If you don't have an iPhone, there's a good chance you know someone who does. Lots of people probably. It's estimated there are more than 1.5 billion iPhones active worldwide. So how did Apple become one of the major players in the smartphone market?

Well, after facing challenges building them on three continents, it turned its focus to China and ended up developing one of the most sophisticated supply chains in the world. In doing so, it also helped China strengthen its domestic electronics industry with major consequences.

So what does a stronger China mean for global trade? The tech, race, and national security. And how do actions half a world away affect us here at home?

Then Ontario may not be able to compete industrially with a giant like China. But what about medium and small markets? Could solid industrial policy put us on the same playing field as, say, Nordic countries or South Korea? And for that matter, what is industrial policy anyways? Welcome to "The Rundown."

China is helping fuel Apple's success and the company's success has had major benefits for China. Here's part of my conversation with business journalist Patrick Magee. We talked about his new book, Apple in China: The Capture of the World's Greatest Company, and how the tech giant's dependence on China is affecting all of us.

Patrick, glad to have you here.

Now, to me, and I think for a lot of people who are reading this book, this was the moment sort of the gruelling design process, the, the ID, the MD, the, the PD. They're not doctorates. This is sort of the maybe break that down for us. What are those? You kind of build it as a pyramid.

Yeah. There's a pyramid structure within Apple. So think of any product. The first team to sort of conceive of a product, what it's going to look like, what it's going to feel like is industrial design. So famously in the golden age that's led by Jony Ive, that's the team that will say the iPod is going to be, you know, unapologetically white with a chrome back. Right? They sort of throw it over the fence to product design or PD. You could think of this as a brilliant team of engineers that's trying to figure out, how do we make one of these work, where's the circuit board going to be? Where's the battery going to be? What else does it need?

Then they throw it over to this team that had never really been written about before, called MD or Manufacturing Design. Their idea is basically like, how do we actually build this thing? Who are our suppliers? Who are our contract manufacturers? And it's basically them that decide to go to Asia, really following the sort of flow of the entire computer industry and then from within Asia over the years, you end up going to China.

So there's this like seven year like long march to China. I talk about from 1996 to 2003. And as Apple's coming up with these brilliant designs, the thing that we've sort of forgotten about Apple is that if things are designed in a totally conceptually different way and for different aesthetic and so forth, they're built in a different way to meet those standards. And the building of those things requires training. If you're assembling Dell computers, you don't have the training, the plastic injection moulding skills, the the metal stamping skills to create a translucent plastic computer.

And so MD sends people over to Asia, literally by the planeload to train up people to meet Apple's demanding qualities. And much later, when the iPhone becomes a big success, you're meeting their quality levels at astounding quantities as well. And when you combine Apple's like zero tolerance for defects culture with the mind boggling quantities that begin with the iPod mini and then extend through to the iPhone, you begin to understand that the sort of meet cute moment before Apple and China get married ends up having these second order, third order impacts where Apple ends up being like a nation builder in China.

All right. I want to actually take it back a little bit, because I know there's some great characters in there. And I want to talk about Terry because there's a phone call that he makes that he essentially says he sees what, you know, Steve Jobs sees and says, I can fix this essentially, and kind of help us understand, because before China, like you mentioned, there were other nations that were, you know, used in sort of the MD process, the manufacturing process. Why did Apple finally decide to move production to China? If you look at Terry, I see him as a similar mind as Steve Jobs. Yeah, it was kind of a perfect marriage in some way.

So one of the best lines of the book was written by my wife. And the line is something like the meeting of the minds between Jony Ive and Steve Jobs made Apple products unique, but it was Tim Cook and Terry Guo who would make them ubiquitous. And so Terry Guo is the founder of Foxconn 1974, founded in a place in Taiwan that translates to dirt city in English. So Steve Jobs and Steve Wozniak are in a garage. Terry goes in a shed in Dirt city.

So what's interesting is that he's Taiwanese, and Taiwan and China are at odds for decades until I believe it's 1987, where there's like a rapprochement and Taiwanese businessmen are allowed to go to China for the first time and set up shop. And it ends up being this hugely consequential advent for China, because they don't have any manufacturing expertise at the time. I mean, Mao has left the country in tatters.

