Tim Cook Discusses Apple's Future In China I Fortune

our next guest is the CEO of the most valuable company in the world on its way to perhaps becoming the first trillion dollar value company he is Apple CEO Tim Cook and he's going to be interviewed by fortune executive editor Adam lijinsky please welcome them Thank You Allen and welcome Tim you it's great to be here I'm so pleased personally that you're here helping us make history in Guangzhou Allen if we didn't mention any company that Apple has a competitive relationship with we wouldn't have much to talk about we couldn't mention any company during our I know you've been here all week so we have we have a lot of exciting things to talk about but I wanted to start by by looking back Apple has a rich history with China and you have a rich history with China because you've been traveling here a long time could you share a thought on that and also reflect on what has changed yeah I came to China the for the first time in maybe a quarter century ago so that series my hair is gray by now and it's just been a sea change I mean you think about it now the some of the most modern cities in the world are in China in in the mid 90s you wouldn't find any modern cities of the world here the infrastructure that is going on in China whether you you know it from the moment you land in the airport to the roads it's just extraordinary the most modern in the world arguably I think the other thing that you you feel is that over that period of time there's a lot more openness than there was in in the mid-90s maybe not where we don't like to be but but come an extraordinary distance also China at that time was at least from from our point of view was focused mainly in China now China plays a leadership position for the world in in many different areas and so it's I mean it's like a different country if you were to come in when I did and you went to sleep for the 25 years and you were parachuted back in it would be unrecognizable as if you were a supply chain Rip Van Winkle that's right that's right well let's plunge into talking about apples apples business in China 10 perhaps give give everybody a quick overview of the many things that Apple does here you know it's a extraordinarily china has the extraordinary skills and so what probably the part that is the most unknown is there's almost two million application developers in China that write apps for the iOS App Store and these are some of the most innovative mobile apps in the world and the entrepreneurs that run them are some of the most inspiring and entrepreneurial in the world those are sold not only here but exported around the world also in the manufacturing space China has moved into very advanced manufacturing and so you find in China the sort of the intersection of craftsmen kind of skill and sophisticated robotics and sort of the computer science world that intersection which is very very rare to find anywhere that that kind of skill which is very important for our business because of the percent and quality level that that that we like and then of course the thing that most people focus on when they if they're if they're a foreigner coming to China's they focus on the market itself in the size market and obviously it's the biggest market in the world in so many different areas but for us the the number one attraction is the quality of people and and we so we've had an extraordinary relationship over three decades really let's come back to the manufacturing and how that's changed I think most people think of China's importance to Apple that Apple has been manufacturing designing in California manufacturing in China for many years you were central to this strategy at Apple and your way before before you were CEO and so the notion is Apple designed these things they sent them over China made them it's an antiquated pictures isn't that right yeah it's not it's not designed and then sent over that sounds like there's not interaction that the truth is the process engineering and process development associated with our products are require innovation in and of itself not only the product but the way that it's made because we want to make things in the scale of hundreds of millions and we want the quality level of zero defect right that's always what we thrive for and the way that you get there is particularly when you're pushing the envelope on the type of materials that you have and the precision that your your the precision of the specifications that you're forcing requires of hand and glove kind of partnership you you don't do it by throwing it over the chasm it would never work I can't imagine I can't imagine how that would be I don't want to imagine I know you visited a manufacturing partner this week could you tell everybody about it and by the way later in the afternoon I'm interviewing Terry Guo of Foxconn that's not who you visited this week right no no I visited a couple of different partners I visited ICT and for those of you that haven't heard of ICT they manufacture among other things the air pods for us and when you think about air pods as a user you might think oh this couldn't be that hard it's really small the air pods have several hundred components in them and the level of precision embedded to get the audio quality without getting into really nerdy engineering it's really hard and it requires a level of skill that is you know extremely high and we met a CT our ICT back many years ago they started making cables for us grace woohoo is owns the company started her career working for Han high on the production line and so this is an innkeeper back a fact