Apple to move key iPad engineering resources to Vietnam

Manufacturing is also becoming a core engg. Just ask the semiconductor industry. That was also offshored to Asia from the west by the metric boatload because it was not considered high value and prestigious enough, and now we depend on Asia for the most high value cutting edge chips which power our ... everything, as the western companies have fallen behind and are left with the manufacturing of low value chips. How ironic.

Reminds me of that scene form 'Back to the future' where 1955 Doc finds a faulty chip in the DeLorean's time travel circuit and says "No wonder it failed, it says Made in Japan", then Marty explains to him that in 1985 all the best stuff is made in Japan. That scene aged like wine.

It's all fun and games until you have another global supply chain disruption because some component you thought is irelevant but you now find out is only made in one country that now decides not to play ball or is vulnerable to an aggressor or a natural calamity, and you can't fix it because there's no equivalent manufacturing capacity or even know-how left in the west anymore, as it was all offshored 20+ years ago so everyone who knew that field well, is now retired or doing some other job. But hey, at least some execs got some fat bonuses and career changing promotions out of it.

Vietnam's head of state and head of party can serve just as many terms as Xi Jinping has so far.

Vietnam's system as all the same trappings as China's when it comes to political dissent or anything that can "undermine the territorial sovereignty and unity", an idea that can be used to control all facets of life. There are major human rights violations and concerns occurring there as well.

The general lack of trepidation about Vietnam, from the West, is solely due to Vietnam's irrelevancy, and Vietnam playing their own irrelevancy as friendliness for their own protection, it makes sense and they have no reason to do otherwise.

My only point here is that the primary issues we have with China is not their system, just their market power.

And if you’re looking for industrious, ambitious people who will definitely not be in China’s pocket, Vietnam is a great place to look.

- China's government's unprecedented and nationally coordinated audit on Foxconn's taxes and real estates in China. You could say that it is politically motivated, given the ceo of Foxconn was at one point running for president in Taiwan. However, he has since stepped out of the race, yet the audit is still ongoing. No doubt this has scared many Taiwanese firms to quickly move out of China, since this is just part of recent trend to try to squeeze money out of any capitalists (foreign or homegrown) since China is very very broke. (no, their now dwindling $800B dollar reserves is smaller than the dollar debt they owe abroad)

- a ton of recent arrest and prevention of foreign executives from leaving China. For example Japanese https://www.reuters.com/world/asia-pacific/how-an-executives... and American https://www.nytimes.com/2023/03/24/business/china-business-c.... This has prompted many companies to pull their employees out of China. Recently Moody downgraded China's rating, and Moody issued warnings to its employees in China https://www.businessinsider.com/moodys-staff-in-china-wfh-du...

- Russia's recent nationalization of foreign company assets. Being that China is allied with Russia in war against Europe and US, supplying Russia, and has the same dictatorship quality, it is very likely China will walk down the same path of nationalizing Apple's assets

There are a lot of straws breaking the camels back but Tim Cook juiced profits centralizing in China but eventually, and it did take a while, having all of Apples fruit in one basket became untenable.

So they moved from one cheap labor authoritarian nation to the other cheap labor authoritarian nation next door.

Did you mean: different cheap labor authoritarian nation?

China's relations with Vietnam go back millennia, they even provided Vietnam with weapons and training during the their wars against France and the US. If anything China is trying to establish itself in Vietnam before anybody else can.

Vietnam, Bangladesh, Mexico and Brazil are all increasingly entwined with China when it comes to offshoring cheaper and simpler manufacturing. Expect the above nations to rapidly replace Made in China for many goods like batteries, toys, clothing and much more.

In 2018 China's trade balance accounted for 0.66% of their GDP. In 2019 it was 0.93%. In 2022 it leapt to 3.21%. In the next couple of years it will likely return to around 2% meaning that the domestic Chinese economy is responsible for adding around 98% of the value to China's GDP every year, the sum of all of China's international trade balance adds 2%. Being the Worlds factory really isn't all its made out to be, China needs to reform itself to make profitable goods not cheap ones if it wants its international trade to be as lucrative as the rest of its economy. They had a plan for 2025 but covid happened so its hard to see how much they were able to offshore, I believe clothing manufacturing has been reduced dramatically in China and they are making fewer batteries but otherwise they are probably still in the cheap industry rut.

I have seen slightly better results with offshoring from Latin America - fast feedback makes a huge difference - being able to meet frequently and provide feedback in the same time zone makes a huge huge difference.

I think that AI will rapidly slot into this niche of “indirect programming” however. As soon as token sizes allow large codebases to be be parsed and modified, it’s all over.

I just thought I’d jump in before someone talks about how [insert Ivy League school here] is the best thing since sliced bread.

The reverse is also true - people in high CoL locations tend to move out when their skillset no longer commands top compensation.

In other words, I think the available workforce, to at least some degree, sorts itself into expensive and cheap locations based on what skills are in demand.

