruptcy in 1996, why Steve Jobs came back to the company and then how they became a one or two or $3 trillion company.

You would think that book has been written multiple times, but it hasn't. In place of Apple history over the last 20 years, we've written Apple biographies. So there's great biographies of Steve Jobs, Tim Cook, Johnny Ive, et cetera. But there legit just isn't a history of how Apple sort of brought back Steve Jobs and scaled the hell out of it. It's strange just to say that, because I'm not saying there aren't Apple books, but they're basically biographies. So that was...

book that needed to be written. The other thing is that we've just sort of forgotten that Apple has manufacturing in its DNA. I guess it's technically true that Apple is not a manufacturer, but of course, unlike Amazon or a Meta or Google, they're a hardware company, right? None of these other Silicon Valley companies build and sell world-class hardware and make the bulk of the revenue from it. They might dabble in the area, but that's not who they are.

Apple has manufacturing in its DNA and to understand why they adopted offshoring and outsourcing in the late 1990s and then did better than everyone else by consolidating into China, really at quite a late stage when everybody else was already there, know, HP or Motorola or Dell. Some of those companies go back to the 1980s in China. You had to know that manufacturing was in their DNA and they didn't want to let go of that control.

they were forced to by necessity. And I'd sort of understood that narrative and had some people help me from that time from the 80s and 90s before I went on book leave. So that I knew was an untold narrative. And the third one was, of course, that the consolidation into China. And if you know anything about China, you know that you don't get massive retail stores on a fancy street on the corner in Shanghai or something without working deeply with the

with the local cadres, the local politicians. So I wanted to understand how, kind of relationships that Apple have with the government bureaucrats and stuff. And again, there just is not anything major out there that really explains the origins of Apple in China, what sort of relationships they have and so forth. So just like a very basic thing, like Apple basically doesn't have any government connections for the first two decades of being in China, which is from 1993 when they were just sort of operating third party channels.

Up until 2012, 2013, Foxconn largely plays that role for them, right? So it's not that Apple outsourced their manufacturing to Foxconn, they outsourced their like politicking to Foxconn. And so I didn't know any of that, but for Apple to sort of absorb that angle where Tim Cook has to become a diplomat, if not statesman, after Xi Jinping comes into power, that too was unexplored. So then the thing was that's, all three of those things could be books.

on their own. And my job was to write all three of them into one. And what that meant was there's a real density of information, which can sound off putting and academic. And so it was like, how do you pack the book full of information, but keep the book at a quick pace with lots of characters? And you know, you always want to tell something through character. So once I had a book deal,

You totally reframed how I read books because now I read them as a writer, someone who's aspiring to write a book. And you realize that what the good books do is they don't say, okay, in order for you to understand this, you need to understand a bit about the Cultural Revolution. So here we go. No, it's like you have to tell it through the character who's learning Mandarin and understanding Chinese history themselves. And this is them learning about that or something, right? So a book that did well for inspiring me, for instance, is called Red Carpet about Hollywood's relationship with China.

And I thought the author, who I don't know, but I thought he did a splendid job in that respect. And so I'm giving you too long winded up an answer, I realize. But it's fascinating to be able to put together a book for the first time and to think that I had enough information to write three books, but the job was to condense it into one. That was sort of the origins of the whole project.

Senthil (09:19)
Talking of characters, it's so well-defined, such a compelling storytelling. And I told you before this recording started, I didn't watch Netflix for the last few days. It was rather your book, which I was reading with such interest and enthusiasm. done. Let's start with basics, Could you take us through the fascinating world of Apple supply chains?

as it stands today for our listeners. It's truly impressive how this tech giant manages to manufacture and deliver millions of products to consumers worldwide.

Patrick Mcgee (09:51)
So I can't answer the question without sort of going through the history because I don't think it's sort of understandable. So forgive me if I answer the question a little bit differently than what you're thinking. But like, for instance, what I would point to is that, you the iPhone has 1000 components inside it, give or take, and they ship them at about 1 million per day at peak season. So what that means is that, you know, you do the math. That means they're doing the logistics, manufacturing, the just-in-time production of a

billion components a day. And I think that should be your starting point for understanding just how vast the supply chain is and understanding that nobody is operating at that quality, at that quantity. In other words, it's true that Samsung builds more phones, but they don't build them at that quality. That's why Samsung's not a three trillion dollar company and Apple is, right? So it's sort of like indisputable point, right? If this was the case, then the shareholders would reward Samsung.

You know, it's the comparison in the book is like it's one thing for Volkswagen and General Motors to build 10 million cars a year. Apple's doing the equivalent of making 10 million Ferraris a year, right? They're handcrafted devices. And the way they get into it is obviously a key essence of the book or key arguments of the book of just like the marriage of skill and scale. Right. Apple and China, what they offer to the table and the missing topography in our understanding of Apple.

is basically a unit called manufacturing design or MD. So, you know, movies have been done. ⁓ Certainly books have been written about Steve Jobs' interaction with ID, which is the tip of the pyramid in any product cycle. So that's industrial design. That's the substance, look and feel of the products. After ID comes PD, product design. And that I'm simplifying here, but that's sort of like, how do you build one of the thing that Johnny Ive has conceived? In other words,

He says he wants this music player to have an all white front with a chrome back. It's going to have this dial, da da da. Okay. PD is the team that figures out where the battery goes, where the circuit board goes, how the hard drive fits in. And they have to respond to sort of like these godlike demands that Johnny Ive is making. Well, I think we know them as well. The next unit is what had never really been written about before. And that's MD or manufacturing design. They're the team that sort of take what PD has learned and said, okay.

What machinery do we need to actually build this at scale? What suppliers are we going to work with? Who's going to supply us the anodized aluminum? Who's going to supply us the glass? And the key thing about this unit is that because Johnny Ive and ID are coming up with such breathtakingly new designs in the golden age, they are not at all finding suppliers in Asia who are already competent in fulfilling their requests.

