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 McGee. We talked about his new book, Apple in China: The Capture of the World's Greatest Company. How the tech giant's dependence on China is affecting all of us.

>> Patrick, glad to have you here.

>> Thank you. My pleasure, Jan. Now, you're not often on this side of uh North America, usually in the States. I I was kind of making the joke, Canadian, lives in the States, expert, quasi expert on China. That's kind of feels like a an appropriate thing now.

>> Um I want to first talk about uh just Apple and where it all started. Apple wasn't always made in China. Uh I want to go a bit back just to set some context. When Apple was created, 1976, where was it being assembled? Who were the two two brains uh in the project?

>> Well, Apple, of course, is founded by two guys named Steve in their 20s. And they're they're really founding the company out of a garage. And you know, the Apple one computer that people have forgotten about. The Apple 2 lived for more than a decade. It was the biggest revenue driver for an entire decade. But the Apple 1 was just a circuit board. So, it was assembled actually by Apple's first employee, which was Steve Jobs pregnant, Patty. Uh so, she was just assembling this circuit board. And when people purchased it, you had to bring your own uh keyboard. you had to bring your own computer u or sorry monitor and I'd say you bring your own mouse but the mouse didn't really even exist at that point I mean that's how early Apple is in the in the PC revolution

>> fast forward I I kind of want to get an idea of the comp the competition uh IBM big name at the time still is today but different in that time when we look at uh sort of the fierce competition what was IBM doing differently uh that Apple wasn't

>> so Steve Jobs famously dissects uh the IBM PC upon its release in 1981, he basically dismisses it as a piece of junk. It's pretty well, he gets something right and he gets something wrong. Uh I talked to someone that worked at both IBM and Apple in the 1980s and they say what Steve Jobs got right was that it really was just bandaged together of existing standardized parts. There was nothing special about how it worked. And IBM, you know, was not just some slouch, right? It was the sun, the moon, the stars of the computer industry to quote a young Steve Bomber. Um, it had been the largest tech company in the in the world for like decades at that point, but they were just new to PCs. And so their contribution to PCs wasn't what Jobs feared it would be, which would be some, you know, amazing interface that others didn't have the money to do. Um, it was in the distribution, the logistics, um, how to actually build these things cheaply and at scale. And they had this fatal flaw that other people could clone the device. And so IBM's demise is sort of a separate story. But what they were able to do was just sort of outmatch Apple in scale. So all the things that were kind of boring about the computer industry that Steve Jobs didn't care about, that's what IBM excelled in doing. And Steve Jobs trying to build a better graphical user interface and stuff was supposed to be the answer. But basically nobody knew how to use the Mac. And so for a long time, um, it basically was a failed product. and Steve Jobs gets ousted by the company in 1985 as a result of like sort of being a hype hype salesman for a product that basically had failed.

>> Well, let's talk about that. So, turning point really when we look at Apple uh by this time as you mentioned Jobs leaves 1985 starts next doesn't do too well. Uh but later absorbed and Job returns 1997. I want to get to understand what did he see when he returned?

>> H catastrophe essentially. So Steve Jobs is really burned when he is ousted from the company that he founded in 1985. And where my story I think begins to really sort of offer something new to Apple um to our understanding of Apple is that after the Mac fails and Steve Jobs is ousted, you have the advent of the laser printer. Actually I should say Steve Jobs was was instrumental with building the laser printer. But the laser printer and Mac together created desktop publishing, a whole new industry that basically allows Apple to thrive in the 80s and into the 1990s. Um, and that printer was not built by Apple. It was outsourced to Japan. Um, and that's sort of the origin story of Apple getting into outsourcing. And so what you have is these executives from Certino and they're flying in and out of Tokyo for a decade and they're really beginning to understand like we can't teach the Japanese how to manufacture. they're better than man better than us at manufacturing. So when Steve Jobs comes back to a failed company, I mean I was able to get his private meeting notes from the time and he basically thinks if we can make it through the next year, we can make it for 5 years, but I don't think we're going to make it through the next year. Apple basically had no money on the balance sheet. Um they're 90 days from bankruptcy. They don't have a hit product. Everything's just going poorly and debts are coming due and such. Um, and so what really happens is he meets Johnny Eyes and together with the whole industrial design team, they come up with a translucent Bondi blue iMac and it becomes the world's bestselling computer or at least America's bestselling computer. But how it's made and where it's made is just a story that had never really been told before. And so again, I just am able to sort of give this new angle to Apple as a company because we've thoroughly ignored how they actually make their products over the last 25 years.

