

One Bold Move Apple Has Not Yet Made (domestic manufacturing) - subelsky
http://charmcitycurrent.com/gentlemanlymeanspursued/2010/07/12/the-one-bold-move-apple-hasnt-yet-made/

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pc
This proposal is operationally stupid and morally dubious.

From an operational/supply-chain standpoint:

Manufacturing happens in the Pearl River Delta in China for two reasons: speed
and cost. The cost is not so much a function of the cheap labour as the
proximity to component suppliers and abundance of manufacturing expertise.
It's easy to build electronics around Shenzhen for the same reason that it's
easy to build a tech start-up in the Valley. Everything you need is around the
corner.

For Apple, one must remember that everything they build is composed of
components sourced in south-east China. As a result, US-based manufacturing
would be ludicrously inefficient. Hugely increased costs, greater inventory
stockpiles, completely needless carbon emissions, and lost flexibility. It's
like proposing RAM on a USB stick. It's so inefficient as to be nonsensical.

Even if that were not the case, Apple specialize in what they're good at:
implementing great software, and designing wonderful hardware to accompany it.
It would be go entirely against the grain of Apple's culture of doing a small
number of things well to start a huge manufacturing arm. If they wanted to
increase the good they do for the US, there are vastly better ways they could
go about it.

Next, even _if_ Apple actually thought it was a good idea, they would be
unable to pull it off without a lot of trial, error, and screw-ups. Foxconn is
the Apple of manufacturing, and they're used by every major consumer
electronics company for good reason. Apple are great at what they do after
twenty years of experience, and appreciate the importance of _truly_ knowing a
problem-space. Manufacturing expertise is neither simple nor free.

Lastly, stepping aside from these operational concerns, the moral case is
weak. Why do the inhabitants of Detroit deserve jobs more than those of the
cities around Shenzhen? I've been to the Chinese factories that Apple uses.
People like their jobs. The conditions are good. I've also seen the conditions
that people who don't have jobs at Apple factories live in.

China is taking people out of poverty faster than any civilization ever has
before. Is funding innovation centers in Detroit really a better moral cause?
I don't want to turn this into a political discussion, but I believe that the
goal of bringing manufacturing jobs to the US is at least not an obviously
great one.

~~~
kls
_Why do the inhabitants of Detroit deserve jobs more than those of the cities
around Shenzhen?_

Because they pay taxes on wages they earn in my country, if not they are
supported by social programs in my country that are paid for by my tax
dollars. Change that and I am all for it, until then I prefer job creation in
my country.

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Synthetase
I think the author argues from a position of near-total ignorance.

America is a laughably bad place to base a manufacturing operation. Labor laws
and regulations are ridiculously strict. Laborers are paid more and work less
than anywhere else in the world. The science of managing global supply chains
would not exist if the collocation of development and manufacturing were so
economically opposed to each other.

He argues that Apple "could then easily — and justifiably — charge a premium
for American-made iPods or iPhones or products we haven’t even seen yet." I
don't believe I have ever read anything so fatuous. Price is dictated by what
the consumer wants to pay, not the need to make a profit as the trade with
China so persuasively demonstrates.

The future of manufacturing is Vietnam, Thailand, and Malaysia. It will not be
Detroit. It is hard to find anything other than wishful thinking in this
article.

~~~
fleitz
I agree wholeheartedly. Apple charges what people will pay already. They
aren't going to pay an extra 20% to have it made in Detroit.

The basis for the article is charity not profit. How does manufacturing their
device in Detroit provide any competitive advantages. Apple does not have the
margin or expertise to build semi-conductor fabs in Detroit, nor does the
expertise exist to run such a plant in Detroit.

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hop
The cost to manufacture the iPhone is around $190 and final assembly is only
5-7% of that. Apple gets $600 for them. Apple's genius designers and engineers
are creating the lion's share of economic value, not factory workers.

And having been to many OEM factories in southern China and Taiwan, you have
to put their labor in context - workers pour in to work and are making several
times more money than their parents did - the generational difference is
massive. Imagine making 10x more than your parents. They have job fairs with
hundreds of thousands of people wanting to work, its not forced. There is a
wide spread air of excitement and opportunity all over south east Asia.

Apple tapping these eager to work people gives them more capital to reinvest
in the 1000x more valuable jobs in Cupertino, this in turn employs a lot more
people and business in America.

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tewks
Jobs already did this with NeXT. It would be interesting to see Apple do this
as well.