They are getting on airplanes and engineers by the plane load are being sent to Asia. know, more and more as the narrative goes, this all gets consolidated into China. But in the earliest years, it's mostly it's mostly Taiwan, Japan and Korea. And they're going to these places, they're finding factories that have the combination of like, maybe not competence, but like competence, like in embryo. Right. Like the potential there and

and sort of the operational capacity to have Apple engineers come in and teach them. And then there's like this co-invention process. in other words, instead of Apple sort of relying on suppliers who already know how to do something, they are embedding their engineers for weeks, if not months, if not years at a time to teach them how to do all of this stuff. And again, it is co-invention. It's a two-way street to some degree. You talk to Apple engineers who say, I learned just as much as they learned from me.

So I don't want to pretend that there's not like a real contribution on the Chinese side. There is absolutely. But that had never been written before. And so the investments that Apple puts in are absolutely spectacular to such a degree that they really play like a nation building effort in China's industrial clusters, which is a staggering thing to say. But I think the numbers pretty easily back it up. But it's through that combination, through that marriage of skill and scale, Apple and China, that you get to

how well oiled the machine is that can build a billion components a day and ship iPhones by the millions per day in a way that you just can't do in India. You certainly can't do in America. You can't do in Mexico, nowhere else. And the unfortunate thing is that's why I say Apple is captured, that as Beijing has become more belligerent and authoritarian, they've made certain demands of Apple and there's no political capital for them to expend to fight against it, which is why every iPhone user in China is now behind the great firewall.

They can't use VPNs, they can't access Facebook, they can't use encrypted messaging tools. Apple, in theory, could fight about those things, but they've got no place else to go, so they can't.

Senthil (14:22)
you write in 1999, none of the Apple's products were made in mainland China by 2009, virtually all were. So what,

Patrick Mcgee (14:30)
Mm-hmm.

Senthil (14:32)
Tell us a little bit about this journey.

Patrick Mcgee (14:34)
Yeah. So, you know, there's this section of the book called Apple's Long March to China. And the reason why that's of broken up into four or five chapters is because, I don't know, if you were to ask ChatGPT or even just read like a major newspaper on why Apple's in China, essentially the answer that you get, and this is in all sorts of YouTube videos and whatnot, is that Steve Jobs comes back, Apple doesn't have much money, they design the iMac, they hire Tim Cook, and Tim Cook shuts down all the Apple factories and goes to China instead.

And like that's the whole history we get. And that's such a wild simplification. So instead I tell this history and I didn't know any of this and I was an Apple reporter for four years and I had no idea. And even Apple people at a very senior level didn't know this sort of stuff and ended up arguing with them about it, which was kind of fascinating. So Apple ends up building the translucent iMac that's originally built by LG in South Korea. And then LG expands to Mexico and Wales to create the translucent iMac.

They do such a poor job at that international expansion that Terry Guo, founder of Foxconn, way back in 1974, he basically calls up Tim Cook and says, me a chance, like, I can fix this. And the interplay between them is just absolutely phenomenal and defining for the whole company. Right. I mean, the line in the book is that Johnny Ive and Steve Jobs made Apple products unique, but it was Terry Guo and Tim Cook that made Apple products ubiquitous. And I think we in the media have really failed to understand

what an operational company Apple is. And I say that because when Steve Jobs dies, there's no contest about who's going to be the next CEO. And it's not a product visionary. It's not Johnny Ive. It's the operations guy. And yet in the last 14 years of his tenure, I don't think we've really grappled with why that's the case. And it's really just because Apple is an operational Goliath with the world's leading supply chain. ⁓

So the story of how that happens is fascinating. So when Foxconn comes on board and it's worth noting that Foxconn is Taiwanese. So you've got a really interesting interplay where a Taiwanese company is building the industrial clusters necessary to make China a great manufacturer. That itself could be its own book and should be its own book. But basically isn't. There's books about Taiwan helping China. There's no biography of Terry Guo in English. There's no history of Foxconn in English. I mean, that's a staggering omission.

And when anyway, so when the Taiwanese company comes on board, they build the IMAC in mainland China, of course, but also in Czech Republic for the European market and also in Fullerton, California for the American market. And I don't think those stories have been told either. And then what happens is, you know, Apple has these operations in three different continents. And after China enters the WTO, the World Trade Organization in 2001, it's just the case that China is winning out every time in terms of the cost.

the abundance of labor, the proficiency of the workforce, the quality of the products and so forth. And so by 2003, virtually everything consolidates into China, right? The first two or three generations of iPod are not made in China, they're made in Taiwan. But when they actually need to build a massive scale for the iPod mini, they choose Foxconn, which had no involvement beforehand. And Foxconn just takes it to another height and they do so well that when the iPhone comes out a few years later, there's sort of no question as to who's going to assemble it. Apple sort of goes through the motions and I discussed this in the book that they interview.

several different contract manufacturers, but it's sort of clear the whole way that Foxconn is going to get it. And so same thing when the MacBook Air, Unibody MacBook come out, it all just sort of consolidates the Foxconn. And the narrative here is fascinating because Foxconn is a really savvy company. As I said, Terry Guo's got this great political operating skill. But for instance, in 2010, there's this great meeting between Tim Cook and Terry Guo where Tim Cook is offering these sort of conservative estimates about how many iPhones

iPhone 4s we're going to have to build and how many iPads we're going to have to build. And Terry Guo kind of calls bullshit on Tim Cook and says, you're sandbagging me. Your numbers are way off. And what's interesting is where did Terry go get these numbers? He was talking to Apple engineers and other people in the demand forecasting unit. All those numbers came from people within Apple. They was just different from Tim Cook. And so Tim Cook's a naturally cautious figure and Terry Guo is not a cautious figure. He's savvy, but he's a risk taker.

And so he bets the company essentially and says to him, Cook, well, here's the thing. I think you're way off and the iPhone and the iPad are going be far bigger products than you seem to think. And so what I'm going to do is I'm going to work with my Chinese government connections and I'll build two entire new campuses, one in Chengdu, one in Zhengzhou. And this is inland in China. And this is at a time when the five year plan of China is really emphasizing the disparity between these fast growing cities in Shanghai and.

and Shenzhen in particular. And so Terry goes reading the tea leaves and realizing what political points he could score by bringing operations inland, right? This would be the equivalent of moving from New York to like a Chicago or an Austin and something like that. And so he basically says, I'll build these factories, but if the product volumes come in the way I think they're going to come in, then we get the orders. So in other words, he's doing the perfect thing that an OEM should do. He's getting way ahead of the client.

