Here is the full transcript of a conversation between Adam Lashinsky of Fortune Magazine and Apple CEO Tim Cook on Apple’s Future In China. This event took place on [Dec 6, 2017].
Introduction
ADAM LASHINSKY: Welcome, Tim.
TIM COOK: Thank you. Great to be here.
ADAM LASHINSKY: I’m so pleased personally that you’re here helping us make history in Guangzhou. I know you’ve been here all week.
TIM COOK: We have a lot of exciting things to talk about.
Apple’s History in China
ADAM LASHINSKY: 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?
TIM COOK: I came to China for the first time maybe a quarter century ago, so that’s the reason my hair is gray by now. And it’s just been a sea change. I mean, you think about it now, some of the most modern cities in the world are in China. In the mid-90s, you wouldn’t find any modern cities of the world here.
The infrastructure that has gone on in China, whether you know it from the moment you land in the airport to the roads, is just extraordinary. The most modern in the world, arguably. I think the other thing that you feel is that over that period of time, there’s a lot more openness than there was in the mid-90s. Maybe not where we’d all like to be, but it’s come an extraordinary distance.
Also, China at that time was, at least from our point of view, focused mainly in China. Now China plays a leadership position for the world in many different areas, and so 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.
ADAM LASHINSKY: As if you were a supply chain Rip Van Winkle.
TIM COOK: That’s right.
Apple’s Business in China
ADAM LASHINSKY: Well, let’s plunge into talking about Apple’s business in China, Tim, perhaps give everybody a quick overview of the many things that Apple does here.
TIM COOK: China has extraordinary skills. And probably the part that is the most unknown is there’s almost 2 million application developers in China that write apps for the iOS App Store. 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 intersection of craftsman kind of skill and sophisticated robotics and the computer science world. That intersection, which is very, very rare to find anywhere, that kind of skill, which is very important for our business because of the precision and quality level that we like.
And then of course, the thing that most people focus on when they’re a foreigner coming to China is they focus on the market itself and the size market. And obviously it’s the biggest market in the world in so many different areas. But for us, the number one attraction is the quality of people. So we’ve had an extraordinary relationship over three decades, really.
Manufacturing Evolution in China
ADAM LASHINSKY: Let’s come back to the manufacturing and how it’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 before you were CEO. And so the notion is Apple designed these things, they sent them over, China made them. It’s an antiquated picture, isn’t that right?
TIM COOK: Yeah, it’s not designed and then sent over. That sounds like there’s not interaction. The truth is the process engineering and process development associated with our products 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. That’s always what we strive for.
And the way that you get there, particularly when you’re pushing the envelope on the type of materials that you have and the precision of the specifications that you’re forcing requires a hand in glove kind of partnership. You don’t do it by throwing it over the chasm. It would never work. I can’t imagine how that would be. I don’t want to imagine how it would be.
Manufacturing Partnerships
ADAM LASHINSKY: I know you visited a manufacturing partner this week. Could you tell everybody about it? And if not, by the way, later in the afternoon I’m interviewing Terry Guo of Foxconn. That’s not who you visited this week, right?
TIM COOK: No, I visited different partners. I visited ICT. And for those of you that haven’t heard of ICT, they manufacture, among other things, the AirPods for us. And when you think about AirPods as a user, you might think, oh, this couldn’t be that hard. It’s really small. The AirPods 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 extremely high.
We met ICT back many years ago. They started making tables for us. Grace Wu, who owns the company, started her career working for Hon Hai on the production line. This is an incredible example of the Chinese dream being realized. Now she owns a multi-billion dollar company that does unbelievable quality work.
You know, I love obviously the quality and the work that they do. But the other thing they do is she believes, 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.
I also went to a company this morning that works on the front facing camera for us here in Guangzhou. Again, highly technical, highly precise, advanced manufacturing. And the skill here is just incredible.
Why China for Manufacturing
ADAM LASHINSKY: Give us an update. I think it was about two years ago you said publicly when you were asked why do you do so much manufacturing in China? You said, we’d love to do it other places, that is the United States, but the sheer volume of engineers in China is greater than any other place we might discuss. Is that basically still the case?