>> Well, you do this interesting job. I think it's, you know, Steve Jobs just crosses the street to meet, you know, Johnny to be like, "We need to figure this out."

>> Not even that. I think he goes to fire him,

>> right?

>> And Johnny Ive comes with a resignation letter in his pocket. I mean,

>> ready to go. But

>> they were faded to be together, but neither of them knew that at the time.

>> Um, to me, and I think for a lot of people who are reading this book, this was the moment sort of the grueling 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 products. The 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 Johnny Ive. That's the team that will say the iPod's going to be, you know, unapologetically white with a chrome back, right? Um, they sort of throw it over the fence to product design or PD. You could think of this as a brilliant team of engineers who'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 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 um if things are designed in a totally conceptually different way and for a different aesthetic and and so forth, they're built in a different way to meet those um standards. And the building of those things requires training. If you're um assembling Dell computers, you don't have the training, the plastic injection molding skills, the the metal stamping skills to create a translucent plastic computer. And so MD sends people over to Asia literally by the plane load 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, um you begin to understand that the sort of meatcute moment before Apple and China get married. um 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 no, there's some great characters in there and I I want to talk about Terry uh because there was a phone call that he makes that he essentially says he sees what you know uh Steve Jobs sees and says I can fix this essentially. um and 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 in 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 it was kind of a a perfect marriage in some in some way. So, one of the best lines of the book was written by my wife. [laughter] And the line is something like, "The meeting of the minds between Johnny IV and Steve Jobs made Apple products unique, but it was Tim Cook and Terry Guo who would make them ubiquitous." Um, and so Terry Guo is the founder of Foxcon, 1974, founded in a in in a place in in Taiwan that translates to dirt city in English. So, you know, Steve Jobs and and Steve Waznjak are in a in a in a garage. Terry goes in a shed in dirt city. Um, 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 repro 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 um, uh, advent for China because they don't have any manufacturing expertise at the time. I mean, Mao has left the country in chatters. And so the the thinking of Dang 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 um for things to be built here and then we'll sort of learn the skill sets and so forth um to to sort of give uh you know jobs and um value and skill sets to our own people. Um and that just works like nothing's worked in history in a certain sense, right? I [clears throat] mean, you've had four 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 Foxcon, just has a different strategy. He's more ambitious, and he latches on to the uniqueness of Apple really, just better than anybody. I I think he understands Apple before Apple understands Apple. Well, there's a scene in this book where Terry uh looks around a 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. Johnny Ives boss. I mean, as high as you can go. He worked with Apple uh Steve Jobs for 16 years. Um Yes. 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. So he's panicking. I mean he's literally having like an anxiety attack. Um but Terry basically understood probably more than anybody else in China just what China 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 uh 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 lazair experimentation with capitalism sort of approach and so they're just able to build buildings at an astonishing rate. I mean the so the the unofficial mantra during that time was um uh every every 3 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 uh the the joke that John Rubenstein makes uh really not a joke I mean it's just the reality is that you know 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 followup. How do countries like ours, Canada here, compete with China?

>> Uh, [snorts] honestly, I don't think we can. Um, 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 uh workforce, without the same population, like we're just going to be failing from the get-go. Um, so there are things of course Canada do and we're pretty we're pretty stellar economy, but competing against the Chinese in high-end electronics manufacturing, um, 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 molding 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 10 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 Jung Joe is is is is a place in China that does about half of all iPhone um production. They've got 400,000 people working there um 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-China countries. And so you think 70 factories equating to 90,000 workers compares with one factory in China that has 400,000, right? Um a company like Beal Crystal, which does some of the um the the glass on the front of the phone, that factory alone has 72,000 workers. So it 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 Nietian will to power through manufacturing.

