Skills are picked up on factory floors not just in classrooms

This massive skilling of Chinese workers was one of the building blocks of a sophisticated supply chain that now spreads across the globe. Another building block was massive capital investments into China—an estimated $275 billion in the five years since 2016, for example.

McGee writes that Apple now has a network of 1,500 suppliers in 50 countries. “But all roads lead through China: 90 percent of all production occurs in the country, and its much-vaunted assembly operations in Vietnam and India are no less dependent on the China-centric supply chain”.

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These two facts—the centrality of worker  training and the dependence on China—have come together in recent weeks to complicate Apple’s plans to shift more of its mobile phone assembly operations to India. Newspaper reports say that Apple supplier Foxconn has told hundreds of Chinese engineers to return home. They are in India to train Indians employed to work in the  new assembly lines. China is also slowing down  the supply of machines needed to build these assembly lines.

Some of the hard realities that McGee has described in his book resonate in India right now, as the government seeks to deepen Indian presence in the Apple supply chain while China tries  to slow down this transition. This necessarily  complicates the geopolitical calculations of the Indian government, caught between placating China and challenging its might.

However, there is a broader economic lesson as well. Large investment projects—whether by local companies or foreign ones—have a more profound impact on an economy than the obvious increase in production. They also involve the training of workers as well as suppliers, which helps spread productivity gains across the rest of the economy over a longer period of time. 

These are the knowledge spillovers that economists often talk about.

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One of the persistent debates in India is whether we have a good enough system of skilling to prepare young workers for the job market. This is a valid concern, given the state of our education  system and the widespread preference for non-technical subjects in a country where physical work often carries a social stigma and administrative jobs in government are in high demand. 

Many of the country’s policy discussions focus on fixing the education system, both our mainstream universities as well as more specialized colleges for skilling.

What the Apple example shows us is that a lot of skilling also happens on the factory floor rather than in the classroom. Demand for skills precedes the supply of skills. Another fascinating example of this comes from the US, in an earlier era of international conflict, World War II.

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The way that American companies built capacity to help the Western Allies win the War is told engagingly in Freedom’s Forge: How American Business Produced Victory in World War II, written by historian Arthur Herman. 

One of the fascinating parts of the story he tells is about how millions of Americans who had little previous experience of working with sophisticated machines learnt those skills in quick time: “School-teachers, salesmen, clerks, hairdressers, bank tellers, and housewives became skilled aviation workers, learning to cut aluminium sheets, lay out electric cable, or buck and rivet for ten hours a stretch.”

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As the entrepreneur Yogesh Upadhyaya wrote recently in a very insightful blog post on the book: “For unskilled people to be able to perform prodigious feats of production, very skilled people had to design the factories and the process for making the munitions. And then perhaps even more skilled people had to make the machines that made machines. Also, the unskilled labour had to be taught basic skills by experienced skilled hands. America had all three sets of people.” 

The American effort was led by business leaders from two key industries: William Knudsen of General Motors and shipping tycoon Henry J. Kaiser.

The American pivot to a war economy was a relatively quick one, partly driven by the very urgency of the task. Relocating supply chains away from China in a more peaceful (though unstable) world is likely to be a longer game. The Apple-India saga shows that skills are an underestimated part of the transition.

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In his book, McGee reports on how not just the US, but even Taiwan played a huge “multi-decade role” in Chinese industrialization via investment and worker training. Taiwan itself was helped in the 1960s by Japanese companies that invested heavily in training the workforce there. So was South Korea. It is not just an Asian story. Apple sent experts from Singapore to train workers at a manufacturing plant that Foxconn bought in the Czech Republic back in 2000.

This also means that skills are still diffused across the Apple supply chain and worker training in India can perhaps be done by people from  countries other than China. 

The author is executive director at Artha India Research Advisors.