China must focus on innovation in manufacturing as wages rise, says Apple’s Cook
World’s second-largest economy faces competition from low-cost markets in Asia and Africa
Tim Cook, the chief executive of Apple, said China must sharpen its edge as far as manufacturing innovation and advanced worker skills are concerned, as the country’s wage gap with low-cost markets continues to widen.
“China stopped being a low-cost manufacturing country many years ago,” Cook told the Fortune Global Forum in Guangzhou, capital of the southern Guangdong province, on Wednesday.
He said the key for China and other developing countries facing rising labour costs was advanced manufacturing expertise, which meant fostering a highly skilled workforce and building production processes that were “difficult to replicate elsewhere”.
Accelerating wage growth in China since the mid-2000s has increasingly raised the possibility of relocating jobs from export-oriented manufacturing industries in coastal cities to low-income countries in Asia and Africa, according to a study by the Centre for New Structural Economics at Peking University.
Workers’ salaries in China’s high-volume consumer electronics manufacturing sector have steadily grown this decade, as major global and domestic brands meet an increased demand for popular devices such as smartphones, high-definition televisions, headsets, tablets and laptops.
Apple, which is headquartered in California’s Silicon Valley, has all its major products – from the iPhone and iPad to MacBooks and AirPods – assembled in China by various contract manufacturers, including main supplier Foxconn Technology Group.
“Other companies may only focus on low-cost labour,” said Cook. “Our focus is on quality and innovation.”
In that regard, Cook said China continued to provide Apple with the “advanced tooling and skills” required to manufacture its products.
He also credited China’s education system for helping to swell the number of engineering graduates in the country. An estimated 1.3 million engineering students graduate in China each year, according to data by Unesco. The country also turns out about 30,000 PhDs in science and engineering each year.
“China is incredibly innovative in so many areas,” said Cook, adding that there were apps and business models like bike-sharing that could only be created in the country.
With backing from the central government, various Chinese industries spend more than US$200 billion each year on research and development projects, according to a recent report by McKinsey.
The abundance of highly skilled manpower in China led Apple to announce in March this year that it planned to invest more than 3.5 billion yuan (US$529 million) in new research and development centres in the eastern coastal city of Shanghai and in Suzhou, a major city in southeastern Jiangsu province.
Apple said it has created and supported 4.8 million jobs in China. The company directly employs more than 12,000 people on the mainland, Hong Kong and Taiwan.
Commenting on government restrictions which led to the removal of voice over internet protocol applications on Apple’s online App Store, Cook said he was hopeful that these apps would return.
“My hope, over time, is that some of these things that were pulled would come back,” said Cook, declining to elaborate on his conversations with Chinese authorities.
Microsoft Corp’s popular Skype app was pulled from the app stores in China run by Apple, Tencent Holdings and Qihoo 360 Technology.
“We have been notified by the Ministry of Public Security that a number of voice over internet protocol apps do not comply with local law. Therefore these apps have been removed from the App Store in China,” an Apple spokeswoman said last month.