Apple iPhone 12: Pride vs. Power

In an investigative piece from Nikkei Asia, journalists broke down the Apple iPhone 12 into its separate components, assigning dollar value and determining the origin country of each component. They found that 26.8% of the value of components in an Apple iPhone 12 comes from Korea; 21.9% from the United States; the little island of Taiwan contributed 11.1%; and Japan contributed 13.6%.

This matters because every brand or product inherently has national and regional pride attached to it. Americans are rightly proud that Steve Jobs developed the iPhone—with a team of people reporting under him—in California, USA. While the iPhone was developed in the US, a large chunk of its components come from other countries. For every Apple iPhone 12 bought, a large percentage of that money is not going to Apple—it’s going to a group of component manufacturers in Korea, Taiwan, Japan and many other countries.

The insight is a lot deeper than that. Countries that supply for Apple iPhone 12 are building a reservoir of cash, and they want to do something with it. Most likely, they’ll start building their own branded products. We saw this with Taiwan in the 80s and 90s. For a long time, Western companies would white label their products. They would buy products from Taiwanese companies, bring those products to America, Australia and the United Kingdom, and sell them under their own brands.

Eventually, the Taiwanese manufacturers realized: “Why can’t we do this? We have the know-how; we just need the brand.” That’s the migration up the value chain. Every time we talk about the rise of Apple, surging Apple iPhone 12 sales, every time an Apple iPhone 12 is bought, every time a laptop is bought, we are slowly, incrementally and purposefully funding a future competitor. That’s capitalism. Apple cannot escape this; they need these suppliers. They know that some of these suppliers will migrate up the value chain and will not want to be faceless manufacturers forever. They’ll build their own brands, and they will compete with Apple. That’s the insight whenever you have deeply integrated supply chains.

Every time you outsource something, you’re paying a supplier money to teach them how you operate. Essentially, you’re running an educational program for them—and paying them for it. The only way to get around this is to constantly innovate so that when your suppliers eventually catch up with you and start doing what you’ve trained them to do, you’re at the next level of the curve.

When you read articles about a successful company, like Apple,  you may feel proud because that company is located in your country. But at the end of the day, pride doesn’t mean much if the majority of dollars are flowing to future competitors. Again, that’s the reality of capitalism.

In the Competitive Strategy with Kevin Coyne (full program was released for FC Insiders), he talks you through the decisions, trade-offs and choices you have to make. He talks about scarcity a lot—you have to realize that if something is scarce and valuable, you’re in the game. If something is no longer scarce, it’s not going to be valuable for long.

As companies go through their corporate planning exercises—which is happening around the world in December, January and February—this is a great program to look at and seed those ideas into the corporate planning packs your company is putting together.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #7.