TIM COOK: Yeah, there’s a confusion about China. Let me at least give you my opinion: 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 cost 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 quantity of skill in one location and the type of skill it is. The products we do require really advanced tooling and 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.
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. That vocational expertise is very deep, very, very deep here. And I give 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 woken up and said, this is a key thing and we’ve got to correct that. But China called that right from the beginning.
iPhone Performance in China
ADAM LASHINSKY: Let’s shift from the supply chain to your commercial business. This is a fiercely competitive market in every way. How is the iPhone doing against the competition?
TIM COOK: The competition here is fierce. We’ve been battling competition for our lives. We competed against a monopolist with Microsoft and still do. So competing against strong competitors is not new for Apple.
We focus on innovation and believe that if we make the best products then we can convince enough people to buy them that we can have an okay business. We’ve never had an objective to make the most, and 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 okay. But it’s not the high order bit for us.
If you look at how iPhone X 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 X shipped.
ADAM LASHINSKY: You’re talking about greater China now?
TIM COOK: I’m talking about greater China, but mainland China would look even better because in greater China you have Hong Kong, and Hong Kong has been pressured for some period of time. So it feels really great. We love being here.
WeChat and Apple’s Ecosystem
ADAM LASHINSKY: As you know, Pony Ma, the CEO and co-founder of Tencent, is coming on after you. Several people have suggested that WeChat is so important for all smartphones in China that it’s more important than the operating system. And therefore that presents a long term challenge, or a medium term challenge to Apple.
TIM COOK: I see WeChat or Tencent as a great partner.
ADAM LASHINSKY: Okay.
TIM COOK: 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: we have, give or take, 15% share in the smartphone market in China. So that means there’s 85% that somebody else is selling. The truth is, if it’s easy to switch, who’s going to benefit from that equation?
If you looked at switchers from the Android system to iOS in China, it’s always a multiple of people doing the other way. So I think, if anything, that Tencent’s ubiquity in China plays to our advantage.
ADAM LASHINSKY: Because WeChat works just fine on the iPhone.
TIM COOK: 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 Android ecosystem. And we think that if people try iPhone and begin to use it, the likelihood of people leaving is low. Who would want to have a worse experience?
ADAM LASHINSKY: So we’re clear, your definition of a worse experience is some phone other than an iPhone, correct?
TIM COOK: Yeah. And I would say that about Mac and Windows as well, just to be clear.
Technology and Humanity
ADAM LASHINSKY: Very good. You’ve had a very busy week. You started your week here in China at the Internet Conference in Wuzhen. 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.” What did you mean by that? What were you trying to get at with the word humanity?
Apple’s Approach to Technology and Humanity
TIM COOK: Well, Apple has always stood at the intersection of technology and the liberal arts and the humanities. What does that mean, really? It means that we try to put the user at the center of everything we do. And so we’re trying to make the user experience great. That’s 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 negative things and amplify the positive ones.
What are some examples of that? Take texting while driving. This is an awful thing. No 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 can override it if you wish, but we’re trying to give 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, since the beginning of the App Store, we’ve always curated what was in the store. Why we’ve done this is because we felt as a platform owner, we had a responsibility to make sure terrorist 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 had that review from the beginning.
We really try to think about the consequences of the products we create, the downstream things. 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 used for negative purposes. And it’s important that the creators put humanity at the center of their creations.
ADAM LASHINSKY: And so it’s the perfect segue to… Apple’s criticized for everything, by the way.
TIM COOK: I get criticized for breathing that one.
On Criticism of Attending the World Internet Conference
ADAM LASHINSKY: I haven’t heard that yet. But in the west, there was criticism of your having shown up at Wuzhen at all because some people feel that it was an endorsement of the government’s Internet policies, otherwise known as censorship, et cetera. Your reaction to that criticism?
TIM COOK: Well, I never base my actions on a poll of how people are going to feel about it and whether I’m going to take any criticism. If I did, I’d never do anything, honestly. If you were to come to my office, in addition to a couple of photos of heroes, you would see this huge wooden plaque with the inscription of the “in the arena” quote from President Roosevelt. And I have always felt like this.