And this was sort of like what would happen all the time when you talk to people in engineers at Apple, they would say, we would get to a point where we'd realize, shit, we need a whole new production line because volumes are so large for such and such product. And they would find that Foxconn had already built it for them because they anticipated it. And so that was their way of winning the orders so that Apple didn't sort of make other plans to wean themselves off Foxconn and go with Pegatron or whatever. So there's all these really interesting dynamics.

The sort of sad part of this, to sort of give it, you know, I've talked about Apple, Foxconn's operational brilliance, but also Apple still has the leverage for these relationships. So there's a certain, you know, sort of almost like an iron law here that the more closely you work with Apple, the higher your volumes go and the lower your margins go. Apple negotiates the hell out of things. And so Foxconn literally makes more money in absolute dollars and in margins for the first few years of their partnership.

But then as Apple margins go from 1 % to 25%, Foxconn's margins go from double digits, like more than 10 % to around 1 or 2%. ⁓ So the dynamic there is just absolutely fascinating.

Senthil (20:37)
Interesting. Let's talk about Foxcom in a minute. I have one more question to set the base context.

You write that Western companies were shifting to China because of what was available, but Apple shifted because of what was possible. What do mean by this? Is it the Foxconn story or they saw something beyond OEMs

Patrick Mcgee (20:58)
So I often respond with a joke, which is I ask people if they can name their favorite Dell computer from the early 2000s. And interestingly, I probably said this to 10 or 15 people over the last few months. And yesterday somebody named a Dell model, which is not supposed to happen. My point, of course, is that you don't know any Dell models from the early 2000s because they weren't doing anything with design. There's no Johnny Ive wannabe, let alone a Johnny Ive equivalent at Dell. That is not the business they are in.

They're not designing computers to upend how plastic injection molding or metal stamping operates, right? Nobody's pushing the envelope. They're doing something called DFA, Design for Manufacturing. So when you're drawing up and you're drafting what the next computer is going to look like, you're sticking with a beige box that snaps together really well. And if anything, you're looking at things where even if the idiot putting together the thing accidentally does it upside down, it still fits, right? Like that's how it works.

Or even better, you're designing it so that a machine can put it together so you have no human involvement and it's just going to be error-free. Apple completely upends this model. So to go back to like what Dell and HP and all these other PC clone companies were doing, right? These companies that cloned the original PC from IBM in 1981. They're looking at China and seeing, oh, look at the cost of everything. Look how quickly things can be built and look how many people will build this stuff for us.

And they basically see it as like a volume and margin story. Apple looks at the same climate, the same offerings, let's say of China and realizes, holy shit, anything that comes out of the mind of Johnny Ives can be put together because if this is the rate of labor, you know, 25, 30, 40 cents an hour, we can have thousands of people putting things together on a conveyor belt logic type system. Wherein.

people have nine to 11 seconds to do one little thing on the computer and then it moves on to the next one and they'll work for 12 hours a day. And so they just totally reimagine what's possible. And so they're putting together computers that are mind bogglingly complex to make. I mean, just remember the iMac G4, this thing that looks like a lamp or a sunflower. I mean, nobody knew how to build something like that. That's why you needed MD to fly over to, in this case, Taiwan to build that thing because

You know, they needed people that were like bicycle manufacturers to do the tubing. If you can remember what that computer looks like, they needed people that had experience, you know, fabricating blades, just all sort of working with precipitously hardened steel that was dominant in the aerospace sector. And Apple basically cornered the world market on that type of steel for the computer. So Apple has this massive impact sort of teaching engineering 101.

to come up with these spectacular designs. And the early chapters of the book are actually them trying to do this in Korea, in Wales, in the Czech Republic, in Taiwan. And on the one hand, they're sort of failing. It's not working all that well. But their efforts are nevertheless causing these massive changes in these smaller countries. And then the rest of the narrative is them doing the same thing in China at larger scale. And they're succeeding. And they're still having massive impact.

on these industrial clusters within China. So they end up having this massive impact on the whole country. I hope that's answering your question.

Senthil (24:14)
Thank you, Patrick. Well, in your book, you unpack Apple's presence in China through a lens of a few key players or stakeholders. The way I see it, suppliers, workers, governments and competitors. Let's take a minute to walk through each of them, starting with suppliers. We already talked about Foxconn. How big are they within Apple's supply chain? Do they supply all of Apple's products or like 90 % or 80 %? How big is Foxconn?

And tell us a little bit about the founder of Foxconn, Terry Goat. Such an inspirational story, right? You write, whereas Foxconn's rivals saw Apple's complex design as a challenge, Terry Gou saw them as an opportunity.

Patrick Mcgee (24:55)
Terry is

the first person to understand something in the late 1990s that the Chinese suppliers writ large at least don't really understand until 2016. And that's actually after Apple makes it fairly explicit and then we're to the highest echelons of the Chinese party. And then the word sort of trickles down. So Terry Guo, I don't know sort of how he understands this. I don't know if someone taught him or if he just had this sort of inspiration. But I I quote people that worked with him in the earliest days and they say he saw what Apple

could do better than Apple could. Like he just understood something about Apple. He saw their designs. He knew how unique they were. Because it's worth knowing Foxconn was, know, the compact was largest clients of Foxconn. This is in fact how Terry Guo and Tim Cook knew each other. Tim Cook was at Compaq. And so they formed a relationship, but they were supplying, you know, like everybody. And but if you were in that position.

building computers and you had these different lines because there's supposed to be like Chinese walls between them right compact here, HP here, Sony there, etc. He was in a prime position to understand that like the things Apple is asking us to do are wholly distinct. I mean, they're just a category apart from what anybody else is offering us to do. And so he understands that you don't really make much money from Apple. I mean, for starters, it's actually a pretty low volume company in the late 1990s.

But more than that is that Apple negotiates the hell out of things. And so you just end up with no real margin up working for them. Later, you can make up for it in the volumes, but in the late 1990s, you can't. But in order for you as Foxconn to respond to Apple's demands, Apple is training your whole workforce. And so Terry Guo is brilliant about reaping the rewards from that. So he recognizes we're not in this for the money, we're in this for the learning. And

He plays this against Apple. So there's this funny anecdote from Tony Fidel, know, a senior vice president known as the pod father. And, you know, he would say, like, we'd show up at the factory one day and instead of the team that we'd been training the next six months, it's a whole new team. We don't recognize a single face. And we'd be like, where'd our engineers go kind of thing. Right. And basically Terry had rotated them because once they know enough, he wants them to go apply their skills, right. Teach others and do so on more lucrative projects that they're doing for Dell or whoever.