And so the thinking of Deng Xiaoping with reform and opening up is how about we lure in capital from Hong Kong, from Taiwan, from Japan. So we sort of make it easy in these zones, like in Shenzhen, for things to be built here. And then we'll sort of learn the skill sets and so forth to, to sort of give, you know, jobs and value and skill sets to our own people. And that just works like nothing's worked in history in a certain sense. Right? I mean, you've had for decades a sense of double digit growth in China, and the Taiwanese end up being totally instrumental to the high-end electronics world.

And so Terry, the founder of Foxconn, just has a different strategy. He's more ambitious, and he latches on to the uniqueness of Apple, really just better than anybody. I think he understands Apple before. Apple understands Apple.

Well, there's a scene in this book where Terry looks around the field and he's with some Apple execs, and he says he's going to get a factory built here. But the Apple execs see what an empty field.

Yeah, this. Is John Rubenstein. So he's the podfather, right? Senior vice president at the time of hardware, Jony Ive's boss. I mean, as high as you can go. He worked with Apple Steve Jobs for 16 years. Yeah. So yeah, so Terry points out to an empty field basically full of garbage and says, here's your factory. And this is, I think, in like an April, and the iPod is supposed to be being built for the Christmas season. Pressure's on. He's panicking. I mean, he's literally having like an anxiety attack. But Terry basically understood probably more than anybody else in China, just what China's speed meant and how quickly they could come up with a factory.

Well, I'm curious, how does the ability to just build a factory play into a country's sort of comparative advantage?

Well, so what's interesting is that I don't know that we would talk about China at this stage, because it really is just Shenzhen. And Shenzhen is sort of carved out from the rest of the country in terms of having like a total sort of laissez faire experimentation with capitalism sort of approach. And so they're just able to build buildings at an astonishing rate. I mean, so the unofficial mantra during that time was every every three days, a new floor. And so when you were building factories, that's how quickly you were doing things. I don't know what the standard is in Canada, but, you know, it's going to be.

A. Lot slower.

Right? And so the joke that John Rubinstein makes really not a joke. I mean, just the reality is that they would build a factory at a time when you and I would still be doing the environmental paperwork. It's tough to compete with that. And China was doing that over and over and over. At least Shenzhen was.

Well, that's my follow up. How do countries like ours, Canada here, compete with China?

Honestly, I don't think we can you know, there's there's there's I guess the basic economic understanding right would be comparative advantage. What skills do we have. What assets do we have that we should exploit. Because going after what China is able to excel at but without the same workforce, without the same population, like we're just going to be failing from the get go. So there are things of course, Canada can do. And we're pretty we're pretty stellar economy. But competing against the Chinese in high end electronics manufacturing, that would just be an invitation to failure.

I want people to get a better understanding of just the sheer magnitude of what one of these factories could do. How big are we talking? How many workers? What's the output here?

The numbers are staggering, but it's not even the size of one factory. It's it's the fact that what China offers is is next door manufacturing. Where around the assembly site. You have all these other places doing the plastic injection moulding and the metal stamping and and so many other things. And so, you know, some of my early chapters are about what it means to manufacture in Taiwan, where you have the expertise, but it's just an island of 20 million people. And so they have to rely on Thailand, Singapore, Japan and all these other areas.

And so what China is able to offer is, is an ability where people are just going from one factory to another, maybe ten minutes away, rather than flying over an ocean. And that's what's so difficult to compete with. But an individual factory today, if we're fast forwarding, like Zhengzhou, is a place in China that does about half of all iPhone production, they've got 400,000 people working there at peak season. I mean, that's just an incredible amount. And sometimes people think, well, isn't Apple making major investments in Vietnam or India and so forth. And I've got these slides internal to Apple that are a little bit dated. I think they're late 2010s, but it talks about there being 91,000 employees in 70 factories in five non-Chinese countries.

And so you think 70 factories equating to 90,000 workers compares with one factory in China that has 400,000, right? A company like Biel Crystal, which does some of the the glass on the front of the phone, that factory alone has 72,000 workers. So China is just operating on a scale that is hard to even comprehend, let alone compete with.

They're playing a different game.

Yeah. They have this, like Nietzschean will to power through manufacturing.

Thank you so much.

Thank you, Jeyan.