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 so I know I’ll get criticized for going to any meeting. I get criticized for going to meetings in the United States 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’s done an unbelievable job of lifting people out of poverty. They’ve done an incredible job far beyond what any country has done. We were talking about mid-90s to today. The biggest change is number of people that have been pulled out of poverty by far and we should all applaud that and we should all feel good about it. And their environmental leadership today is very clear and it aligns completely with Apple’s values.
ADAM LASHINSKY: The Chinese environmental government, I mean, they’re…
TIM COOK: Very fixated on doing the right things to avert climate change. And this is something that means a lot to us as well. And so 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.
Navigating Different Policies and Regulations
ADAM LASHINSKY: Well, and I think you have a room full of people who would agree with the philosophy of listen, understand and participate. That’s why everybody’s here today. There are specific policies that you have to navigate though. So for example, if something like Skype is pulled out of the App Store or VPN software, how do you approach that as CEO?
TIM COOK: Well, when you go into a country and participate in the market, you are subject to the laws and regulations of that country. You don’t bring the laws and regulations that you wish were there, that you want to be there. You have the laws and regulations of that country. And so from my American mindset, I believe strongly in freedoms. They’re 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 so your choice is do you participate or do you stand on the sideline 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 side. Nothing ever changes from there. 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.
ADAM LASHINSKY: Are you optimistic because of any conversations you’ve had this week?
TIM COOK: Well, you know, I don’t want to reveal any kind of personal conversations or confidential conversations, but I’m just saying that I look at things maybe a bit differently than most. I had this 25 year view of China, so I’ve seen so much change in that quarter of a century and to me the arc of that is clear 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.
Q&A Session
ADAM LASHINSKY: Right, that would include the United States for sure. 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.
AUDIENCE MEMBER: Sure. My name is Aaron Yu, Mr. Cook, and I’m representing Store Ansel, which is a Nordic company and I’m heading their China operation here. In fact, we are playing a role in China in our global supply chain and I’m delighted to be part of that. Thank you. You talk about a lot of your reflection over the past three decades regarding China development and the good things about China. However, talk about the supply chain definitely cost to play a vital role and that’s what I’m dealing on a daily basis with your supply chain folks. And I think a lot of people share the same concern that the cost is going up in China, although there’s good things about it. However, cost again going to be very important. So in your point of view, what it takes for China to continue evolving its advantage in the context of rising labor costs and continues the same majority of your supply chain, how can it maintain its supply chain?
TIM COOK: 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.
ADAM LASHINSKY: There’s one right here. I don’t see. Someone’s coming. Right behind you, sir. There you go.
TIM COOK: Right there.
ADAM LASHINSKY: Yep.
AUDIENCE MEMBER: Based on what you said about…
ADAM LASHINSKY: I’m sorry, please identify.
AUDIENCE MEMBER: Oh, sorry. George Yip, Imperial College Business. Based on what you said about innovation and processes in China, are you worried that this will overtake Apple’s advantages in product innovation?
TIM COOK: 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. There are apps and business models that could only have been created here. I went to a bike sharing company the last time I was in Beijing. That idea could be used in almost every country in the world. But arguably it could only have been created here.
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 one company. I would give them an A. I went to a company that is in the E Games space. In addition to publishing and creating games, they run arenas and they’ve created a sport. How many people do you know that’s created a sport in their life? 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 subscribe to mutual win-win. 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 know we’ve got to keep that up to stay at the top and we’re going to keep doing it.
ADAM LASHINSKY: I see one back there. It’s going to have to be a quick question and a quick answer, please.
AUDIENCE MEMBER: 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?
TIM COOK: I think that both countries have a lot to do in this area. 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 and all of them could benefit greatly from a digital transformation. The US from an E-government point of view is way behind the Singaporean government, the UAE government, et cetera. And so there’s great benchmarks out there. Both countries could learn from that. And so each country I think has a number of things that they can do in the digitization process and probably both have a long roadmap ahead with a lot of improvement left.
ADAM LASHINSKY: Tim, 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.
TIM COOK: Thank you.
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