And so it's like a new semester had started and the California based engineers have to just train these new people because Harry's just moved them all. ⁓ So it's really hilarious the degree to which Apple and Foxconn sort of meet their match when they begin working with each other and each plays sort of one off of the other in interesting ways, right? The way that like a superhero meets their match and a villain or something like that. But I guess they're working together. So maybe the analogy fails. Okay, so that's part of the answer.

But then you ask, the percentage stuff is tough. And even sort of analysts who do this for a living don't know the real percentages. What I could say is that, you the first three to four years of the iPhone, Foxconn was doing 100 % of the volume. But then they do sort of, I don't know if getting cocky is maybe a simplistic way to put it, but they try to exert some leverage over Apple. And there's an anecdote I have in the book, for instance, where in the middle of broad daylight,

some engineers walk into a Foxconn factory and they begin unmounting the machinery on the Foxconn line, right? And this was compared to just giving them a big middle finger. There's a reason why it happened in broad daylight. They're trying to make a point and they moved it to Foxconn's big rival from Taiwan, Pegatron, and diverted about 15 % of iPhone production to this other company. And it wasn't a huge order or anything like that for Pegatron, but it was just Apple's way of saying like,

we can move. We own this machinery. We've installed hundreds of millions worth of machinery in your factory, but we own it. And if you want to play hardball negotiations, we'll just divert our order someplace else. And Terry Gwo used to have to, this isn't in the book, but Terry Gwo used to fly to Cupertino to try to negotiate with Tim Cook and complain and get higher margins, all this kind of stuff, and was really never able to get anywhere. So for the first few years of iPhone production, it gets to a point because of warranty.

repairs that Foxconn is liable for because the contracts were written with such leverage on Apple's part that Foxconn is literally losing money on the iPhone deal, which is pretty extraordinary. And eventually the contract has to be rewritten. Apple basically has to acquiesce because it's so out of favor for Foxconn. I don't know how much you want me to fast forward here, but what's really interesting is Foxconn is very much being squeezed out of the picture now.

And in fact, the smaller Taiwanese rivals that do the same thing, the assembly of the final product, they're known as Pegatron, Whistron and Quanta, all Taiwanese. They've very much been squeezed out. I'm not even sure if Quanta is really in the picture anymore. Whistron's not really in the picture anymore. And Foxconn has basically been told if you want to maintain your orders, you need to expand to India and we'll give you the volume there.

But it's because Apple's under political pressure that to make nice with local officials, they need to be working with what's called the red supply chain. And these are the sort of counterparts that are homegrown and so Chinese rather than Taiwanese. And so companies like Luxair, BYD, which most people know is a car maker, but is also a supplier of Apple componentry and a final assembler for Apple, GoreTech and WingTech. And these companies are becoming pretty massive. We don't know them yet. You know, like your average person doesn't know what Luxair is.

But they're becoming the new Fox cons of the world and they're Chinese and they will operate at lower margins. And it's brilliant for Apple because the counterpart is that they're able to operate at higher margins, right? By working with these cheaper companies. But in my telling, it introduces unforeseen or unknown risks because these are companies that are politically tied to the Chinese Communist Party and they're operating in a form of capitalism that is not, you know, shareholder first. It's not about shareholder returns, dividends or margins.

it's about ascending the ranks of whatever industry you're in, right? There's a certain command and control form factor of, if you will, of Chinese capitalism. China's sort of more and more capturing Apple by taking on more and more of the real estate and assembly of the iPhone. ⁓ And so, you know, the average person has this idea that Apple products are quote unquote made everywhere, as Apple says, rather just in China, or maybe that Apple is really diversifying to other countries. And I would actually say,

It's basically the opposite. Like, sure, some more final assembly is going to Vietnam and India, but actually Apple has only gotten closer to the Chinese government and to Chinese entities in their supply chain over the last 10 years. And some of this is inarguable, by the way. mean, Apple puts out a list of the top 200 suppliers and has since 2012, its annual, and Chinese go from de minimis in 2012 to overtaking Taiwanese and American suppliers by, I want to say, 2021. And this is even the full list. This is Apple's self-selected list that they

they want you to think it's the whole shebang. But it goes deeper than that and China is really just taking over. Sorry, another long-winded answer, but I hope this is interesting.

Senthil (31:34)
Very interesting. Let's move to workers. Could you give us some idea how many workers are employed with all these suppliers you talked about in assembling just Apple's products?

Patrick Mcgee (31:45)
Yeah, can give you a couple of answers. So it's worth unpacking because I Apple can be a little misleading. They'll put out certain numbers, but you have to realize they're doing them for certain reasons. And once you know what those reasons are, you can understand when they're inflating them and when they're deflating them. So Tim Cook's number that he began giving in 2016 was that Apple employed indirectly, of course, three million people. So there were three million people working on Apple Assembly. What's worth noting there, so what he's trying to do is he's trying to build up Apple's reputation within China that we're this big employer.

I'm pretty confident in saying there's never been a time when you actually have 3 million people at any given time working on Apple products. What he's doing is giving a figure over the course of 12 months. So I have some internal documents. That's why I'm a little bit confident here, which is that in the lowest season of Apple production, which is March, the number of people in the labor demands that Apple has in China falls to around 800,000.

and then it ramps up to around 1.8 million in September for a new iPhone launch. Now, the people that are there in March versus the people that are there in September can be really different because the churn in Apple factories could be incredible. So different documents I have is that, you know, for the Pegatron factory in Pudong.

They had a standing state of 100,000 workers, but they were losing 25,000 workers a month. The average duration of employment was only 65 days. So you had to hire 65,000 people a month. So I don't know exactly what the figure is everywhere, but the churn rates are incredible. So if you've got 800,000 people in March and you've got 1.8 million in September, obviously it's not as simple as just adding those two together. There's going to be a lot of overlap.

but you're only gonna get to three million once you understand the turn and that some people are only there eight weeks at a time, 12 weeks at a time and so forth. On the other hand, you do have people at Foxconn that have been working there and have been there since the original iPhone in 2007. Apple's so big, all the answers are really complex. It's like trying to get a simplistic statement about China or about America and the answer, if you just try to give it broad strokes, it'll sound wildly contradictory, but.

