If there were any question Apple Inc. (Nasdaq: AAPL) CEO Tim Cook is putting his own imprint on the iconic company, it can be put to rest. Apple is moving some of its manufacturing back to the US, the New York Times reports. Is this an appeasement move toward Apple critics or a sound business decision?
The NYT says Apple intends to invest $100 million in US manufacturing, a small fragment of its overall worth and its ready cash. Nevertheless, the paper quoted Cook as saying his company has some level of responsibility for creating jobs.
Cook, who rose through the operations and supply chain ranks, has a compelling business argument, as well. Apple manufactures most of its products through Foxconn Electronics Inc. , which has a huge presence in China. In spite of the advantages of low-cost overseas labor, transportation expenses (in the form of oil and gas) and Chinese wages are increasing. And China's currency is gaining strength. Analyses from the Treasury Department, Boston Consulting Group, and IDC have demonstrated that as these costs increase, China's labor advantages decrease.(See: US Gains Edge as China’s Currency Strengthens , Reshoring the US Economy, and Electronics Seen Benefiting as China's GDP Doubles.)
Assembling products near the end-market (in this case, the US) makes financial sense. Shipping products with any kind of bulk from China is time-consuming and increasingly costly. Apple releases its newest products first in the Americas and then rolls them out through the rest of the world. Cook told the NYT that some of its larger products ("larger" being a relative term), such as the iMac, will be made in the US, and jobs will include more than just final assembly.
Cook has made a number of significant moves at Apple from both the business and supply chain perspectives. Apple has released a small tablet, the iPad mini, contrary to former CEO Steve Jobs' assertion that a small tablet wouldn't catch on. Cook has pushed for supply chain transparency, releasing the names of Apple's leading suppliers and publishing findings about its partners' labor practices. Apple has been widely criticized for its alliance with Foxconn, which hires underage workers and forces employees to work long shifts at low wages. Cook has even apologized publicly for his company's stumblings -- something his predecessor never did.
At the same time, though, Apple is suing one of its biggest suppliers, Samsung Corp. over patent infringement. Samsung manufactures chips and the much-praised Retina display that go into Apple products.
Cook may be trying to defuse ongoing criticism of Apple's dependence on foreign labor. Apple, like other high-tech manufacturers, also holds much of its cash reserves overseas, avoiding US taxes. Establishing a US site would add marginally to the tax base. It remains to be seen what jobs Apple would create and where those jobs would be.
Does it matter what is behind Cook's onshoring plans? Is this a PR ploy or a smart business move? I'd like to hear your opinion.
I'm glad to see not everyone is as cynical as I am regarding Apple :-) I do think Apple is a responsible company and is aware of its shareholders. And the data outlined in the last few comments bears that out cost-wise, China is losing its advantage, and that can only be good for the US and Europe. I don't wish ill on China, just more parity.
Earnings are increasing in China and people's expectations are also rising. This means the cost for anyone wishing to manufacture in China will have to increase also. Apple has probably seen this trend.
Manufacturing in China will probably be very cheap for a few more years but the chances are it is not going to be as attractive as it is today. As people's expectations increase, they become more picky in terms of jobs and their salaries and benefits. In order to keep the wheels turning, the employers will have to become more generous.
Although I can't comment on Apple's motives, I know from research I conducted this year for IPC what drove that decision for other electronics companies that have moved operations back to North America in the past four years. None of them mentioned PR or consumer sentiment as a driver. The number-one reason was quality control, followed closely by the rising costs of manufacturing and transportation. Other reasons cited included intellectual property control, the need to be close to customers, management costs (travel, etc.) and the need to improve customer service.
The IPC study, "On-Shoring in the Electronics Industry", was published in August of this year. Contact me for more information: sharonstarr@ipc.org or go to www.ipc.org.
I agree with chipmonk; it's not entirely PR-related; that would be a very cynical move by Apple. Manufacturer that co-locate product development and manufacturing can leverage internal expertise to improve both simultaneously. The US and Europe lost the manufacturing knowledge and expertise by first outsourcing it, then offshoring it. It also had other negative (as well as positive, admittedly) effects. So it's good to see this, whatever the rationale.
@Barbara I don't think they would automatically copy what Apple does just because Apple did it. But they may look at the impact it has for Apple to see if it proves a positive move that would pay off for them, too.
Apple is a trend leader whether it wants to be or not. The company was held up as the poster child for worker abuse in China, and now reshoring. I agree that it would be great to see more companies follow Apple's lead. It's funny, though: companies blindly went to China becuase that's where their competitors were--some w/o a good business reason. Could the same happen in the US? Will other companies follow simply becuase Apple did it?
This is a PR stunt. Mostly. Though it could also be an attempt to test US manufacturing waters. This reminds me re: Detroit's attitude towards EV's ... they dont, but for PR purposes keep dabbling.
It may be Apple getting US DoD contract and requirement must be made in USA. Also, other value added market like application of Apple product in medical instrumentation may be manufactured in USA.
With its supply chain stretched all over the world, frequent model changes is getting tough for Apple. Samsung does not have that problem as from the get go they had taken the honest ( but initially hard on the bottomline ) decision of building most everything ( from silicon to systems ) in house. They are already reaping the benefits - by bringing out an enormous number of models at many price points and outstripping Apple in SmartPhones sales 2:1. Soon Samsung will have better hardware ( certainly display ) compared to Apple. The handwriting is on the wall.
But to get the same soup to nuts capability as Samsung, the $100 million mentioned here is just a drop in the bucket. To build up similar fast turn - around mfg. capability ( mostly robots and people to run them ) here in N. America with a target throughput of 500 million units a year, Apple would have to invest something north of $ 15 billion.
Otherwise, I am afraid there will soon be a replay of the Mac vs PC duel that the cheaper, cruder Wintel m/c s won 20:1.
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Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
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