he was a factory worker Jordan this is an this is an incredible example of the Chinese dream being realized now she owns a multi-billion dollar company that does unbelievable quality work and I'm not doing an advertisement for them if you've just done a very good way but but yeah she's you know unbelievable really and so I heard that and the thing that I I loved obviously the quality and the work that that they do but the other thing they do is she believes she had she shares our view on how you treat people and so if you were to go there and talk to a lot of the line workers which we do often you would find some of the happiest people in the world there because they're treated so well and that's very important to us in how we present ourselves and and I have to compliment her on on on doing that I also went to a company this morning the that works on the front-facing camera for us here in going to here in Guangzhou and again highly technical highly precise advanced manufacturing in and it's the skill here is just incredible on that point give us an update I think it was about two years ago you you said publicly when you were asked why do you do so much manufacturing in China yeah you said we'd love to do it other places ie the United States but the the sheer volume of engineers in China is greater than any other place we might discuss is that basically still the case yeah there's a miss there's a confusion about China that and let me at least give you my opinion the the popular conception is that companies come to China because of low labor cost I'm not sure what part of China they go to but the truth is China stopped being the low labor costs country many years ago and that is not the reason to come to China from a supply point of view the reason is because of the skill and the the quantity of skill in one location and the type of skill it is like the products we do require really advanced tooling and the the precision that you have to have in tooling and working with the materials that we do are state-of-the-art and the tooling skill is very deep here you know in in the US you could have a meeting of tooling engineers and I'm not sure we could fill the room in China you could fill multiple football fields it's that though Kay vocational expertise is very deep very very deep here and I give the the education system a lot of credit for continuing to push on that even when others were de-emphasizing vocational now I think many countries in the world have woke up and said you know this is a key thing and we've got to correct that but China called that right from the beginning let's shift from the supply chain to Europe to your commercial business this is a fiercely competitive market in every way - how is the eye how is the iPhone doing against the competition which is good right the competition here is fierce it is we're of course we've been battling competition for lives you know we competed against a monopolist with Microsoft for and still do and and so competing against strong competitors is not new for Apple you know we focus on innovation and believe that if we make the best products then we can convince enough people to buy then that we can have an ok business we've never we've never had an objective to make the most and in in very few times in the history of the world does the best and the most line up sometimes those two things intersect but Apple is always focused on best and if we happen to make most then that's ok but it's not the it's not the high order bit for us it's not even on the on the list and so if you look at how iPhone 10 is doing here I could not be happier we had a few quarters of negative growth on a year-over-year basis we returned to double-digit growth last quarter even before the iPhone tinge you're talking about greater China now I'm talking about greater China but but mainland China would look even better because the in Greater China you have Hong Kong at Hong Kong has been pressured for for some period of time and so it feels really great and and you know we love being here as you know Ponemah the CEO and co-founder of ten cent is coming on after you there several people have suggested that we chat is so important for all smartphones in China that it's more important than than the operating system and therefore that presents a long-term challenge reaiiy don't know medium-term challenge to Apple I see WeChat or 10 cent as a great partner okay and so I probably have a different view than the popular view and think very highly of Pony in particular for us think about it from our point of view is we have give or take fifteen percent share in the smartphone market in China so that means there's 85 percent that's that somebody else is selling the truth is if it's easy to switch who's going to benefit from that equation and and guess what if you looked at switchers from the Android system to iOS in in China it's always a multiple of people doing the other way and and so I I think if anything it that the $0.10 ubiquity in China placed our advantage because because we chat works on the art works just fine on the iPhone because it works great on the iPhone and because you can leave Android and go to the iOS ecosystem without losing all of the things that you built up in the the Android ecosystem right and we think that if people try I phone and begin to use it the likelihood of people leaving is low you know who would want to have a worse experience you know it's so we're clear your definition of a worse experience is some phone other than an iPhone correct yeah yeah I would say that about Mac and Windows as well just just to be clear [Laughter] very good you've had a very busy week you started you started your week here in China at the at the internet conference in Wu Jiang yeah I want to quickly read a quote from the speech that you gave there you said I believe in our capacity to make this world work for everyone not because of Technology itself but because of the ways we choose to use it we all have to work to infuse technology with humanity you say what what did you what did you mean by that what were you trying to get at with the would the word humanity well for Apple has always stood at the intersection of Technology and the liberal arts and the humanities and what does that mean really it means that we try to put the user the center of everything we do and so we're trying to make the user experience great that's sort of that is our focus and we think a lot about the consequences or what our products can be used for that are not good and we try our best to come up with ways to diminish the things that aren't good and amplify the things that are with some examples of that and take texting while driving this is an awful thing you know one should do that so what we did in the latest iOS 11 is your phone is going to shut down notifications and messages while you're driving and you're going to have to you can override it if you wish but we're trying to get people a tool to do the right thing another example for years and we've been criticized for this quite a bit in some cases for years since the beginning of the app store we've always curated what was in the store why we've done this it's because we felt as a platform owner we had a responsibility to make sure terrorists kind of content didn't get in the App Store and hate speech didn't get there and pornography and all these things that you'd never want your kids looking at and so we've we've had that review from the beginning and and so we really try to think about the consequences of the products we create the downstream things and and and I think that it is increasingly important in a world where technology can now do virtually anything or is on a path to do anything and can be you that they're negative it can be used for negative purposes and it's important that the creators put humanity at the center of their creations and so it's it's the perfect segue to the you apples criticize for everything by the way yeah that's I get criticized for breathing that one I have a very but the territory but in the West there was criticism of your having shown up at wujin at all because some people feel that it was an endorsement of the government's internet policies otherwise known as you know the censorship etc your reaction to that criticism well I never based I don't know how do you guys do this but I never base my actions on a poll of how people are going to feel about it and whether I'm gonna take any criticism if I did I'd never do anything honestly I also if you were to come to my office in addition to a couple of photos or so of Heroes you would see this huge wooden plaque with the inscription in it of the in the arena quote from President Roosevelt and I have always felt like this you the the thing that's missing in our society is there's not enough people that want to listen and understand and participate they have a litmus test of do I agree with every single thing that person believes and if not I don't want to talk to them and they're a bad person I've never seen the world that way and and and so I know I'll get criticized for going to any meeting I get criticized for going to meetings in the United States yeah and I don't really care at the end of the day because it is the right thing to do to participate and to find those areas that are common that you can work on together China has done an unbelievable job of lifting people out of poverty they've done an incredible job I mean far beyond what any country has done we were talking about nineteen mid-90s to today the biggest change is the number of people that have been pulled out of poverty by far and we should all applaud that and you should all feel good about it and so there are in the environmental leadership today is very clear and it aligns completely with apples values the Chinese uh environmental - yes government I mean they're they're very fixated on on doing the right things to avert climate change and this is something that means a lot to us as well and so what what we always try to do is find the areas where you can work together find the areas of commonality and then the things that you disagree with take time to understand how somebody sees it and if I'm going to get criticized for that then so be it well and I think you have I think you have a roomful of people who would agree with the philosophy of listen understand and participate that's why everybody's here today yeah there are specific policies that you have to navigate those so for example if something like for example Skype yelled out of the App Store yeah or VPN software how do you approach that as CEO well when you when you go into a country and participate in the market you are subject to the laws and regulations of that country you you don't bring the laws and regulations that you wish were there that you want to be there you you have the laws and regulations of that country and so from my American mindset I believe strongly in freedoms there at the core of what an American is and I have no confusion on that and I think anybody that knows me knows how I view those things but I also know that each country in the world decides their laws and their regulations and if you and so your your choice is do you participate