The fact is that Tim Cook's own number, just to simplify, is three million people assemble Apple products. I'm just pointing out that that's within a 12-year period rather than a snapshot of, let's say, September. ⁓ And then just to put that number into context, all Chinese demand across all industries accounts for as little as one million and as high as 2.6 million jobs in America. So somehow one super corporation has more of an impact on jobs in China.

than all 1.4 billion Chinese people's demands have in America. I mean, it's a mind-boggling number, and there's a lot of mind-boggling numbers in the book.

Senthil (34:24)
It's a mind-boggling number of workers as well, right? 800k to 3 million. It's such a vast range and the average tenure is about three months or so.

Patrick Mcgee (34:34)
That's only for one factory, say. I mean, I wish I had the turn rates for every other factory. ⁓ One other thing I've made before, yeah.

Senthil (34:38)
How do they mobilize this? Where do they get this

pool of workers? It's such a massive number we are talking about.

Patrick Mcgee (34:47)
Yeah, so that's the other interesting thing, which is that Apple cannot ignore Chinese politics. So the system that they're embedded in is absolutely instrumental to how they ship iPhones, which is to say, you don't just sort of go to factories that have these number of people. It's literally like state sanctioned buses that go out into the hinterlands to sort of fill the buses with the necessary hands that are needed for maybe eight weeks of iPhone production. Right. So to be

a large capitalist enterprise within China is to work with the local provincial federal officials to make sure that the machine is well oiled. ⁓

It's just it's just worth knowing that like building here isn't necessarily political building at that scale in China is necessarily political. And Apple sort of wakes up to this in 2013 after working in an environment when when Hu Jintao was president and it sort of was like a multinational playground for a good 10 years. And then everything changes when Xi Jinping comes in. So.

The other thing I should just mention is Apple has deep reliance on what China calls the floating labor force or the floating workforce. The other term for it would just be the dispatch labor system or temporary labor. So the number of people working in China that have a rural registration but go live and work in the cities is more than 350 million people. So more than the entire population of America. So within China, these people are actually treated as second class citizens. There's like a dual class.

citizenship structure between rural and urban. So if you're from the Western hinterlands and you go work in Shenzhen, you cannot access the urban welfare services. You cannot raise your children there because they can't go to school there unless you have money for them to go to private school, but that's unlikely. The reason is to avoid having slums and a whole host of other reasons, having control over the population and so forth. But Apple relies on these on these workers for temporary roles. And so

Among the sort of like from a capitalist perspective, beautiful things, but how Foxconn operates or how these industrial clusters operate is that, you know, if you're manufacturing things yourself, you find yourself in this funny position where when you don't have a large product demand, you still have the workers and they're just idle, but you're having to pay them. And then when you get to a product release, you don't have enough workers and you have to go hire them. So the sort of beauty of contract manufacturing as a service.

is someone like Foxconn just takes care of that problem for you and you only pay them when you need them. Well, how does Foxconn operate more efficiently? Well, they have dozens of clients. so someone works on the iPhone line for the eight weeks and you really need them, but you don't necessarily fire them after the eight weeks, right? They'll go work on Sony products for a while and then they'll go work on Dell products, whatever. And so the more clients that Foxconn has, the more they're able to orchestrate these things into maddening types of efficiency. But some of these people,

The reason they're called the floating labor force is they will also go from Suzhou to Shenzhen to Hangzhou, etc. throughout the year following, I don't know what you would call this, sort of seasonal demand. But I don't mean, you know, autumn and winter. I mean like iPhone peaks versus other products. And so there's deep reliance on this floating labor workforce. And going back to what I saying earlier, the floating labor workforce itself is a matter of state policy, federal policy. It's a matter of state sanctioned buses getting the migrants and so forth.

And so Apple finds itself embedded in this political system in a way that it wasn't really expecting. And this sort of fifth part of the book is sort of Apple grappling with what it means when new laws come down that would harm their access to the dispatch labor system. And what they realize is that, because they have experts living in China at this stage, is that when a law like that comes into play, it's a federal law, but its enforcement is local. And so

The law is basically orchestrated such that it's not supposed to be enforced. You're supposed to be able to figure out who's enforcing it and then have wink-wink arrangements with them so that the law doesn't apply to you. So this whole section is called Apple's political awakening. And it's when they go from sort of like knowing nothing about Chinese politics to knowing everything about Chinese politics.

Senthil (38:56)
So it seems Apple championed a new offshoring model where it married both imposing a zealous level of control over its manufacturing process, but with lower costs and flexibility of not actually running a factory. There is a scene in your book where Chinese workers rioted Foxconn plant over lockdown conditions and seems the video went viral. We all know that. That felt like a moment when the human cause could no longer be hidden. And that's when

know, commoners even got a glimpse of what's happening in Apple supply chains. What did that moment tell us? Not just about Apple and China, but about global capitalism at large.

Patrick Mcgee (39:35)
Just to be clear, you're referring to COVID, right?

Senthil (39:37)
Exactly. Yep.

Patrick Mcgee (39:38)
Because the riots in China are nothing novel. So I just want to be clear which riots we're talking about, because there have been several riots and my book doesn't go into all the different ones. But the one my book does on is that, during COVID, essentially, you know, there's there's rumors. I don't remember if there's truth behind it or not, but that COVID is rippling through China. So the Omnicron variant, I'm remembering correctly.

And, you know, this is the rule at the time is zero COVID, right? So we're going to completely quash out COVID and not allow it to spread. And so the Foxconn workers are essentially told that they're going to be quarantined. They're not going to be able to leave. And the people riot. I mean, some of them are literally climbing fences and deciding to walk 60 miles home back to their villages rather than sort of be trapped in this factory. And for Apple, it's one of these sort of wake up calls where, you know,

working closely with an authoritarian regime is putting them in a bad light. And so one of the more revealing anecdotes is that this protest actually becomes a catalyst, largely because of the Western media coverage, I would say. Maybe I'm speculating there, when things happen, like riots happen all the time in China, but the Western media covers it when it's an iPhone plant because it's a good journalist story, right?