They have plenty of cash with which to do so though such a project is perhaps
not the best diversion of resources for shareholders...

[http://money.cnn.com/magazines/fortune/fortune_archive/1990/...](http://money.cnn.com/magazines/fortune/fortune_archive/1990/02/26/73121/index.htm)

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brianbreslin
I don't think americans (being one myself), care as much as the author thinks
about stuff being made in america. Maybe in 1986 we did, not in 2010.

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zb
I've never quite understood why Chinese people are somehow less worthy than
Americans of having jobs.

That aside, labour costs are not actually a large proportion of the cost of
manufacturing electronics. The main reason goods like this are manufactured in
the far east is that all of the components are manufactured there, so it makes
sense to assemble them nearby. Detroit is pretty much the worst place you
could imagine for that - think of the lead times.

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workingsmart
There are a few systemic issues preventing this from happening, but otherwise
it would be a great idea for apple.

1) The Chinese people are impoverished by the Chinese government and kept that
way by the dollar peg.

2) People in China would kill to be paid what we call minimum wage here in the
USA... that is, if they were allowed to have guns.

3) The main expense in a modern manufacturing operation is not manpower but
rather the automation in the manufacturing facility itself.

4) Most of the know-how to build these factories and the companies that
manufacture automation equipment are located in China.

5) Making iphones in the USA would probably cost 5x as much as making them in
China, and at most Americans would pay 20% more to have a "Made in USA"
stamped on the iphone.

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joubert
1) they probavly considered multiple manufacturing locations already (and
probably reevaluate periodically)

2) customer base is world wide, so there isn't a geographic reason necessarily
to base manufacturing in America. Whenever I buy an Apple product (not from
their brick & mortar store), it ships directly from Shenzhen to my door here
in Manhattan (I couldn't care less if it shipped from Texas)

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DrJokepu
Even though I'm European, I would feel a lot better purchasing goods
manufactured in the States, or really anywhere in the Western World. I would
be prepared to fork out a bit more money (within reasonable limits) for such
products.

~~~
zb
Dude, if you're going to make racist comments like that you're supposed to
disguise them with some sort of parochial appeal for the good of the local
economy, not just "anywhere in the Western World". Know the game.

~~~
stcredzero
Perhaps this is based on labor policies, and not race. From the comment,
there's not enough to distinguish one motivation from the other. Jump to
conclusions much?

~~~
zb
Yes.

Do you know something about labour policies in, say, Taiwan, Japan or South
Korea that I don't?

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jrockway
I would like this too, but I'm not sure I can justify this desire in any
rational way. The reasons I hear against manufacturing in China are that the
workers are slaves that make no money, and that the quality is inferior.

But big companies seem to have the QC down; I have lots of well-made stuff
from China. I cringe at the thought that all my IKEA furniture is made in
China, but it was all perfectly manufactured and has held up wonderfully for
many years. Good design + good QA means you can get good product out of China.
(There is lots of poorly-made stuff from China, but it's poorly-made because
it's rock-bottom cheap, not merely cheap. Rock-bottom cheap stuff made
anywhere is crap.)

The next issue is the labor one. I ask myself, how would pulling all
manufacturing out of China help the Chinese people? $1/day buys more food than
$0/day, right? So would manufacturing stuff outside of China help the overall
human condition? Would it help _me_? What's the advantage here?

Just a small data point: the $4 made-in-China shirts I buy at Target seem to
be better stitched than the average $20 made-in-America shirts I buy from
American Apparel. I have had a lot of the AA shirts just completely unravel in
the first wash. I always get an apology and a replacement, but I've never had
a cheap Target T-shirt do this. So China is not automatically worse, although
I do prefer the American-made product for other reasons.

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moxiemk1
Putting aside the other issues I have with this story, Detroit seems like a
pretty bad choice for locating manufacturing. The workers that the article
alludes to being there are long used to being in a union that guarantees them
ludicrously high wages and and untold benefits. The only way I can see new
manufacturing in the US being viable is if it's unencumbered by unions (as
implemented by the UAW, etc)

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neal_s
Thanks for all the comments and feedback. I'd like to add a couple of things
to help clarify:

1\. I'm not arguing for Apple moving their entire manufacturing base to the
US. What I'm suggesting is a US facility to (as noted in the piece) produce
limited run goods. Indeed, I explicitly suggest that it be a "technology
incubator."

2\. I don't mention China once in the piece, and there's a reason for that.
This isn't about arguing against one place, just arguing for Apple (or
another, similar manufacturer) giving a piece of the game to a US facility.

Maybe it's feasible, maybe it's not. My argument is only that it would be a
win for Apple in terms of PR and brand image, and it would be a win for
wherever they did it. I'm admittedly not coming at this from a pure
tech/logistics angle.

As for the "wishful thinking" comment, I'll cop to that.

But like I said, thanks for the feedback. Good thoughts.

Neal

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ROFISH
This really isn't possible since the product assembly is only a small portion
of the "made in the USA" part. There's hard drives, flash chips, LCD screens,
and other components that are made overseas as well. Some components (like
hard drives) are 100% outsourced and Apple just puts in an off-the-shelf
(though relabeled) unit.

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mikeryan
"They could then easily and justifiably charge a premium for American-made
iPods or iPhones or products we haven’t even seen yet"

I really don't see this working out. Maybe I'm underestimating the purchasing
patriotism of the wheat belt though.

