Is the US Feeling the 'Apple Effect'?

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.