CEO Tim Cook built a renowned global supply chain in which China plays a major role. International trade tensions are putting its adaptability to the test.
CEO Tim Cook has steered Apple with a steady hand since taking over from Steve Jobs in 2011. By the time he took the helm, he had distinguished himself at the company as a Senior Vice President, Executive Vice President, and later Chief Operating Officer. His crowning achievement was the development of an Asia-centric manufacturing and supply chain renowned for its efficiency and agility. To this day Cook is regarded as a master of supply chain management.
The lynchpin of Apple’s global supply chain is its relationship with China. Now, as trade tensions between the U.S. and China escalate, Cook could be facing one of his biggest challenges yet. Apple sources materials and components, such as displays, chips and sensors, from all over the world. But as indicated by the “Designed by Apple in California. Assembled in China” tag on its devices denotes, many come from China, and the majority of Apple’s devices are assembled there.
In addition to a network of suppliers in China, Apple has established lucrative connections with Chinese consumers – who accounted for $52 billion in sales last year, nearly a fifth of Apple’s revenues. Cook has made a number of trips to China recently to reinforce the relationship. An anti-American backlash in the country could be problematic, despite the loyalty of Apple devotees.
China’s retaliatory tariffs on U.S. goods include components for Apple devices, but the company has remained mostly unscathed thus far. Cook has spoken publicly, downplaying concerns. “Currently the Chinese have not targeted Apple at all and I don’t anticipate that happening, to be honest,” he said in an interview on June 4. But a potential levy of 25% on Chinese imports would cover the iPhone, Apple’s biggest source of revenue. Whether Apple absorbs the cost or passes it on to consumers, its profits would suffer.
A more immediate threat is China’s response to the Trump administration’s ban on American companies supplying Huawei, according to The Economist. This is already having a ripple effect across the global supply chain, creating supply chain management challenges for companies even beyond Apple’s hundreds of suppliers. For Apple, a boycott in the world’s biggest smartphone market could lead Chinese consumers to pick up cheaper local brands.
It is hardly as though China does not benefit from its relationship with Apple, however. Technology analyst Horace Dediu estimates that Apple contributes about $24 billion a year to China’s economy. Some 1.5 million Chinese help assemble Apple products, and another 2.5 million Chinese software engineers create apps for its iOS operating system. This could help limit direct strikes against Apple. Still, a continued reliance on China makes Apple’s supply chain vulnerable to disruption.