I'm not defending that or anything, but that's just the nature of how journalism operates, right? People will read it if there's a factory riot at an iPhone plant in a way that they won't if they're, you making carpets. ⁓ So this ends up being a catalyzing event for like what I think is arguably and maybe just like matter of factly, the biggest protests against the Chinese government since Tiananmen Square. ⁓ And so Tim Cook is actually confronted by a reporter from Fox News while he's in the halls of Congress. And she asks four pertinent questions.

And they're the sort of questions that if you ignore that they're captured in China, they're actually pretty easy to answer. In other words, she asks things like, do workers have the right to protest their conditions? Right. I mean, the answer to any American essentially is, of course they do. But Tim Cook can't say that. And it's really revealing why he can't say that, because he can't just like come out there and be on CNN or Fox talking about the inequity of the Chinese worker and how they need to have more rights. So that would be so detrimental to his business.

So this 90 second clip, or maybe it's a 45 second clip, is him just ignoring this reporter as he walks through the halls of Congress. And I quote someone saying, I quoted this person in the Financial Times, but it's in the book as well, saying it's the worst 45 seconds of Tim Cook's entire career. ⁓ Because it's such a sort of damning indictment that he's not able to say anything. And I think the worst thing said about it is in fact something Tim Cook himself said in an earlier context a few years before. And I'm not getting this right, I'm not looking at the book right now, but it's something along the lines of,

You know, to be silent is to be complicit. And he basically had argued that to be a good corporate CEO was to speak out, you know, when necessary, speak out when needed. And here was his shining example, and he was silent.

Senthil (42:27)
Well, let's talk a bit about competitors. In the smartphone market, even major companies such as Nokia, BlackBerry and Microsoft have turned out to be failures. Interesting that you write, and I quote, that iPhone didn't kill Nokia, Chinese imitators of iPhone did, and the imitations were so good because Apple trained all their suppliers. Tell us the story.

That's not the way we looked at brands like Xiaomi and the other brands in the market.

Patrick Mcgee (42:55)
Yeah, yeah, this was quite a breakthrough. I remember talking to someone from Nokia and they had me read it again because they didn't quite grapple with the argument, but it was the whole paragraph. And then they agreed with me. I think we too often tell the story of Nokia just by they couldn't keep up with touchscreen glass. And I think we think of it as a software story, a feature story. And to me, it's a hardware story. And it's really because the way that Apple's business operates is that they have to work with these hundreds of suppliers.

And they have to be operating at the quantity scale and most of all, quality that Apple demands. mean, if you need to know anything about smartphones, you need to know that Apple has zero tolerance for defects. Everything has to be shining, glistening, perfect and new. And nobody else really operates like that before the iPhone comes on the scene, right? They first were really doing this with the iPod in terms of handheld products. And I mean, just to give a, instance,

Nokia in 2007, 2008 is building way more smartphones than Apple. I obviously it's probably, I'm making up the numbers here, but it would be something along the of 200 million to 5 million. Okay. So they're way, way bigger. And I quote someone from Nokia who, Foxconn is making their products and he gets a glance at the Apple production line for the iPhone, maybe the iPhone 3. And he's absolutely stunned by the testing and quality assurance of every product because he said, we had one.

testing station for Nokia, Apple had 50, right? And so if you can think of the conveyor belt thing that I was describing earlier, two thirds of the production line for iPhone is quality assurance and product control. So, you know, the thing that you used to do before Apple totally upended the game with the iPod is that you would sample, you would take a batch of products and maybe every hundredth one that comes off the line, you would run tests on that one, okay?

And then you would sort of get, you sort of get like some, you know, denominator, like you'd have an understanding of what percentage are likely to be defects. Apple didn't do anything like that. Apple decided to test every single product. And it's this arduous, expensive thing where like they need so many machines for testing, like the Bluetooth and wifi connections that the very makers of these machines are unable to keep up with Apple volumes. And this is when they're only building 5 million, 10 million iPhones a year.

And so Apple actually has to embed engineers into those companies to sort of really help them with their quality and their scale and the cost of these machines. And one example, you know, goes from $50,000 per unit to $13,000 per unit. So Apple just has these dramatic impacts by nature, not just of redefining aesthetics, but redefining quality control. And this is what they do across their whole supply chain. Okay. Well, anyway, what happens is that if you remember the first, let's say five versions of the iPhone, Johnny and I was redesigning it each year. I mean, it was getting wildly different.

and everyone is trying to keep up and it was incredibly difficult. I for the iPhone 4, I quote someone saying, we're going to design it to be so different that everyone will either go nuts or go broke trying to mimic us. And what happens when they make these design changes is that when they obviate the need for a certain supply, certain components, ipso facto, they have obviated the need for a certain supplier. And if that supplier had been on the ground floor of the iPhone business for three or four years,

and had ramped up with the employment that they needed and with the capital machinery, etc. that they needed. And then Apple just said, bye. They'd go bankrupt. So this was causing all sorts of headaches and problems for Apple because it was causing political ill will, know, rumors in the supply chain and that sort of thing. And so Apple began to institute a rule that said they would say to their suppliers, however fast you grow with us, grow that fast with somebody else. In other words,

do not be more than 50 % dependent in terms of your revenues on Apple. Well, imagine you're, I don't know, tempering and shaping glass for the iPhone, and now you have to find a business that's equal size of what Apple's asking you to do during a time when they're growing exponentially, right? 5 million phones in 2007, 230 million phones in 2015. What would you do? I mean, you only have this one skill set, so of course what they do is the obvious thing. They call up Huawei, Xiaomi, Oppo, Vivo, and they say,

You guys need multi-touch glass? This is what we do. We've been doing it for Apple. And so Apple gives birth to the smartphone industry, not in the narrow sense of they give birth to the suppliers. Of course, that's the case. They give birth to their very own rivals, their very own competition, the Huawei's of this world, because the reason why Huawei phones are so good is all the suppliers are calling Huawei and saying, do you want our business? Because we're no longer supposed to just be dependent on Apple. So it's this incredible irony.

on the level of the Berlin Wall falling, where Apple is training up its own competition. And to take this further, why is China so dominant in EVs? Well, what's an EV? It's a smartphone on wheels. So Apple has spent the last 25 years training up everybody on how to build all these great electronics since 2008 has been helping hundreds of companies build smartphones. And they've taken that technology and now they're world leaders in EVs. It's pretty straightforward. And I also have a great section on Tesla to sort of amplify the point.