>> I want to talk about labor. Um some of the conditions of the factories are harrowing uh to read. We know turnover is high. Um you talk a little bit about and this was of course in headlines of nets being placed around uh one one particular factory to prevent people from taking their lives and yet we still needed the factories to make the products we love. Correct. Like it it like there's a real ethical quandry there. Is is that what you're referring to?

>> Um, yeah. And I I want to take the other side of it to sort of, you know, be provocative a little bit, but I don't want to distance myself from the hellish conditions that can be in the in these factories. But the other side of it would be, you know, take like subsaharan Africa and China in the late 1970s. China is actually the poorer of the two. >> And through these hellish conditions, through these terrible factories, they've sort of had their denzian moment, right? where they've they've they've gone through like what we would think of as 150 to 200 years of industrial re revolution and they've done it in a single generation. So China's actually gotten a lot out of this. Now that's not to say that there's not a whole lot of suffering, but where would you rather be today in subsaharan Africa or in China? Right? And so yes, we'll sometimes put more reporting resources into what's going on in an iPhone factory than we will in subsaharan Africa. But I think you have to sort of weigh the two against each other. I probably would have not probably I would have absolutely preferred working in Shenzhen than living in a country that wasn't sort of putting industrial might and industrial policy uh behind its people to sort of rise up. So they've gotten a lot out of this as well.

>> Fair enough. Uh historically I think it's important to note that in 2001 here is China joining the World Trade Organization. To western democracies when we look at communism and capitalism we don't necessarily think they go hand in hand. Can you explain to us how that seemed to work?

>> So the theory that you know clearly is wrong in retrospect, but I I try not to hold a grudge against anyone who held it because I thought there was good evidentiary reasons for it at the time was that China was going to inculcate small L liberal values and you'd have a thriving middle class that just wouldn't tolerate a communist dictatorship. And so, you know, even as early as mid1 1980s, Ronald Reagan was talking about a so-called communist country referring to China. So, the sense really was that look at what Pax Americana has done, right? Countries like Taiwan, Germany, Korea, um, and Japan had all been authoritarian in some instances fierce enemies of the United States. But, uh, you know, there's this phrase where commerce doesn't cross borders, armies do. And so Pax Americana was really based on the, you know, the world's the world's nations trading with one another. And if you did that, then you'd have sort of an interlocking group of of nations with similar values. And so that had worked so many times that we thought China would fit into that as well. Well, they didn't. But I don't therefore cast dispersions on anyone who thought that maybe it would have worked out. China is in a sense just too big

>> uh to sort of fit within the a paradigm of a country that's frankly one quarter its size in terms of people.

>> I want to talk about um Tim Cook. You mentioned him a little bit off off the top there. Jobs loses his battle unfortunately with cancer dies in 2011. And Tim Cook who's been with a company uh since 1998 at the helm. Help me understand the difference between their leadership because this was Tim was is a person who like you you talk about stories about spreadsheets. He is a numbers person. Is this a match made in heaven uh for him uh in comparison to Steve Jobs in terms of the relationship with China?

>> Yeah, sometimes people think of them as total opposites and in certain ways they are, but it's worth knowing that they also align their values very together, right? So Steve Jobs had no tolerance for B players. Tim Cook has no tolerance for B players. Steve Jobs was a product visionary. Tim Cook knew how to sort of put that in action. So yeah, he is known as Mr. Spreadsheet. Um, and would be able to spend just hours upon hours with executive pouring over all these documents. But in a sense what that's demonstrating is that his capacity to look at all the details, right, was just as intricate and complex as Steve Jobs vision of looking at all the details of how a product was made, right? So you can see how yes, those are opposite, but they also go handinand glove.

>> Thank you so much. Thank you, Dan.