The Hole in China’s Apple

A tiny gecko can literally climb up sheer glass.

A team of robotics geeks in Denmark thought, wouldn’t it be cool if we could mimic the gecko in a robot’s gripper? Wouldn’t that be a great product?

They accomplished just that and started a company in Odense, Denmark to sell their gecko gripper, called OnRobot.

Odense, home of Universal Robots, is the robotics incubator of the world. Poetically enough, it is also where Hans Christian Andersen wrote his fairy tales. The gecko gripper concept grew from a research paper written at Stanford University in Palo Alto, which was picked up by NASA as having the potential for retrieving satellites in space. The folks in Odense saw its potential.

Would this have happened in Shanghai?

Recently, things have become quite ugly for China after 30 years of almost unimaginable growth. The Chinese leadership, starting with Deng Xiaoping, has been almost maniacal in pushing growth in China.  With shrewd planning, an industrious and hungry population, heavy borrowing, and a knack for stealing and copying the hard-won knowledge of their competitors in the United State and Europe, they have continued their ascent.

Shanghai is not Palo Alto, California, or Odense, Denmark. Companies like Huawei and ZTE have become electronics giants in recent years by developing copycat products based on intellectual property theft and industrial espionage while playing footsie with bad actors like Iran. This has been abetted by the Chinese government, which has afforded them immense lending resources as part of China’s extraordinary rush to catch up to the United States and ultimately surpass America in almost every way possible.

The Chinese leaders did not have time for the kind of entrepreneurial organic growth of a Universal Robots or OnRobot. They wanted to leapfrog the agonizing trial and error and market flops that little startups have. So Huawei and ZTE and countless other firms stole their way to the top.

They did not have to try that hard to do it. Many large firms virtually handed the Chinese their intellectual property in exchange for market opportunity. Apple’s current falling earnings are a direct result of weakening iPhone sales in China as their competitors are making nice copies for half the price. The only edge Apple has left is their high-class brand, but that apple is now more than half eaten.

Apple was not naïve about China. Its gamble was that they would make billions of dollars in China before the intellectual property theft really bit, and then they would use that money to fund research which would net the next generation of killer phones or some other monster product.

The Chinese leadership’s gamble was that the American leadership would make the same short-range gamble as Apple. In exchange for gaining lucrative markets for America’s relatively cheap commodities, the U.S. would allow intellectual property theft without retribution and the looting of the American and Western European industrial complexes by subsidized ones in China. For example, the Chinese steel industry has grown to be by far the world’s biggest, and yet it is hopelessly inefficient, as the government has run it as a make-work project for hundreds of thousands of workers.

The Trump tariffs on steel and aluminum have hurt American companies who use the materials, many of whom are our customers, as well as the Chinese. The Huawei case in which the founder’s daughter is the mouse who was caught in the trap in Vancouver, Canada, is as clear a signal as America can send to China — that things finally are changing.  It is starting to get uncomfortable for both the U.S. and China as the stalemate continues to bite.

Both countries have a huge amount at stake in the trade talks going on right now in Washington.  Shanghai is not Palo Alto.  It is not Odense. What is being exposed to the world at this moment is that despite the enormous growth in China over the last 30 years and its overarching ambition to surpass America in every way, it is weak at its core. It can be seen as similar to Japan in 1990.  Many futurists saw Japan surpassing the U.S. at that point, but despite America’s missteps, like the Iraq War, it did not happen.

China does not innovate. It mostly copies and steals intellectual property.  Its education system does not produce risk takers.  Nonconformists often end up in jail. I believe the top leaders in China understand this is a profound weakness, but it is extremely hard to address it because doing so would undermine the soft foundation of the country — economically, socially, and politically.

I think Donald Trump, the New York real estate developer and gut puncher, gets this. The amiable Bushes, Clinton, and Obama seemingly did not understand China’s basic weakness and refused to play the strong hand that they had.

The big question ahead of us is will Trump play his strong hand too aggressively and screw up the world economy, or will he find a path to a compromise? The Fed’s recent pullback on interest rate hikes was its statement that they are worried that the whole poker table might collapse.

Question: What copycat or knockoff products have you purchased?

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4 thoughts on “The Hole in China’s Apple

  1. david bradley

    My first heart attack came in May of 2015. Just after, I bought a Fitbit for my wife and myself so we could keep a little better track of heart rate and walking. Before they were 90 days old, the band broke on the wife’s Fitbit and mine the heart rate part stopped working. Fitbit would not repair or replace either and I’ll not buy from them anymore. I also talked others from buying Fitbit products. At $160 a piece, I don’t feel that my attitude was wrong. A while back I ran across some knockoffs on EBAY that look almost the same only more functions, for $13 each. They so far have lasted double the time with NO problems. I don’t feel the least amount bad for doing this.

    1. Maureen

      I have had just the opposite response from Fitbit. I broke the stem off, instant replacement. I had something else happen, instant replacement. GREAT customer service from Fitbit. I have a cracked screen on my Charge2 but it’s lasted just fine for over a year. I have bought China knockoff bands for my fitbits to spice them up. I bought a sewing machine foot which worked great, so I bought more as a gift for friends and they were crappy. It’s hit or miss with China.

  2. Lloyd Graff

    Listen to the NPR story today about Huawei’s attempted theft of the invention of Adam Kahn of Akon, a startup in Gurnee, Illinois. He developed an industrial diamond coating. He sent it to the Chinese company for “nondestructive testing”, and it came back in 3 pieces with shards missing.
    The Huwaie top dogs wanted to meet him in Las Vegas at the big electronis show last month and they arranged a meetup in the food court of a casino. Unfortunately for Huwaie, the FBI joined the party and it was recorded by Eric Shatzger of Bloomberg News. A Federal indictment of the top dogs at Huwaei just was announced. It’s Chinese “creativity” on display.

  3. Bob Ducanis

    Not so sure about your comment about the Chinese not being risk takers. I have read that the Chinese on the whole are the biggest gamblers in the world. Of course this is referring to Vegas style gaming tables, but I believe that this risk taking attitude would carry over to business. Possibly in China there has been excessive risk taking over the past decades without really understanding an income statement and a balance sheet now causing the problems that are starting to crop up..

    As far as knockoffs go, I heard that Mitutoyo has (or had) a problem with counterfeit gages. I’ve never purchased any as we used authorized Mitutoyo dealers. I see those electronic 6″ calipers at Harbor Freight, Amazon, and Home Depot for about $10. There’s a lot of room from $10 cheapie to a real Mitutoyo that probably runs about $120.

    Of course I’ve always wanted one of those beautiful gold ‘Romex’ Daytona watches that you used to be able to buy from under the table at NYC street side stands. Not sure if they sell those anymore. One thing I could never understand was the fascination with the real Rolex watches (no offense to the Rolex owners out there in machining land). They are a fashion statement I suppose and maintain their value to an extent, but they are certainly nowhere near the most accurate timepieces. My $200 Seiko (20 years old) keeps better time (+/- 20 seconds per year), but it has a quartz movement that uses a fixed generated frequency to control the movement. Most Rolexes are mechanical. I think they bagged their quartz movements about 15 years ago. Nowadays you can buy a wristwatch that automatically corrects to ‘atomic time’ which is the most accurate. A very high end jeweler I know gave up their Rolex dealership as it was stated to me that they had more problems with the watches (and their customers) than they could shake a stick at. “TIMEX….takes a lickin’ and keeps on tickin’.


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