It looks like Apple Inc. (Nasdaq: AAPL)'s decision to manufacture in the US is already having the desired effect. Bloomberg reported today that Apple’s leading EMS partner, Foxconn Electronics Inc. , is also considering expanded US production.
Several news outlets say the decision is being driven by the practicalities of assembling products near the point of consumption. Apple will be building one of its Mac products in the US; devices that are bigger and bulkier than its phones and tablets.
Transportation and logistics costs in overseas shipments have been increasing, as have Chinese wages. Foxconn is the world’s largest EMS provider, and has a significant presence in China. The company recently announced it would replace some Chinese workers with robots in order to save costs. (See: Foxconn’s Solution to Labor Unrest.)
There is undoubtedly a PR aspect as well. Apple has been excoriated for its partnership with Foxconn, which reportedly uses child labor; forces workers into 24-hour shifts; underpays employees; and houses workers in crowded conditions. Apple hired a third-party labor watchdog to audit Foxconn plants, and Foxconn has since increased its wages and admitted to hiring underage staff.
Whether Apple’s move signals the rebirth of US manufacturing is up for debate. Apple’s presence in the US will be small: It’s investing $100 million in manufacturing. Although Foxconn dwarfs all of its competitors, its reliance on low-cost labor is admittedly its greatest edge. It’s very likely that Foxconn will use automation in its US factories to remain cost-competitive.
Here’s what we know so far about Apple’s plans. IHS, in an email brief this morning, reports:
Apple is apt to shift only a small percentage of its total production to the United States next year. At the same time, the company is a relatively small player in the global PC market. With the vast majority of PCs now being produced in Asia by contract manufacturers, Apple’s move is unlikely to spur a major shift in production from Asia to the United States.
In the global PC market, Apple is ranked No. 6, with a 5.8 percent share of global shipments in the third quarter of this year, as presented in the attached table.
Given Apple’s extensive overseas production, the total percentage of the company’s cost of goods sold (COGS) shifted from China to the United States in 2013 is prone to be very small. If Apple only moves production of one segment of its Macintosh product line, as reports indicate, the total shift in COGS could amount to less than 1 percent in 2013. Still, the move has some precedent in other circles.
Interestingly, Apple is not the first OEM to announce it will be moving some PC production from Asia to the United States in 2013. Chinese computer-maker Lenovo Group Ltd. in October said it would start making PCs in North Carolina next year.
Jacob, Apple Inc. actually generates almost two-thirds of its sales outside the US. In the fiscal year ended Sept. 30, the company had 39 percent of its sales from the US and 61 percent from international operations.
The US is already feeling the Apple effect. This company hasn't moved manufacturing here but the buzz is already overwhelming. It stole the PR game from under its rivals's nostrils. They'll all be falling over themselves soon about how they plan to relocate some manufacturing to the US. That's the Apple effect.
You said Apple may not be able to continue leaving profits overseas if it makes products in the US. That's currently not a big issue for the company. Sales in the US are below 50 percent -- and they will continue to decline as a percentage -- of total sales. The production to be done in the US won't amount to a quarter of Apple's sales so there are really no fears of a bulging bank account to be taxed here by the government. Plus, Apple has squirrelled so much money outside the country it now has a problem figuring out what to do with it. Why add to the headache?
I agree, readers: I don't think there will be a negative impact on quality. I also think Apple will be able to keep costs in line becuase as one reader points out, COGS is not a big part of the equation, particulalrly if you rely on automation. The one issue may be taxes--Apple enjoys a low tax rate becuase much of its revene is held overseas, and a move to the US may increase that...just a bit.
Adeniji, I don’t think any changes with quality or features. Since majority of Apple customers are from US, they have the advantage of local manufacturing, logistics and local shipping. Moreover, it’s away to express patriotism. US peoples also have a Made in US satisfaction.
Barbara, for Apple it may be a good decision because majority of their sales are from US. This will help them to reduce their logistical and inventory expenses. The story may not be same for other companies because their customers are geographically distributed across the globe.
I agree with you on that, I,m sure Apple would have done a good survey and study on this before making the decision and i,m sure Apple will get more responses and respect from more consumers
I dont think quality will be any problem. Apple is known for being trendy and quality concious. Also anything manufactured in US has really good quality. There is absolutely no second thought on that. But what is debatable is cost to manufacture. Apple has to bear the increased cost to manufacture. I guess their profit margin will be less but that should be ok for Apple because the amount of positivity they will get with this move would be huge.
Its nice to see that Apple being one of the biggest companies from US in technology are investing to manufacture locally. Hope the cost to manufacture remains low and they remain profitable even after manufactring in US.
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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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