To give a concrete hypothetical: you hire an ML research team in Poland. While ML is in demand, those people can easily get a job offer in London or Zurich and get paid 2-3 times as much. They don't even need a work permit, and it's a 90 minute flight. Why wouldn't they take it?

The reasoning is different for Latin America - there the issue is more of a language barrier. While a great many people in Asia and Europe already know or seek to learn English, the same isn’t as true in Latin America.

But it's also true that FAANG all have global offices and teams fully in places with lower salaries. They are aware of the pay differences and take advantage of them. But they can't completely have all development done in a separate time zone or even same time zone separate region (like LATAM). That slows down dev cycles, invites gaps in product understanding, and allows you to miss out on top talent who will move to get paid top dollar.

Cost was one of multiple variables determining which site we hired at. At the extremes, it was a 10x difference. The higher the salary, the more senior the team. The competition to hire and retain software engineers caused salaries to go up everywhere, but at a faster rate in the low-cost countries. And low-cost countries were our go-to source for new grads. The profiles of say Russia and China universities varied significantly e.g. experience with open source, mathematical rigor, English skills, credentials, initiative, teamwork, and relevant courses.

The core product develpoment was done in the US but over time, other sites took on more product responsibility. In some of the countries, we also wanted to be closer to our customers, in expanding markets.

It's hard to measure quality, productivity and contribution on an individual basis but it was reasonably correlated with salary. There were outliers though.

So geographically-based staffing was complicated.

I think it is also important to recognize that the engineers top American tech companies hire are often not American, they just happen to be in America. It is a geographical bias, not an American-as-nationality bias.

Engineers with unusually high skill in any particular area are geographically diffuse. You can't hire a "team" in some distant inexpensive country, there might only be one or two such engineers in the entire country and they are difficult to find. The moment a company invests in creating a concentration of domain skill where none really exists, that clustering of expertise has a natural gravity not only for engineers with those skills but for other companies that want to hire those skills. Why search for a particular engineering expertise in Bolivia when you know there are a hundred top engineers in some specific city? Even if the wages are higher, the risk is lower, hiring velocity higher, and the engineers more experienced, which has a large real ROI on its own. So people with those skills gravitate toward that concentration because that is where the money and jobs are. Wash, rinse, repeat.

There are many large cities in the world with a reputation for having a proper tech presence, albeit on a lower tier, where it is nearly impossible to hire certain expertise and experience even for Silicon Valley money.

You see the effects of this throughout tech, and not just software, where specific skill sets are oddly concentrated in one or two regions, including ones that are not particularly known for being tech or where the company that originally created the concentration became irrelevant decades ago. This expertise flywheel is how new globally leading tech hubs are created in practice e.g. Taiwan for silicon fabrication or Seattle for cloud.

This is the tech hub bootstrapping problem. You have to heavily invest in a valuable technical domain that is currently being ignored by existing tech hubs. Taking advantage of these opportunities requires vision and an appetite for risk, since it is a contrarian position almost by definition. I think this explains much in the European context, where you have large concentrations of excellent engineers but minimal investment in genuinely bold visions.

And anything that is not core product, they do outsource.

Others seek instead to make remarkable things, and for these it makes sense to throw money at the best talent. What does it matter if an engineer costs 1m/yr if they make something worth 100m - 1000m? In fact, it’s a bargain.

This phenomenon doesn’t exclusively exist in America, but the environment there is more conducive to entrepreneurs swinging for the fences than most other countries. They’ve also been playing at a high level for much longer than most, so investors there have lots of wealth to fund startups.

So that’s where you find the big salaries as well.

Thought exercise: what kind of profile would you expect of someone going into software engineering in a country where the good jobs pay 5x median wage (and ~25x global median wage) vs a country where the good jobs pay 2x median wage (and ~6x global median)?

Thought exercise: what kind of skills and experience would you expect of a 90%ile senior engineer in a country that gets lowest-bidder outsourced contract development work, vs a country that is directly employing engineers in "cutting-edge" development?

If you mean to suggest there'd be the same risks as China, consider that Vietnam has consistently kept a certain distance to China, and have shared concerns with the US over Chinese expansionism. They're not particularly ideologically close, and politically there are few potential situations where deteriorating relationships between the US and China will negatively affect US-Vietnam relations, and some where it might improve them (e.g. if the issues in the South China sea escalates).

If you've ever spent any time in Vietnam, you'd understand that.

Apple already has a growing iPhone assembly base in India, which is set to go to 25% of its total iPhone production within a few years. While Apple is still looking for low cost production, I’m sure it doesn’t want a repeat of China by concentrating a lot on one or two countries. I think the current moves are a temporary aberration, since concentrating iPhones in India, iPads and Macs in Vietnam and so on doesn’t diversify the risk as much as ensuring that every product is assembled in more than one country. I’m sure Tim Cook is spending a lot of time working on such measures to de-risk manufacturing and maintaining the company’s profit margins.

All the countries that support low cost assembly and manufacturing in Asia have different kinds of problems as far as governments, policies and stability are concerned. Apple or any other company has to figure out the right mix and plans.