or do you stand on the sidelines and yell at how things should be and my own view very strongly is you show up and you participate you get in the arena because nothing ever changes from the sidelines you know nothing ever changes from there and and so my hope over time is that some of these things the couple things that have been pulled come back I have great hope on that and great optimism on that are you optimistic because of any conversations you've had this week I didn't you know I don't want to give I don't want to reveal any kind of personal conversations or confidential conversations but I'm just saying that that I I look at things maybe a bit differently than most I had this 25 year view of China yeah so I've seen so much change in that quarter of a century and to me the arc of that is clear yep now it doesn't mean that it's a straight line but honestly speaking in no country in the world is progress a straight line right you know that would include the United States for sure I would I would love to take your questions with the time we have left please raise your hand we'll bring a mic to you there's one right here and the mic is coming to you very quickly please identify yourself sure my name is Aaron you mr. cook and I'm representing store ansel which is a Nordic company and I'm hiding there China operation here in fact we are playing a role in China you know global supply chain and the web I'm delighted to be part of that thank you you talk about a lot of your reflection over the past three decades regarding you know chata development and the coolest things about of China however talk about the supply chain definitely calls to play a vital role and is that's what I'm dealing on a daily basis with your supply chain you know folks and I'm I think a lot of people share the same concern that the closet going up in China also you know there is a good good things about it however you know cause again going to be very important so in your point of view how what it takes for China to continue evolve its advantage in you know in the context of rising labor costs and the continual sustained majority of your supply chain the key for all developing countries is to continually advance and so the key is advanced manufacturing and to build skills and craftsmen the intersection of craftsmen and programming that can't be replicated or is difficult to replicate it's bringing the total companies that only focus on low-cost labor there are other countries but that's not our focus our focus is quality making the best innovation those things are at the top of our list there's one right here I don't see someone's coming right behind you sir there you go right there yep based on what you said about I'm sorry please identify sorry George Gipp Imperial College Business School based on what you said about innovation and processes in China are you worried that this will overtake Apple's advantages and product innovation what what I believe I see it differently than you do I think you see it as win lose what I see is that China is already incredibly innovative in so many areas in there are apps and business models that could only had been created here I went to a bike sharing company the last time I was in Beijing that idea is could be used in almost every country in the world but arguably it could only have been created here the I went to a company a couple of days ago that has integrated everything from the review of a restaurant to the ordering to the paying they've done an unbelievable job to the delivery everything in in one company I would give them an A+ I went to a company that is in the e game space in addition to publishing and creating games they run arenas where and they've created a sport how many people do you know that's created a sport in their life you know this is really cool and they've done it it could only have been created here and so because a country does well does it mean another one does badly I don't subscribe to that I subscribed a mutual win-win and and so from an apple point of view we're going to keep doing what we've been doing we're going to keep innovating and we've know we've got to keep that up to stick to stay to stay at the top and we're going to keep doing it I say one back I see one back there it's gonna have to be a quick question and a quick answer please Keith Kroc chairman of DocuSign Tim let me ask you this in terms of what you see the Chinese government doing in terms of driving the digital transformation for their country what would you say would be three things maybe that they're doing that would be good for the United States to do that we're not Thank You Keith I think that both countries have a lot to do in this area is the truth is that China is very fixated right now rightfully so on reform in the state-owned entities and this is a major task in all of them could benefit greatly from a digital transformation the the u.s. from an e-government point of view is way behind the Singaporean government the UAE government etc and so there's great benchmarks out there both countries could learn from from from that and so each country I think has a number of things that that they can do in the in the digitization process and probably you know both have a long road map ahead there a lot of improvement left Tim yep it's been a it's been a privilege for me and I know it's been a privilege for this entire room thank you for being with us thank you

Channel: Fortune Magazine

Views: 124,261

Keywords: Journalism Franchise, Fortune, business, wall street, finance

Id: _ng8xQ-SNGc

Length: 29min 19sec (1759 seconds)

Published: Tue Dec 05 2017