What do you think of when I say the words industrial policy? Kind of sounds like jargon, right? But it's actually way more than that. Industrial policy is basically a guide designed by government to help shape the economy so it works better. It's about encouraging innovation, boosting productivity, and helping the country or province grow. It used to relate mostly to manufacturing, but people talk about it now in terms of all kinds of sectors. We know the province is focusing on automotive, EVs, AI and more. But could an industrial policy help us become more globally competitive and could innovation drive it?

I asked David Wolfe, professor emeritus of political science at the University of Toronto and co-director of the Innovation Policy Lab at the Munk School of Public Policy and Stephany Lapierre, founder of and chief brand officer at Tealbook, a supply chain software start-up. David. Stephanie, welcome to The Rundown. How are you guys doing?

Extremely well. Yeah. Good. Thanks for having us.

All right, David, now that we understand what industrial policy is, why is industrial policy important?

We're living in a different era than we did in the 20th century. Even the beginning of the 21st. And more and more countries are moving up the scale in terms of the complexity of the products they produce, the export markets they're penetrating into. And many of these countries have used industrial policy to get to where they are today. If we want to keep up or stay ahead, we need to use the same policy tools.

Can you grade Canada in terms of its industrial policy? When we take a bigger picture.

Canada doesn't have an industrial policy, neither does Ontario, so it would be very hard to grade them. Ontario Ontario created an industrial policy framework in 1992 that I was involved with to the best. It lasted 3 or 4 years and the next government got rid of it, and that's the last time we've tried to do anything on that kind of scale.

All right. We'll get back to that. Stephanie, you are the founder and chief brand officer of Tealbook. What does your company do?

So I'm trying to simplify this.

For the non-tech people.

Yeah, yeah. So we're a data company. So we focus on data. And we were one of the first companies in Toronto to use AI to collect data on businesses. So what it means is if a company, an enterprise has buy goods and services, they're buying from companies, and there's a lot of information to collect from those companies to manage finance and supply chain and procurement and risk. But right now, they're usually asking those providers to put information into portals.

And so our technology collects all the information. We've created a very high quality and credible foundation of 230 million verifiable businesses. And we're connected to countries registries. So it's like if you're a business and you register with a government and get a tax ID number, we connect it to that. And that allows our customers to have a really good picture and all the information they need to do business with suppliers to manage risk or optimise what they're spending money on, or decide if they're going to buy more locally or, you know, trying to bring new suppliers from, you know, external.

So procurement is the big sort of.

So we've been focussed on procurement but data touches finance. It touches like if you're in risk and compliance in a company, you need to understand your supplier base so that you can monitor risk much better. You can also ensure that you're reviewing those suppliers on a consistent basis. So data is really important. And finance you're paying suppliers. So it's really important you're paying the right suppliers and you're not paying them twice. And supply chain you need to understand the risk and the potential disruption to your business. So there's a lot of reasons why everyone in the company that touches third party providers would need data.

I imagine I'm hearing money here because I'm thinking for a lot of these companies, efficiency is important when you're thinking of the company itself. But the manufacturers tell me a little bit about sort of the importance of being an efficient company.

Yeah. I mean, if you think just of the problem that we solve, we typically say that a company that has 6000 suppliers, which for us it would be a small customer and $1 billion in spend, which again, would be a small customer would be probably wasting about 8 to $10 million a year just managing data because everyone's doing their own thing with the with the same suppliers and asking the same suppliers to come into different places, different doors in the company. And so that's just wasting a lot of time. And then there's no collective brain on who do we do business and where is this data stored that everyone can access. And so there's really limited visibility into like how do you optimise an enormous amount of dollars going through the company to, you know, improve your margins or drive more competitiveness from your supply base?

Okay, David, we've come a long way with technology, as we can hear just from from Tealbook example there. What effect has the adoption of technology and AI had on industrial policy?

It can be the object of industrial policy. The thing to remember about information technology over the last 20 to 30 years, and now AI, is that it's transforming virtually virtually every industry, every sector of the economy. There's no sector, as Stephanie's example makes really clear, there's no sector of the economy that's not touched by what technology can do. And now what AI is doing. We haven't had we've had policies to support research on AI. We've had policies to support training students to, you know, learn AI, to program an AI. But we haven't had an effective policy to diffuse AI out into the broader economy.

We haven't had that at the federal level. We haven't had it at the provincial level. The feds are currently touting their $2 billion spend to buy more compute power for companies to use AI. Individual US companies are spending open AI and Nvidia. These companies are spending $50 billion a year on on their compute power. What we have from the governments is minuscule.

