Why Apple can make iPhones only in China, and what Canada can learn from that

Globe and Mail

3 days ago

John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
Why can't Apple AAPL-Q make iPhones in the United States, or Canada for that matter? It's a relevant question following the recent demand from U.S. President Donald Trump that Apple iPhones sold in the U.S. be made in U.S., or face a 25-per-cent tariff.
The answer, that Apple can only produce its iPhones in China, and why, is a guiding truth that should inform the federal government's Throne Speech promise to 'embark on the largest transformation of its economy since the Second World War.'
That truth is made plain in the remarkable book Apple in China, written by Canadian-born business journalist Patrick McGee. It reveals in disturbing detail the 'Chinafication' of high-tech manufacturing founded on Apple know-how, billions in direct investment from Apple over the last quarter-century and Beijing's belief that 'Without a strong manufacturing industry, there will be no country and no nation.'
The result is a low-cost manufacturing sector underwritten by the power of an authoritarian state that delivers a sophisticated and expanding managerial and engineering class atop a scalable, just-in-time, low-wage, low-skilled, low-rights, 300 million-plus floating work force that moves as needed from factory to factory that could not (and should not) be reproduced anywhere else in the world.
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As Mr. McGee observed in a U.S. podcast on his book, not only do Americans not want these factory jobs, neither do the Chinese people. These jobs are sustained by the policies of Beijing's Communist leadership that lets Apple exploit the desperation of millions of people from rural China as a means of exploiting Apple itself.
In 1999 Apple didn't produce its products in China. A decade later it was making almost everything there. Since 2008 Apple has trained 28 million people in China. 'This rapid consolidation,' said Mr. McGee, 'reflects a transfer of technology and know-how so consequential as to constitute a geopolitical event, like the fall of the Berlin Wall.'
Apple seeded China's production capacity through astonishing investments – reaching US$55-billion annually by 2015. This supplied the capital and expertise needed to train managers and engineers to establish and run factories and complex tooling companies while encouraging raw material extraction and refining essential to feeding the just-in-time high-tech supply chain Apple products rely on to generate $US90 billion-plus in annual profits.
By Mr. McGee's calculations, that US$55-billion a year is double what was invested through the U.S. Marshall Plan in today's dollars after the Second World War to rebuild 16 European countries.
What we learn from Mr. McGee's research is that Apple's iPhone and other products are possible because of a unique mix of management expertise delivered across multiple industries wedded to the availability of millions of low-skill, exploitable workers.
What we also learn, which is pertinent to Canada, is how management education can play a key role in transforming an economy.
One reason we can't get things done in Canada – improve productivity, take full advantage of the intellectual property we create, retain our promising start-ups, attract foreign direct investment, build infrastructure on time and near budget – is that Canadians are not great managers, especially in the small and medium-sized business sectors.
It is a hard truth. Perhaps Canadians know this subconsciously and it is why many in the last federal election took comfort electing a prime minister with a reputation as an outstanding manager.
The 'quality of management at Canada's manufacturing firms is … well behind the United States,' according to the OECD. The OECD goes on to say that 'managers in Canada tend to have comparatively lower levels of formal education than in other countries, which may mean shortfalls in competencies, such as strategic planning, financial management, and human resources management.'
Canada produces large swaths of university and college graduates in science, technology, engineering, mathematics (STEM) and the arts. Most graduate without ever taking a course in financial or business management.
If Prime Minister Mark Carney's Liberal government truly wants to transform the Canadian economy, part of that long-term process must include working with businesses to invest heavily in management training while requiring the inclusion of business training in STEM and arts programs offered by colleges and universities.
The U.S., through Apple, could teach engineers and managers in China how to create and lead the businesses needed to make an iPhone even if they couldn't produce it in the United States.
If Apple was a Canadian company, it would have been sold or insolvent long ago.