The Customer Is Not The Customer
Patrick McGee, Apple in China, on Luxshare taking the AirPods contract at zero margin:
How [Grace] Wang won that order has become part of Apple lore. The story is that procurement head Tony Blevins struck a deal for Luxshare to assemble the earbuds at cost, no margin at all. But unlike so many similar stories, it was less about Blevins' ruthlessness, and more about Grace Wang's craftiness. She agreed to do the work for free on one condition, Tim Cook visit her factory and be photographed on the assembly line.[...]
The Apple CEO's visit was a stroke of genius on the part of Wang [...] what she understood was the profits from the deal hardly mattered relative to the public prestige of working with Apple.
[...]
Wang had two major audiences in mind.
One was the capital markets...its owners stood to make far more in the stock market than from low margins on final assembly.
[...]
The second audience for photographs of a smiling Tim Cook was Chinese government officials. Wang, who earned her assembly chops as one of the first migrant workers on the Foxconn line in 1988, came to understand the Terry Gou-led company's political savvy. She realised Apple orders, if they could be secured, could be parlayed into getting factory land and other incentives.
On paper, Apple was the customer.
In practice, it was the supplier of collateral. Luxshare was buying a photo of Tim Cook on its line, then selling it twice. To investors as momentum. To Beijing as proof it could deliver.
AirPods at cost was the down payment. The Watch followed. Then the iPhone.
The thing is not always the thing. Neither is the customer always the customer.
Apple got AirPods at cost.
Luxshare got paid in something Apple never thought to charge for.