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Is the US Feeling the ‘Apple Effect’?

It looks like {complink 379|Apple Inc.}'s decision to manufacture in the US is already having the desired effect. Bloomberg reported today that Apple’s leading EMS partner, {complink 2125|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.

38 comments on “Is the US Feeling the ‘Apple Effect’?

  1. SP
    December 7, 2012

    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.

  2. Adeniji Kayode
    December 9, 2012

    @SP,

    That is a question Apple will answer us soon if it pays to manufacture locally.

  3. Adeniji Kayode
    December 9, 2012

    Will this move have any effect on the quality of products Apple will start to produce locally.

  4. SP
    December 9, 2012

    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.

  5. Adeniji Kayode
    December 10, 2012

    @Sp,

    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

  6. Daniel
    December 10, 2012

    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.

  7. Daniel
    December 10, 2012

    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.

  8. Barbara Jorgensen
    December 10, 2012

    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.

  9. bolaji ojo
    December 10, 2012

    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?

  10. bolaji ojo
    December 10, 2012

    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.

  11. _hm
    December 10, 2012

    Most part for Mac will come from China. Will these products be manufacured or assembled in USA?

     

  12. Susan Fourtané
    December 11, 2012

    Bolaji, 

    “Apple has squirrelled so much money outside the country it now has a problem figuring out what to do with it.”

    Does Apple really has that problem? 🙂

    -Susan 

  13. Adeniji Kayode
    December 11, 2012

    jacob,

    Don,t you think it is a good move too for Apple in the sense that it can also protect the intergrity of it products.

  14. Adeniji Kayode
    December 11, 2012

    jacob,

    Don,t you think it is a good move too for Apple in the sense that it can also protect the intergrity of it products.

  15. Adeniji Kayode
    December 11, 2012

    @_HM,

    What difference will it make if after making the move, the products still carry “Assembled in  USA” and the components came from China.

  16. Susan Fourtané
    December 11, 2012

    Adeniji, 

    In what sense do you think Apple can protect the integrity of its products? 

    -Susan 

  17. Adeniji Kayode
    December 11, 2012

    Susan,

    I feel that move should have possitive effect effect on the issue of counterfeit of products and ideas.

  18. Ariella
    December 11, 2012

    @_hm you hit on how some products use misleading descriptions. Many claim to be “made in the USA,” by which they mean assembled in the US from components made abroad.   

  19. SP
    December 11, 2012

    I guess it would be maufactured and assembled in US. That's what manufacturing locally would mean. I dont think Apple would invest in just assembling something is US when its getting made elsewhere.

  20. Adeniji Kayode
    December 11, 2012

    what effect will manufacturing and assembling have on Apple products if Apple decide to import components and assembl in the US

  21. Adeniji Kayode
    December 11, 2012

    My only concern is that the price of Apple product will not skyrock.

    will production cost be lower be at the same level with their formal manufacturing mode

  22. _hm
    December 12, 2012

    @Ariella: Yes, if 50% or more parts / value add on services are crearted in USA, product is manufactured in USA. If not, it is assembled in USA.

  23. Ariella
    December 12, 2012

    @_hm So you only need half. Thanks for clarifying that. 

  24. _hm
    December 12, 2012

    @Ariella: Thanks for feedback. If organization is very bold and confident in their product, they should mention % of part manufactured/created in USA. With this transperancy, customer may like to purchase those products. Will Apple do it? If not, Google or Samsung should do it.

     

     

  25. Ariella
    December 12, 2012

    @_hm I agree that they should, but I rather doubt that they will. 

  26. Susan Fourtané
    December 13, 2012

    Adeniji, 

    By ideas you mean their creativity? Because I don't see how that can be affected. 

    -Susan 

  27. Adeniji Kayode
    December 13, 2012

    @susan,

    You are correct, Its just a matter of time till we find a tablet that measures up with Ipad.

  28. Susan Fourtané
    December 13, 2012

    Adeniji, 

    Do you think there is one already in existence with those characteristics? 

    -Susan 

  29. Adeniji Kayode
    December 13, 2012

    @Susan,

    Well, some of the other tablets I have seen, Samsung galaxy tab 2 seems to be close to Ipad and it has more users too.

  30. Susan Fourtané
    December 13, 2012

    Adeniji, 

    Samsung tablets seem to be coming up strong, and competitive. However, to what would you attribute “more users”, to lower price? 

    -Susan 

  31. Adeniji Kayode
    December 13, 2012

    @susan, yes, I believe lower price is a reason, other reasons are good battery life and that android OS seems to have more and free applications than iOS.

  32. bolaji ojo
    December 13, 2012

    Susan, There are numerous devices that measure up to the iPad and may even be better. Many don't know this but Apple's No. ranking in tablet PCs is being challenged by Samsung and it would most likely be surpassed by Android devices in the next few years.

  33. Adeniji Kayode
    December 14, 2012

    Good point Bolaji,

    Many people are begining to embrace the android devices and then the android devices are offering more for less. This is a major source of advert for android devices, for example you could get an android phone with so many applications and even features like tethering for less than $65.

  34. Daniel
    December 17, 2012

    Bolaji, that's interesting. So far I though majority of sales and revenue are from different US states and Canada. But in most of the Asian countries and China, Apple products are not so popular and Samsung products are so common in market.

  35. Daniel
    December 17, 2012

    Adeniji, I don't think any importance in that. They already implemented various measures to protect the IP rights and integrity. But I think it can give a good impact to US economy because the currency is rotating in US market with in a loop.

  36. Susan Fourtané
    December 31, 2012

    Adeniji, 

    I don't know if Android OS has more apps than iOS, or the quality of them. I do know, though, that iOS has plenty of quality apps (250.000?), many of which are free. Once again I am going to tell than quantity is nothing without quality.

    -Susan 

  37. Susan Fourtané
    January 1, 2013

    Rich, 

    Yes. I am more familiar with iOS apps, and for that I can speak of the quality of them. Adeniji said that Android has more apps, and more free apps, and that was one of the reasons people buy them more. I say it's a matter of price. What is your experience after having sold both? 

    -Susan

    Edit: Yay! This is the first comment on EBN in 2013. 🙂 

  38. Susan Fourtané
    January 2, 2013

    Thanks, Rich. 

    Yes, that is something that is good to notice. Most of the time there is a reason why one product is more expensive than the other, i.e. an Apple tablet vs. and Android tablet, apps is one of those reasons- 

    -Susan

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