Apple may diversify, but Tim Cook proves that China remains its key market
- At a time when ties between the US and China are significantly strained, Apple CEO Tim Cook stresses what he calls a “symbiotic” relationship with China.
- The Chinese government assured its willingness to provide a good environment and services to foreign companies, including Apple.
- Although Apple suppliers are looking to step up production expansion outside China, Cook reassures that China remains an important market for the smartphone maker.
For years, the United States (US) and China have been locked in a stalemate – and Apple Inc. has unfortunately been stuck in the middle. The two sides’ antagonistic stances on security, economics, technology, and ideology have essentially crystallized, leaving little space for the adjustments that could relieve simmering tensions that had long shown no signs of abating.
As such, when Apple CEO Tim Cook visited China, for the first time since the pandemic began in 2020, the visit collided with Apple’s 30th year in the country that makes the vast bulk of its iPhones as well as other Apple products. “We could not be more excited,” Cook said at the China Development Forum in Beijing, the country’s version of Davos, which Beijing is holding offline for the first time since the pandemic began.
While a significant number of American companies, over the recent years, have had a growing list of reasons to downgrade their ties with China, Apple emerged from the bruising conflict in a better position than most. Undoubtedly, the iPhone maker has been working on diversifying its production to avoid solely depending on China. Still, as Cook said during the visit, “Apple and China . . . grew together, and so this has been a symbiotic kind of relationship.”
How Cook helped Apple prevail in the US-China trade war
Looking back over the years, Apple, under the helm of Cook, has kept its China-manufactured iPhones off the list of Chinese imports that President Trump has slapped with roughly US$250 billion in tariffs. Those early years had set the tone for the Cupertino, California-based electronics giant, putting it in an enviable position compared with other sectors caught in the crossfire.
Truth be told, Apple’s position is primarily attributed to efforts by the soft-spoken, 62-year-old Cook, who actively courted leaders in both countries. In the US, Cook has made a point of directly engaging with both Trump and Biden individually, even as both presidents’ policies and remarks have scared off other executives from Silicon Valley.
In China, according to a local media report, Cook — who knows some Mandarin — has actively cultivated government and business leaders during his frequent visits to a country where Apple’s supply chain supports an estimated 5 million jobs as of 2019. Under Cook’s leadership, the business of Apple in China grew from a fledgling success to an empire with annual revenues of around US$50 billion during pre-pandemic years.
It is safe to say that more than any other tech company, Cook has always been willing to put a brave face on and work with the US government because Apple has more at stake than any other tech company in China. Even when Cook visited Capitol Hill last December to meet privately with senior lawmakers, his company’s relationship with China was high on the agenda.
At that point, Apple conceded that the unrest in China, due to its Zero Covid Policy, had created “significant” supply chain disruptions, all while facing political, strategic, and investor pressure at home to cut its manufacturing reliance on the Eastern powerhouse dramatically. That was when Apple’s reliance on China for its annual cadence of product refreshes stood as its most significant vulnerability.
Diversified but never left, and perhaps never will
The reality is that no other Big Tech company has the level of exposure Apple does in China. To put things into context, even Korean giant Samsung, the only company that sells more phones than Apple, is much less exposed. “Samsung closed its Chinese plants in 2019, after its local market share collapsed to less than 1% from nearly 20% in 2013, as homegrown rivals Huawei, Xiaomi, and Oppo thrived,” The Financial Times wrote.
But Cook’s trip this week comes after one of Apple’s most challenging years in China in 2022. Last year’s most significant downfall was the production disruptions at the biggest iPhone factory in Zhengzhou, Henan province, last November, fuelled by Covid-19 outbreaks. Even President Xi Jinping’s zero-Covid controls savaged supply chains and delayed deliveries of iPhones during the holiday period last year.
That then led Apple’s quarterly revenue in the three months to end-December, to fall for the first time in three and a half years. Amidst that, Apple and its contract manufacturers have been relocating some of their production lines from mainland China to places such as Vietnam and India.
Yet, when Cook met China’s new premier Li Qiang and other top officials this Monday, he reaffirmed the US tech giant’s commitment to the market without mentioning supply chain shifts and geopolitical uncertainties. It shows that even though Apple suppliers are looking to step up production expansion outside China, the country remains an important market for the smartphone maker.
Even China doesn’t want that to change, or that’s what Wang Wentao, China’s Minister of Commerce, made Cook believe. When they met earlier this week, Wang and Cook discussed “Apple’s development in China and the stabilization of the industry supply chain,” according to a statement by the ministry.
According to a South China Morning Post report, Wang also said in his meeting with Cook that the Chinese government is willing to provide a good environment and services to foreign companies, including Apple. Cook also took the trip to announce that Apple will increase its funding for educational projects in China to 100 million yuan (US$14.5 million). In short, Cook’s latest visit to China signals that Apple is far from being done with the world’s biggest smartphone market.
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