Stephanie. On that note, the Ontario government has made investments in AI and innovation. In your view, is there enough support to ensure industries like yours can remain competitive?

I'm going to be trying to be political, so we were involved in some of the programs that the government had put in place around. AI was a big investment with millions and millions of dollars. We didn't benefit from it. The the complexity of navigating the program was so challenging. And, and, and there was no real commercial value. So as a start-up company, you know what? You have time. You don't have a lot of time and money runs out. And so you need to focus your effort on winning customers. And when you add all this layers of complexity and who owns the IP and how can you commercialise the asset and that's unsure then then it's losing its purpose and it doesn't benefit. Start-up companies like ours. We've benefited from programs like shred that gives us tax benefit from investing in technology, but it's not necessarily specific to AI. And although we are an AI company based in Toronto, it's been very difficult to get funding and unnecessarily difficult, I would say, even though there are programs.

What about the private sector in terms of funding?

Yeah, I mean, we're private company from the government. I mean, we win customers, right? And they give us revenue, and that's how we get. The funding. Private investors. For VCs, right? We've we've raised capital. And so that's helped us build the technology to then be able to generate the revenue. So those are the two ways. But you know having our government, especially when AI has been a huge driver for Canada and we've lost our position, I think that a lot of the policies that could have been in place to accelerate the Canadian adoption and investment in AI could have put us in a much, much more competitive place globally.

All right, David, I'm gonna get you to pick up on that. But I should mention we have a statement from the office of the Minister of Economic Development, Job Creation and Trade. Our government is creating the conditions for Ontario's tech businesses, innovators and workers to thrive. To support this growth, we have invested $107 Million in Ontario's critical technologies initiatives to provide access to and drive the commercialisation of technologies that will propel the next generation of innovation and ensure our businesses remain competitive. That includes support for the Ontario Centre for innovation and the Vector Institute.

So with all that being said. The they have done some things not enough, but the question is do they have a strategy? Do they have a strategy that everyone understands that all of the firms in the relevant sectors understand? Is it a strategy that's been based on input from those firms? The economists and policy experts who study these things differentiate between old industrial policy, which was all top down government directed, and new industrial policy, which is much more participatory, collaborative, that involves firms in the sectors that are going to be affected by the policies in helping design and implement them.

We don't do that in this country, and we certainly don't do it in this province. And a lot of what we do is very reactive. A company will say, well, we're interested in investing in Ontario. Can you help us? And then the government will put together a package of support, particularly in the automotive, but occasionally in other sectors as well. But we don't lay out a strategy.

Is there a difference in laying out a strategy or writing that strategy down on paper? Is there a difference in in having it on paper?

It doesn't matter whether it's on paper or whether it's digital. It needs to be communicated to the people you want to, you know, attract and and grow in this jurisdiction. The other thing that industrial policy does that one off individual policies don't do, it looks at what we call the policy mix. That is, what is the broad spectrum of policy instruments that the government has available to it. Tax policy, direct spending, regulatory policy, procurement. And how how do you put together those that mix of policies to deliver the maximum benefit to the companies that you're trying to grow in Ontario?

All right. With that being said, let's take a broader look. Are there any international markets that we can compete with?

We can't compete head to head with China. We can't compete in head to head with the US because of our size, because the the size of our companies. What we can do is target niche markets where we develop specific expertise, which is exactly what Stephanie is doing. And there are other software companies in Canada and Ontario that are doing the same thing. And we need to focus on those niches where we have distinctive research expertise that companies can take and deploy. And then we need to look at the mix of policy instruments that we can mobilise to give those companies the support they need to penetrate those international markets. Because, simply put, Canada's market is too small to grow an international technology company to scale.

Can you give us an example?

Countries where.

We have examples?

Yeah, we can be selling to Europe, we can be selling into the US. We can be selling to parts of East Asia. We certainly can be selling a lot more to India than we do. India is probably the largest, largest population in the world now. So one of the largest markets are foreign relations with India have not been the best for the last few years, but I believe the government is working hard to rectify that. That would be a huge market for us.

Stephanie, what do companies like yours? We talk about the niche markets, smaller markets. What does your what does your company need to remain competitive customers?

