iPhone

Made in the USA: A practical consideration for the Apple brand?

Mary Shacklett considers the issue of Apple's overseas manufacturing operations, which recently came up in a Presidential debate.

It was recently, in the second Presidential debate, where the fact that all iPhones are manufactured in China was again brought up by CNN moderator Candy Crowley. The argument most of us hear is that the cost of labor is so much lower in China than in the U.S. that it just makes sense to manufacture there -- but it's not stopping other companies like Lenovo from opening manufacturing plants in the U.S. -- and there is still a contingent of Americans out there who either remember or watch enough Turner Classic Movies to know that there was a time during World War II when companies worked together  and invested in the U.S. for the war effort, because they felt it was an obligation to the country that had given them their starts, their profits, and their opportunities.

Of course, there is more to it than that now. If you're a C-level executive in a publicly traded company today, you're assessed every quarter on your financial results by your stakeholders. Stakeholders look at the bottom line, and a favorable bottom line is attained with great revenues and low costs. "I wanted to manufacture my goods in the U.S. because I wanted to feel I was making a difference by providing new jobs," one frustrated CEO told me several years ago. "But when we looked at our costs, which were one-third of what they would be in the U.S. if we manufactured in China, and the ultimate price for the finished product that the market would bear, we couldn't afford U.S. manufacturing." Add to this the market opportunities themselves, which corporate executives are loyal to. In iPhone's case, there are some who believe that China will become its largest market.

There are also questions about flexible manufacturing and engineering options. Taiwan-owned Foxconn employs around one million people throughout China and performs work for many high tech companies, including Microsoft, Nokia, Apple and others. It was Foxconn employees who performed the assembly work on the iPhone5.

Foxconn doesn't only have inexpensive manufacturing and assembly labor. It has a labor pool that is ready, willing, and able to scale out to any level of manufacturing activity dictated by a surging market demand-and to scale down just as quickly. This isn't only "grunt" labor, either. Skilled engineers are available at virtually no cost. They were quickly dispensed to work on the non-scratchable iPhone glass screen that Apple wanted. Asian supply chains were able to quickly bring together all of the components for these devices with minimal delay, including rarer metals, which were available from local sources. Then there were the materials themselves for iPhone5, which were uniquely engineered to make the device 20 percent lighter and 18 percent thinner.

Ultimately, all iPhone users benefit from this. The fit, form and function of the device are improved. The company's ability to keep up with demand assures that we can get an iPhone right away. Just as importantly, the cost of the iPhone5 doesn't change from what an initially introduced iPhone4 or iPhone 4S costed.

Nonetheless, there is also a cogent argument for doing some investing here.

Last month, labor riots erupted in Taiyuan, the Chinese city where the iPhone5 was manufactured. Eighty thousand people took to the streets, and daily activities were disrupted.

Disruptions like this create risk for manufacturers and their supply chains. There is sound business sense in considering alternate manufacturing sites so that one of these disasters doesn't upset product plans-and the U.S. offers the stability and a large and proximate consumer market that could offset these risks. Investing here in production isn't a bad thought, either -- not even for the most hardened financial professionals. If there is a major disruption to your primary offshore production facility, be it geological, meteorological, social or other, at least you don't have all of your production, engineering, and innovation eggs in one basket. We all understand that the loudest sound that most executives listen to is the ring of the cash registers as consumers flock into stores for iPhone5s and iPads -- but Apple would likely gain some brand benefit for making a "Made in USA" effort with its latest technology.

About

Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President o...

4 comments
jonathaneaton
jonathaneaton

Whilst made in USA may be a brand in the USA in the majority of Apple's markets it could be a turn off and may actually damage branding. Most people like apple because it is not an American brand but an international brand. We can all over the world claim to add some of the technology to the apple products. However what is important is that its profits go back to the USA. These profits will outstrip any financial gain to the US economy by manufacturing in the USA. Damaging the brand by aligning it with a certain country would hurt the US economy more. This stinks a bit of protectionism.

vitec
vitec

with so many people out of work in the US, all companies could benefit from bringing work back to the USA.

Deadly Ernest
Deadly Ernest

as an Aussie, like so many other Aussie, I know and have always associated Apple with the USA as a USA company since the days of Apple IIe. I don't know anyone who thinks of it as anything BUT a USA company and their products as USA products. Heck so many of the Apple offerings are so US culture centric it's hard to think they have much of a real following outside the USA. It wasn't all that long ago Apple lost a major court case here in Australia because the new iPhone was advertised as 4G capable, at it wasn't Aussie 4G capable but US 4G capable. No one was surprised Apple had made this mistake as they didn't realise the phone system and many commands are NOT the same as the US ones.

Deadly Ernest
Deadly Ernest

ridiculously high on-costs created by BS legislation for various reasons. The cost on compliance is very high for some, and manufacturers have to meet that cost and then pass it on. here in Australia we have similar problems. Years back the ALP, owned and controlled by the union movement, passed laws that makes it almost impossible to sack anyone who's a full time employee; and even if you do have a case accepted under the law it costs a fortune to process. To give an example I know of: An employee was caught on video tape stealing company goods. To sack them for theft they had to go through a system of warning them and then catching them another two times before they could kick them out the door. As if they're going to make catching them harder after being warned. On advice from an evil minded genius, they didn't go through the Human Relations processes at all. They took the matter to the police and let them police arrest and charge them with theft, and when the person went to prison for 6 months they were able to easily dismiss them for failure to turn up at work after being sent four notices to please explain. - - A very crazy way to get rid of a thief. Anyway, one way small and medium businesses got around some of these crazy laws designed for huge corporations but applied to them was to employ a lot more part-time and casual staff. So after seeing this trend grow the ALP passed laws saying any part-time employed for more than a certain amount of time was deemed to be employed as permanent part-time. Thus part-timers started being placed on the same rosters as casuals and called casuals. When a casual was getting regular employment of enough hours or close to the period of being deemed permanent, they ceased getting rostered on for shifts for three months to reboot the count again. And the ALP wondered why the rate of employment of full-time staff was not rising, it simply wasn't economical for anyone but big business to employ them. It costs more to employ a large list of casuals, but it's less than having one case of unfair dismissal. Those costs affect the business bottom line. As do costs to meet some of the other crazy laws out there. Manufacture in the US and you have extra costs involved with meeting environmental laws, laws that don't exist in China. And that's just one item that would affect the operation. Union rules and interference is another.

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