Why do Apple (and others) manufacture in China?

I recently saw Tim Cooks talk at Fortune Global Forum in Dec 2017. It was about why Apple manufactuers in China. I was honestly surprised at this topic because I thought most poeple by now understood why companies like Apple manufacture in China – and it’s not cheap labour.

With political pressure in US (read Mr. Trump) ratcheting up, I imagine it’s a difficult decision for companies. However, here is the key – it’s not optional any more. There is no country that can manufacture high precision products at scale with zero errors, period.

One of the interesting sentences Tim Cook says in this talk is:

“There’s a confusion about China. The popular conception is that companies come to China because of low labor cost. I’m not sure what part of China they go to but the truth is China stopped being the low labor cost country many years ago. And that is not the reason to come to China from a supply point of view. The reason is because of the skill, and the quantity of skill in one location and the type of skill it is.”

He talks about skills like tooling which are simply not available in US (or India I am sure) and are abundant in China. And make no mistake – China is also at forefront of automation, robotics and AI, they are not planning to dependent on their human capital to drive manufacturing. It’s both the depth (knowledge) and width (availability) of precision engineering and manufacturing which drives companies to China not to mention government underwriting, cheap loans, regulatory environment and, like Germany’s famed Ausbildung, emphasis on vocational training.

However, like I said, this need for providing an explanation also demonstrates how hard it is for perceptions to change. I remember reading articles from 1950’s about Japan being known for manufacturing low cost low quality cars. This perception existed well into 1970’s even after Japan pretty much invented high quality manufacturing. Similarly, I remeber an article by New York Times which explored this perception and debunked it way back in 2012! But come 2017 and CEO of Apple is still being asked to justify Apple’s manufacturing in China.

There are some really interesting anecdotes about manufacturing in China in the NY times article available here. Also, the original LinkedIn post including the talk is available here. Don’t read these if you worry about India – we are not even close to where China was already doing for a decade back in 2012!

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