~~~
scottyallen
The cases for these American-made products could be painted to look like an
American flag. Think of the possibilities to market that to the wheat belt:)

~~~
ptomato
That is not something that Apple would ever do (while Jobs is alive, at
least).

~~~
scottyallen
I was being sarcastic:)

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zyb09
I think the split between asia making the hardware and america the software is
working very well for both sides. The world is round after all. Of course it's
cheaper for us this way, but there's also quite a bit of know-how accumulation
in asia, that we might find hard to emulate. Like pumping out millions of high
DPI Displays in just a few month - don't underestimate that.

I would be really more concerned that asia starts making it's own software and
are some-what surprised that they are struggling so much to come up with
anything useful.

~~~
cmelbye
Of course, that feat of producting millions of a product in a short period of
time is also because of how much harder laborers for lower pay over there.

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car387
Apple's done an extraordinary job managing their operating expenses, and I
don't think a move to domestic manufacturing would generate the needed premium
sales volume to justify the expense. It'd hurt their bottom line.

[http://tech.fortune.cnn.com/2010/07/12/how-apple-
maintains-e...](http://tech.fortune.cnn.com/2010/07/12/how-apple-maintains-
explosive-earnings-growth/)

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dsspence
They did open a large datacenter in North Carolina recently for mobileme and
iTunes hosting. Albeit for a 10 year tax break, but they would have received
that from any state.

~~~
tensafefrogs
Data centers usually don't have very many on-site employees, though. I think
the idea here is to move the labor to the US.

~~~
dsspence
I agree. This says only 50-100 direct employees, once operational:
[http://arstechnica.com/apple/news/2009/07/maiden-nc-now-
home...](http://arstechnica.com/apple/news/2009/07/maiden-nc-now-home-
to-1-billion-apple-data-center.ars)

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wdewind
"To that end, consider the following scenario.

Apple announces tomorrow that they’ve purchased a dormant facility in Detroit
with plans to turn it into a high-end technology incubator. They’ll produce
both internal prototypes and limited-run consumer goods. They’ll hire 500
workers and offer them comprehensive training and full benefits.

Who wouldn’t be excited by that?"

Apple?

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cmelbye
I always cringe when I see this on a new Apple product after I purchase it:
"Designed by Apple in California. Manufactured in China."

How powerful would it be if they were able to say "Designed and manufactured
by Apple in California"...

~~~
schan
It's actually manufactured in Mainland China(Not Taiwan), but it seems to be
getting expensive there, so it is making more and more sense to move some
production back to the US.

[http://www.ft.com/cms/s/2/2429f498-82fd-11df-8b15-00144feabd...](http://www.ft.com/cms/s/2/2429f498-82fd-11df-8b15-00144feabdc0.html)

~~~
cmelbye
Just updated my post after I realized that, thanks.

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mmphosis
Apple has been there and done that: <http://www.applefritter.com/node/4963>

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kemiller
I would have sworn that the fancy new unibody cases were manufactured
domestically.

~~~
CountSessine
Apple has a video on their website showcasing the unibody. The milling machine
that the unibodies are being made in is covered in Chinese characters and the
factory workers all appear to be asian.

So probably not.

~~~
kemiller
Huh. I just remember the media event where it was introduced them talking
about the almost fully-automated factory and how that meant it could be
domestic. But if the rest is still made in China I suppose that doesn't make
any sense. Must have been a rumor I misremembered.

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siculars
Every time I read "Designed in California. Made in China." I die a little
inside.