Senthil (47:53)
Well, let's talk about government a bit. You write that Apple wouldn't be Apple today without China, but also China wouldn't be China today without Apple. What mattered so much to both sides?

Patrick Mcgee (48:08)
Yeah, the first part is almost a boring statement. think if you decided to pitch a book as a journalist and you said, you know, it really changed Apple being in China. I mean, obviously, right. mean, everyone knows that the iPhone is built in China and that I think anyone who's really investigated this knows that there's no other place on the planet that has the same competencies, certainly not at that quality scale and cost as China. So that's I mean, that's the point I made in an article a few years ago.

But I don't think you can construct a whole book around that. And so really where the book came from was flipping that on its head and saying, our understanding of Apple in China is really narrow because China usually enters the picture when it comes to writing articles about Apple to explain a problem. In other words, there are suicides at Foxconn. There's allegations of Uyghur labor, allegations of student labor, interns being overworked, right?

What's strange about that is China is the secret sauce for Apple. China is the reason it's successful. And yet the only articles we write are all the problems that have arisen. Right? But we're not explaining the success. that make sense? And so I wanted to flip it on its head. So in other words, if it's so obvious that Apple is, you know, guilty of i-slavery, as critics would say, right, and just exploiting workers. Well, I mean, all you have to think about for five seconds is, well, why would that be allowed?

and Beijing is an authoritarian government, if they were just this colonial power or something, they would just kick them out of the country. And so it doesn't take much to sort of flip the narrative on its head and realize, OK, the real story here is that Beijing is allowing Apple to exploit its workers so that China can in turn exploit Apple. And so what does that mean? It means that Apple has been able to convince the government, you have no idea how much we are bringing up

quality across the high end electronic sector that you deem to be of utmost importance to escaping the middle income trap and becoming a world power. so Apple realizes in 2015, and this is my language, not theirs, I want to be clear about that, that they are the biggest supporter of Made in China 2025, which is Xi Jinping's ambitious plan to sever its dependence on the West when it comes to robotics.

high-end electronics, automation, and things that aren't relevant to the narrative like pharmaceuticals. China wants vertical integration within the country, and Apple realizes we need to speak the local language. We need to talk to them in words that they understand. So yeah, it's true. We don't have joint ventures, but do they understand that we employ three million people around the country and that we are training them up and spending billions of billions of dollars on machinery so that these suppliers aren't just operating at their...

above their perceived capabilities, they're operating above their actual capabilities because these companies don't have the money to finance the 10,000 CNC machines that we're purchasing every year and putting in Chinese factories, but we'll do it for them, right? The analyst, Horace Edu, has pointed out that Apple sort of operates as a quasi-bank, making massive loans to Chinese entities so that they can purchase certain machinery. So they have just all sorts of influence across the entire sector.

in just stunning ways.

Senthil (51:18)
I'm sure you have been working on this book for some time. I don't know whether you envisioned all these tariff things that are happening today. So combining all these factors we see in the world and the phenomenal work of yours, I see you describing Apple as being caught between two futures. One, stay in China and thrive commercially.

but be challenged on human rights and values, et cetera, to pull away and risk its dominance and supply chain. Is this really a choice or is Apple already too entangled to change course? ⁓

Patrick Mcgee (51:55)
I would love to be wrong about this. So to be clear, if we fast forward to 2030 and I'm thinking about what my book got right, what my book got wrong, I frankly worry that it'll be prescient. Do you know what mean? Because I would prefer that Apple is able to radically accelerate its supply chain diversification to India, let's say, which I don't think is possible. But if they're able to pull it off, and there's a lot of geniuses at Apple, mean, this is definitely

Possible let's say that I'm a journalist I'm not I'm not maybe thinking of the full picture or something if they were able to surprise the hell out of me and frankly a lot of other Critics and pull that off that would be amazing, but I just don't see how it's gonna happen Apple sometimes because I've talked to people at Apple that will say and this is in the book 60 % of Apple manufacturing will be in India by the end of the decade I remember when I was being told that and I said more than China and the person said absolutely I mean just such confidence

It just reeked of hubris because, again, I could be wrong, but China was such a once in a century partner for Apple. They did so many things. And you know what's funny is sometimes people will hear a clip on social media and they'll think that I'm not giving enough credit to China. And it's sort of like I'm trying to give so much credit to China, so much so that they're stuck there because no other nation is capable of providing what China provides. So the criticism is that Apple doesn't give.

enough credit to China, not that I don't, I'm trying to give them the credit, You know, it's a Faustian bargain, as it were, but China plays an enormous role. So even if Apple is able to replicate, let's say, within the factories, you know, they're able to convince Foxconn or Beale Crystal and Corning and all these companies to replicate their operations within India, who's building the eight lane highways from the factory to the ports? Who's building the ports? Who's building the high speed rail?

Apple doesn't play that role. That's the role of the government in China. And India doesn't have the same competencies, you might say. You might say culture. And I think you could say the same Nietzschean will to power. I mean, the epigraph to the book, if you've got the hardback, is a Chinese document from 2015 that says, without manufacturing, there is no nation, there is no country. That's not who New Delhi thinks. That's not how anybody thinks. Beijing is quite unique in that respect, and they don't want to lose it. And they're not going to they're not going to let it be.

we lose. So that's not English. ⁓ so unless there's a real political breakthrough between Beijing, New Delhi and Washington, with Cupertino at the table, I really don't know how this gets solved. I think I think more and more stuff will get built in China. I think the number of Chinese suppliers at the expense of US Japanese and Korean suppliers that are in China will get overtaken. I think eventually Chinese catch up to TSMC that might take a long time, but for doing the most sophisticated chips.

