One Bold Move Apple Has Not Yet Made (domestic manufacturing)

This proposal is operationally stupid and morally dubious.

From an operational/supply-chain standpoint:

Manufacturing happens in the Pearl River Delta in China for two reasons: speed and cost. The cost is not so much a function of the cheap labour as the proximity to component suppliers and abundance of manufacturing expertise. It's easy to build electronics around Shenzhen for the same reason that it's easy to build a tech start-up in the Valley. Everything you need is around the corner.

For Apple, one must remember that everything they build is composed of components sourced in south-east China. As a result, US-based manufacturing would be ludicrously inefficient. Hugely increased costs, greater inventory stockpiles, completely needless carbon emissions, and lost flexibility. It's like proposing RAM on a USB stick. It's so inefficient as to be nonsensical.

Even if that were not the case, Apple specialize in what they're good at: implementing great software, and designing wonderful hardware to accompany it. It would be go entirely against the grain of Apple's culture of doing a small number of things well to start a huge manufacturing arm. If they wanted to increase the good they do for the US, there are vastly better ways they could go about it.

Next, even if Apple actually thought it was a good idea, they would be unable to pull it off without a lot of trial, error, and screw-ups. Foxconn is the Apple of manufacturing, and they're used by every major consumer electronics company for good reason. Apple are great at what they do after twenty years of experience, and appreciate the importance of truly knowing a problem-space. Manufacturing expertise is neither simple nor free.

Lastly, stepping aside from these operational concerns, the moral case is weak. Why do the inhabitants of Detroit deserve jobs more than those of the cities around Shenzhen? I've been to the Chinese factories that Apple uses. People like their jobs. The conditions are good. I've also seen the conditions that people who don't have jobs at Apple factories live in.

China is taking people out of poverty faster than any civilization ever has before. Is funding innovation centers in Detroit really a better moral cause? I don't want to turn this into a political discussion, but I believe that the goal of bringing manufacturing jobs to the US is at least not an obviously great one.

I think the author argues from a position of near-total ignorance.

America is a laughably bad place to base a manufacturing operation. Labor laws and regulations are ridiculously strict. Laborers are paid more and work less than anywhere else in the world. The science of managing global supply chains would not exist if the collocation of development and manufacturing were so economically opposed to each other.

He argues that Apple "could then easily — and justifiably — charge a premium for American-made iPods or iPhones or products we haven’t even seen yet." I don't believe I have ever read anything so fatuous. Price is dictated by what the consumer wants to pay, not the need to make a profit as the trade with China so persuasively demonstrates.

The future of manufacturing is Vietnam, Thailand, and Malaysia. It will not be Detroit. It is hard to find anything other than wishful thinking in this article.

The cost to manufacture the iPhone is around $190 and final assembly is only 5-7% of that. Apple gets $600 for them. Apple's genius designers and engineers are creating the lion's share of economic value, not factory workers.

And having been to many OEM factories in southern China and Taiwan, you have to put their labor in context - workers pour in to work and are making several times more money than their parents did - the generational difference is massive. Imagine making 10x more than your parents. They have job fairs with hundreds of thousands of people wanting to work, its not forced. There is a wide spread air of excitement and opportunity all over south east Asia.

Apple tapping these eager to work people gives them more capital to reinvest in the 1000x more valuable jobs in Cupertino, this in turn employs a lot more people and business in America.

Jobs already did this with NeXT. It would be interesting to see Apple do this as well.

They have plenty of cash with which to do so though such a project is perhaps not the best diversion of resources for shareholders...

http://money.cnn.com/magazines/fortune/fortune_archive/1990/...

I don't think americans (being one myself), care as much as the author thinks about stuff being made in america. Maybe in 1986 we did, not in 2010.

I've never quite understood why Chinese people are somehow less worthy than Americans of having jobs.

That aside, labour costs are not actually a large proportion of the cost of manufacturing electronics. The main reason goods like this are manufactured in the far east is that all of the components are manufactured there, so it makes sense to assemble them nearby. Detroit is pretty much the worst place you could imagine for that - think of the lead times.

There are a few systemic issues preventing this from happening, but otherwise it would be a great idea for apple.

1) The Chinese people are impoverished by the Chinese government and kept that way by the dollar peg.

2) People in China would kill to be paid what we call minimum wage here in the USA... that is, if they were allowed to have guns.

3) The main expense in a modern manufacturing operation is not manpower but rather the automation in the manufacturing facility itself.

4) Most of the know-how to build these factories and the companies that manufacture automation equipment are located in China.

5) Making iphones in the USA would probably cost 5x as much as making them in China, and at most Americans would pay 20% more to have a "Made in USA" stamped on the iphone.