That's the only thing that matters, right? My view is like, you know, there's a lot of obviously we have to raise capital. In my case, this was a big investment in the tech. So we've raised about 70 million USD. And so we need to raise the capital. But the proof points come if there's a fit and you're building a technology that's solving a real problem, you win customers. The customers are paying you money. They give you feedback. You build better product that attracts more customers, that gives you money. And then investors are really attracted to your company and then they build better product.

And so, you know, the one key driver and I've said this a lot from the public sector because we were really fortunate in Covid. We won the UK government. We won. We worked with the Department of Defence in the US, but we never won Canada. And it was not by lack of trying, but there's so much lobbying for the company and trying to get through to get a contract or solve real problems because supply chain was a real problem and we were in the UK able to set them up within 48 hours, with 60,000 manufacturers of PPE, ISO certified. With the history of how long they've been in business with their contact information.

And so they could start, you know, going from being in the front of the paper, buying PPE from random companies to actually making sure that they're buying companies that met standards. And, you know, we try to advocate to get Canada to look at us as an opportunity to start looking for goods and services and either locally or outside the Anand. And it was impossible to work with our government. And so there's so much, you know, effort you want to put in. I'm better off winning the Kraft Heinz of this world and the, you know, Goldman Sachs of this world versus trying to knock on a door that makes it very difficult for tech companies to work with its government.

Okay. We'll come back to that. David.

Can I just follow up on Stephanie's point? Because we've interviewed tons of technology companies in Ontario, and Stephanie's story is one that I hear over and over again. Okay, we do not. So so in my field of study, we differentiate between supply side industrial policies and demand side industrial policies. And one of the most valuable for for companies, for start up and scale up companies is government procurement.

We heard over and over again, you know, when I go into an international market, the first question they ask me is, well, who are you selling to in your home country, including your governments or your telcos or your banks? And I hear the story over and over again that these companies have to make their first sale internationally before they can get anyone in Canada to pay attention, and getting their governments to, to purchase. And by governments, you know, we don't just mean the actual government in Ontario, we mean the whole college, university, hospital, social services, municipal sector as well. Those are huge purchasers, the crown corporations, those are enormous markets. And if we could leverage their purchasing power to support companies like Stephanie's, we'd be a long way down the road towards having an effective industrial policy.

Well, we know we're in a time right now where the sentiment is sort of changed, where there is, you know, elbows up by local. I want to stick with you, David. The Buy Ontario Act for procurement, is this the right move to support?

It's a step in the right direction. But but if it's just if it just applies to the Ontario government, it doesn't apply to the broader public sector in Ontario. If it is, say, targeted to housing, that's great or targeted to infrastructure. But if it's not targeted to all sorts of technology products that the government itself is using or that the broader public sector is using, then it's only, you know, a first step towards where we need to go.

And just to add to that, we were talking about the best way to drive behaviour and change is through policies. And we've seen, you know, in the US, for example, and I know there's a love and hate relationship right now, but a good example is that companies are driven to buy local or buy from minority owned businesses due to tax incentive, for example, or we have customers who have venture debt attached with an interest rate, depending on how much money they're spending with minority owned business and local businesses. So these are data points and report that they have to provide to their board level to their shareholders. So it does drive change.

But if you don't have that it's just a sentiment that's Buy Canada because we're Canadian. It doesn't drive change in the way say, hey, we will give you tax incentive or we will, you know, give you some reduction in some of your, you know, venture debt so that you can, you know, to drive change. And so that's how I think we could enforce change.

David, you got the last word here.

Okay. So we've we've interviewed over 100 companies in Ontario that are trying to scale. So they're at probably the same stage that Stefanie's company is they're out of the gate. They're past start-up. They want to grow. They want to expand into international markets. And we asked them, what do you need in terms of policy support to help you scale to penetrate those global markets? It's the same three things over and over again: access to capital, access to talent, access to markets and where.

And we're we have bits and pieces both federally and provincially on all of them. But we don't have nearly enough. And where in Ontario last word right now is really deficient. Is the access to talent part. Ontario is spending the least amount per capita on its post-secondary education system. It's the students from that system that are going to go feed Stefanie's company and companies like hers. And if we can't prioritise the talent pipeline for for those technology companies, we are going to have an even bigger problem five, ten years down the road.

All right. We are going to have to leave it there. Stephanie. David, I really appreciate. Thank you so much for your insights.

Thank you.

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