By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
The WSJ published a feature today on Apple’sits dependency on China, Tim Cook and Apple Bet Everything on China. Then Coronavirus Hit.
As a Apple user, I have written about the steady crapification of its products, particularly the decline of its MacBook line, where functionality, features, and reliability have been sacrificed in pursuit of a misguided design ethos (see Design Genius Jony Ive Leaves Apple, Leaving Behind Crapified Products That Cannot Be Repaired). As just a short roster of ways Apple has disappointed its serious laptop users: the company introduced butterfly keyboards prone to failure (and double downed on defending the unsuccessful design); replaced the plethora of different laptop ports with USB-C ports only (forcing customers to use dongles or an external hub in order to communicate with external devices); and scrapped the magSafe connector (so that clumsily tripping over one’s power cord can now be a catastrophic event).
Apple is also the villain in the right to repair story, as its policies force customers to employ its overpriced repair services – rather than those of independent third parties, or buy new products – rather than replacing a defective or worn-out component. This policy costs all of us money, and also contributes to the mountain of eWaste worldwide. How did Apple manage to get consumers to pay hundreds or thousands of dollars for replacement machines when batteries fail? (see, e.g., Apple Blinks on Right to Repair: Or Does It?; Rotten Apple: Right to Repair Roundup; Apple to California Legislators: Consumers Will Hurt Themselves if Provided a Right to Repair; and Apple Battery Debacle: Yet Another Reason to Support a Right to Repair).
Apple and China
The WSJ feature focuses on another Apple fail: its over-reliance on China. Which now looms even larger, as the coronavirus crisis escalates.
From the Journal:
Long before the coronavirus struck, Apple Inc.’s operations team began raising concerns about the technology giant’s dependency on China.
Some operations executives suggested as early as 2015 that the company relocate assembly of at least one product to Vietnam. That would allow Apple to begin the multiyear process of training workers and creating a new cluster of component providers outside the world’s most populous nation, people familiar with the discussions said.
Senior managers rebuffed the idea. For Apple, weaning itself off China, its second-largest consumer market and the place where most of its products are assembled, has been too challenging to undertake.
Now, the spread of coronavirus is revealing basic flaws with globalisation as it’s evolved, particularly extended supply chains, just in time production, and a host of other “modern” business practices I won’t explore further here.
To be sure, the WSJ notes that before the coronavirus struck, Apple’s decision to bet the farm on China has yielded benefits for the company. I’ll point out the obvious: That’s often the case, at least in the short-term, when one fails to diversify risk properly:
China has been a critical factor in Apple’s soaring market value. The country provides a stable, efficient, low-cost manufacturing base with an abundant network of suppliers that have helped cement Apple’s profitability.
Apple Chief Executive Tim Cook continues to play down the need to significantly change Apple’s supply chain. During an interview Thursday with Fox Business Network, he said unpredictable events are a facet of modern business and noted that Apple’s operations team has previously navigated earthquakes, tsunamis and other challenges.
I see a worrisome problem here, one I recognize from the butterly keyboard debacle: a tendency to double down rather than reverse or change a decision when it’s obvious change is necessary:
“The question for us is: Was the resilience there or not? And do we need to make some changes?” Mr. Cook said. “My perspective sitting here today is that if there are changes, you’re talking about adjusting some knobs, not some sort of wholesale fundamental change.”
Jerri-Lynn here: I offer no unique insight here. Others have noticed that Apple’s China exposure is a huge problem at this time. According to the WSJ:
Factory production has been crippled as China has shut down activities and sought to contain the outbreak, and Apple warned investors it won’t meet its own sales estimates in the current quarter. Since that warning, Apple’s market value has declined by more than $100 billion.
“No executive will admit in a public forum: We should have thought about” the vulnerability to China, said Burak Kazaz, a Syracuse University supply chain professor and former researcher at International Business Machines Corp. “But from this point on, there are no excuses.”
The issue of course is not what Apple has done. The key question is of course: what should it do next? And here, the WSJ discusses just how limited its options are:
Apple has recently started to experiment with small production moves out of China. These attempts, including plans to assemble wireless earbuds in Vietnam and produce iPhones in India and Mac Pro computers in the U. S., have laid bare a number of difficulties.
A clean break with China is impossible. Apple relies on a workforce of more than three million indirect workers in China. Its top manufacturer, Taiwan’s Foxconn TechnologyGroup, hires hundreds of thousands of seasonal employees in China, many of whom manually insert tiny screws and thin printed circuit boards during the iPhone assembly process, people familiar with the process said. Tens of thousands of experienced manufacturing engineers oversee the process.
Finding a comparable amount of unskilled and skilled labor is impossible, said Dan Panzica, a former Foxconn executive. The population in China has allowed suppliers to build factories with a capacity for more than 250,000 people. The number of migrant workers in China, who do much of Apple’s production, exceed Vietnam’s total population of 100 million. India is the closest comparison, but its roads, ports and infrastructure lag far behind those in China.
Apple is in for interesting times, as the fallout from the current crisis continues.
Coda: Offshoring Production of Drugs Now Appears Boneheaded
I’ve been expecting this latest news for the last couple of weeks. in February, India slammed shut its borders, to Chinese visitors or to foreigners who had recently been in China (see this report in the Economic Times, Coronavirus: India cancels valid visas to Chinese, foreigners who visited China in last two weeks).
Thus far, there have been no major outbreaks of coronavirus in the country – with the latest, only the sixth reported positive test, reported today in the western state of Rajasthan, a major tourist destination. The patient is an Italian national, according to Al Jazeera (see Six coronavirus deaths in US, China cases slow: Live updates). Today, India decided to cancel all visas to nationals of Iran, South Korea, or Japan, grated on or before 3 March (see this account in India Today, Coronavirus outbreak: Govt cancels Visas for Italy, Iran, Japan and South Korea, issues new travel advisory).
What caught my eye as I was compiling today’s Links: India’s decision to stop exporting generic drugs, in order to save supplies for its own population. China and India are the leading sources of world pharma production. As Reuters reports in Global supplier India curbs drug exports as coronavirus fears grow:
India, the world’s main supplier of generic drugs, has restricted the export of 26 pharmaceutical ingredients and the medicines made from them, including paracetamol, as the coronavirus outbreak plays havoc with supply chains.
“Export of specified APIs and formulations made from these APIs… is hereby ‘restricted’ with immediate effect and till further orders,” the Director General of Foreign Trade said in a statement here on Tuesday, without explaining the extent of the restrictions.
The list given by the government, of 26 APIs and their formulations, account for 10% of all Indian pharmaceutical exports.
“Irrespective of the ban, some of these molecules may face shortages for the next couple of months,” Dinesh Dua, chairman, Pharmaceuticals Export Promotion Council of India, told Reuters.
“If coronavirus is not contained, then in that case there could be acute shortages,” Dua said.
When the lessons of the current outbreak are examined, one thing that will surely stand out is the dependence on offshore production of pharmaceuticals necessary to treat people who fall sick.