1) they probavly considered multiple manufacturing locations already (and probably reevaluate periodically)

2) customer base is world wide, so there isn't a geographic reason necessarily to base manufacturing in America. Whenever I buy an Apple product (not from their brick & mortar store), it ships directly from Shenzhen to my door here in Manhattan (I couldn't care less if it shipped from Texas)

Even though I'm European, I would feel a lot better purchasing goods manufactured in the States, or really anywhere in the Western World. I would be prepared to fork out a bit more money (within reasonable limits) for such products.

I would like this too, but I'm not sure I can justify this desire in any rational way. The reasons I hear against manufacturing in China are that the workers are slaves that make no money, and that the quality is inferior.

But big companies seem to have the QC down; I have lots of well-made stuff from China. I cringe at the thought that all my IKEA furniture is made in China, but it was all perfectly manufactured and has held up wonderfully for many years. Good design + good QA means you can get good product out of China. (There is lots of poorly-made stuff from China, but it's poorly-made because it's rock-bottom cheap, not merely cheap. Rock-bottom cheap stuff made anywhere is crap.)

The next issue is the labor one. I ask myself, how would pulling all manufacturing out of China help the Chinese people? $1/day buys more food than $0/day, right? So would manufacturing stuff outside of China help the overall human condition? Would it help me? What's the advantage here?

Just a small data point: the $4 made-in-China shirts I buy at Target seem to be better stitched than the average $20 made-in-America shirts I buy from American Apparel. I have had a lot of the AA shirts just completely unravel in the first wash. I always get an apology and a replacement, but I've never had a cheap Target T-shirt do this. So China is not automatically worse, although I do prefer the American-made product for other reasons.

Putting aside the other issues I have with this story, Detroit seems like a pretty bad choice for locating manufacturing. The workers that the article alludes to being there are long used to being in a union that guarantees them ludicrously high wages and and untold benefits. The only way I can see new manufacturing in the US being viable is if it's unencumbered by unions (as implemented by the UAW, etc)

Thanks for all the comments and feedback. I'd like to add a couple of things to help clarify:

1. I'm not arguing for Apple moving their entire manufacturing base to the US. What I'm suggesting is a US facility to (as noted in the piece) produce limited run goods. Indeed, I explicitly suggest that it be a "technology incubator."

2. I don't mention China once in the piece, and there's a reason for that. This isn't about arguing against one place, just arguing for Apple (or another, similar manufacturer) giving a piece of the game to a US facility.

Maybe it's feasible, maybe it's not. My argument is only that it would be a win for Apple in terms of PR and brand image, and it would be a win for wherever they did it. I'm admittedly not coming at this from a pure tech/logistics angle.

As for the "wishful thinking" comment, I'll cop to that.

But like I said, thanks for the feedback. Good thoughts.

Neal

This really isn't possible since the product assembly is only a small portion of the "made in the USA" part. There's hard drives, flash chips, LCD screens, and other components that are made overseas as well. Some components (like hard drives) are 100% outsourced and Apple just puts in an off-the-shelf (though relabeled) unit.

"They could then easily and justifiably charge a premium for American-made iPods or iPhones or products we haven’t even seen yet"

I really don't see this working out. Maybe I'm underestimating the purchasing patriotism of the wheat belt though.

I think the split between asia making the hardware and america the software is working very well for both sides. The world is round after all. Of course it's cheaper for us this way, but there's also quite a bit of know-how accumulation in asia, that we might find hard to emulate. Like pumping out millions of high DPI Displays in just a few month - don't underestimate that.

I would be really more concerned that asia starts making it's own software and are some-what surprised that they are struggling so much to come up with anything useful.

Apple's done an extraordinary job managing their operating expenses, and I don't think a move to domestic manufacturing would generate the needed premium sales volume to justify the expense. It'd hurt their bottom line.

http://tech.fortune.cnn.com/2010/07/12/how-apple-maintains-e...

They did open a large datacenter in North Carolina recently for mobileme and iTunes hosting. Albeit for a 10 year tax break, but they would have received that from any state.

"To that end, consider the following scenario.

Apple announces tomorrow that they’ve purchased a dormant facility in Detroit with plans to turn it into a high-end technology incubator. They’ll produce both internal prototypes and limited-run consumer goods. They’ll hire 500 workers and offer them comprehensive training and full benefits.

Who wouldn’t be excited by that?"

Apple?

I always cringe when I see this on a new Apple product after I purchase it: "Designed by Apple in California. Manufactured in China."

How powerful would it be if they were able to say "Designed and manufactured by Apple in California"...

Apple has been there and done that: http://www.applefritter.com/node/4963

I would have sworn that the fancy new unibody cases were manufactured domestically.

Every time I read "Designed in California. Made in China." I die a little inside.