I think Harmony OS is gonna overtake that of Android and become the de facto standard for all smartphone makers in China, probably abroad as well. I mean, that'll take five to seven years perhaps, but I think that's where things are going. ⁓ So yeah, I don't see some rosy scenario wherein Apple maintains its market share in China while it diversifies to India. That's almost fanciful. I don't wanna be too dogmatic about that. And I wanna be clear the book is not.

written in any sort of ideological way, it lets the reader decide. But I'm deeply skeptical of that idea, just for the simple reason that the Chinese rightfully think of the iPhone as an indigenous product. The more that Apple is seen as the poster child of Western de-risking and decoupling from China, the more that they put their $70 billion business in China at risk. I don't know how they get out of this.

Senthil (55:27)
Such a massive market, isn't it? But I know we're a bit off time. My last two questions. What lessons should other companies take from this story? And as consumers, do we have a role in shaping this model?

Patrick Mcgee (55:40)
That's a great question. honestly, I'm hoping for the first question to learn from people more than me telling them. In other words, the really nice thing about writing a book is that people bring their own expertise into reading it. And then they tell me, for instance, someone in the biotech field is like, we're much earlier in the China story, let's say, than Apple is, right? So someone in the biotech sector was saying,

We're more like where Apple was in 2005 and your book is opening our eyes to be second guessing the rates of production that we're able to get in China because there are these downsides that your book's making us think about. So for the most part, I would basically leave the lessons learned to wanting to learn from readers. In other words, what I think is sort of clear in the book is there for any reader to find.

it'll be more interesting for me to hear what other people get out of it. But if I don't want to dodge your question, so if I could say one thing, I would say Tim Cook is like the master of figuring things out via Excel sheets. In other words, charting trajectories of margins and demand and supply and all sorts of things. And I think about that saying that goes back decades. You what is it? What you what what what gets measured gets managed?

Right. And Tim Cook is the ultimate person of managing what they're able to measure. Where on the Excel sheet do you put that we are. the role of Prometheus, handing the Chinese the gift of fire. That that doesn't make quantifiable number. And so if there's a lesson there that at least what I've been thinking about the last few weeks.

It's the blind spot of thinking solely about numbers and not thinking about intangible things where there isn't a nice little equation. So I hope that's a lesson. Remind me what the second thing is, what we as consumers can do.

Senthil (57:29)
Exactly.

Patrick Mcgee (57:29)
It's a fair question. I don't love answering it just because I'm such an old school journalist. I mean, you'll notice that you didn't learn a single thing about me in the book. I'm not in the book. I'm not a character. I don't talk about me becoming an Alport reporter or anything like that. And so the reason why I'm saying that is because there's definitely been this tendency

Senthil (57:41)
You're not.

Patrick Mcgee (57:46)
where journalists are blurring the lines with activists, right? Where journalists, know, in their role, they sort of become experts on certain topics. And then they use that as a platform to call for change or whatever. And it's a hard line to sort of line because if you are sort of an expert in something, then of course you want to call attention to certain things. But the goal of my book had nothing to do with, you know, causing Apple sales to fall and advocating that everyone buy Samsung. I totally understand why someone might want to buy Samsung or get rid of Apple products, whatever, upon reading the book.

But I mean, I don't think I'm hypocritical per se that I'm talking to you on a MacBook Air and my iPhone is right there and my iPad's down the table. I'm not an activist. That wasn't part of the role I was playing. I'll leave it to someone else's moral compass to determine whether or not they want to have Apple products. It's interesting thing. I've certainly been thinking about it, but honestly, it was something that really crossed my mind during the two years of reporting.

Senthil (58:36)
Interesting. Lastly, how do you handle differences of opinions or setbacks?

in general. Let's just step away from the book. We are getting into a new topic now, so I want to close with this question.

Patrick Mcgee (58:48)
A difference in opinion in what regard? Like how do I deal with conflicting information? okay, go ahead, go ahead.

Senthil (58:50)
Let's suppose you write this conflicting

view. Somebody comes and says, no, whatever you're saying about Apple and China is wrong. How do you usually approach the differences of views or opinions?

Patrick Mcgee (59:04)
I guess I'll two answers. One was to sort that out before the book was published, right? So as rigorously as possible, I was getting, you know, as many different opinions and nuanced opinions as possible. So it's like the earliest months, you're just gathering information. By the time you're in the final writing stage, you're often arguing with your sources and you're bringing new information to light and things like that. Like, for instance, I talked to a very senior person who told me flat out, we never built any IMAX in Wales.

And I was like, well, I've talked to the people on the production line who have stories and photographs and there's contemporaneous reporting or whatever. And so, you know, that's how you deal with it. I mean, it just had the evidence. I had the ammunition. mean, and the person just had to concede, ⁓ I totally forgot about that, you know? So that's one way to deal with it, right? Just sorting out all the facts and talking to loads of people. So maybe that's one way. I mean, the other way is to get hard evidence, right? Documents.

Right? When I say there's 1700 suppliers to Apple, someone disagrees with me. I can't really send them the Excel sheet, but I have it. It makes me confident. People have said that my $55 billion a year number, this is the investment Apple was making in 2015, must be wrong. And you know what I like about that is they're getting the sentiment right. It's an unbelievable figure.

I mean, it should be wrong. It doesn't sound like it could credibly be correct. I it really is, as we haven't talked about, but it's we've talked about lots of other places. It's double the annual spend of the annual spend of the Marshall Plan. Right. So year in, year out, Apple is spending double the Marshall Plan of which is 16 countries after World War Two. I mean, it's an absolutely wild number. And so if your first reaction is disbelief credit to you, because you're at least understanding, you're digesting the magnitude of the figure. If you're just nodding along, you probably haven't thought about what it means. But

I've got the document. So it's like, what do you want me to say? It's an internal Apple document. It's confidential and it says $55 billion. So I can explain to you what it is. But sometimes I think I come across as like arrogance that like, know what I'm talking about, but it's like, you're just going off your instinctual reaction or looking at Apple's 10k. I'm sitting on an actual document by Apple that says it. what's the argument here? You know? So I don't know if that's answering your question.

Senthil (1:01:11)
Lovely answer. Patrick, thank

you so much for your clarity, depth and fearless reporting. ⁓ and China is just a story about one company. It's about the shape of modern capitalism, the cost of convenience, the choices that define global businesses. it's such a pleasure talking to you and reading your work, Patrick. Thanks for joining today.

Patrick Mcgee (1:01:17)
Thank you, Senthil.

My pleasure.