As Apple Is Discovering: The World Is No Longer Flat—It’s Fractal
If anything signals the fact that we are entering a new “fractal” era of globalization, it is Apple’s reported decision to make India the manufacturing hub for the majority of its iPhones for US consumers—not China.
In its latest earnings call with analysts on 1 May, Tim Cook, Apple’s CEO, said that in the quarter to the end of June: “We do expect the majority of iPhones sold in the US will have India as their country of origin.”
The fact that Apple plans to switch to India (and not yet to the US) suggests that globalization is evolving—it’s not dead.
Of course, Apple could go further by repatriating the iPhone’s entire manufacturing process to the US. But this seems unlikely to happen. For a start, analysts have predicted that its purchase price would rise to an astronomical $3,500 if it were assembled in the US. That would make it unaffordable for all but a wealthy elite of customers.
Also, there are big practical challenges to giving the iPhone a “Made in America” makeover. Apple’s iPhone, a device which fosters global connectivity, is the emblematic product of a connected “flat” world that is disappearing fast. Introduced in 2007—two years after Thomas Friedman, a Pulitzer Prize-winning New York Times journalist, published The World is Flat, his era-defining book on globalization in the 21st century—it is the result of an astonishing international collaboration: it comprises 2,700 parts supplied by 187 different companies from 28 different countries.
But the world is no longer flat—it’s fractal.
In some ways, Apple is caught between a rock and a hard place: it will struggle to make the iPhone in the US; at the same time, it will be challenged to preserve the astonishingly intricate supply chain which it has created over the past two decades and which has underpinned its $3 trillion-plus valuation.
The India move is a sign that Apple may be starting to take what we would call a “fractal approach” to building competitive advantage: that is, working out what it takes to win in each of the markets where it competes for business. To win in the US, it has clearly concluded that it needs to produce iPhones in India, which has not been targeted with high tariffs.
But it begs the question: Should Apple go further? For instance, should it take a fractal approach not only to its manufacturing strategy but also to its product strategy? Although the latest earnings call showed that revenue for the iPhone rose by 2% to $46.8 billion in the quarter ending March, China revenue fell by 2.4% to $16 billion, reflecting the growing competition from local smartphone makers.
If it were to take a fractal, multi-regional approach to product development, it would need to consider developing an affordable mass market version of the iPhone for emerging markets. Historically, it has resisted the pressure to do mass market products for fear of diluting its premium brand (as Steve Jobs once said: “We don’t offer stripped-down, lousy products”).
But its latest strong iPhone sales figures were partly buoyed by the release of its low-end 16e model. So, perhaps its thinking is changing.
It would, however, need to go further to appeal to different markets in Asia, Africa and Latin America. The 16e may be more affordable than other iPhones, but as the Wall Street Journal noted, “Apple’s new ‘cheap’ phone…isn’t so cheap” at $599.
The chances are that Apple, the emperor of the flat world, will find a way to adapt to, and perhaps to conquer, the fractal world.
But no one can be certain about this.
Indeed, if anyone can be certain about anything in this uncertain world, it is this: if Apple, the world’s most valuable company, isn’t safe, then no company is safe.