Apple's overseas manufacturing operations offer flexibility, not just savings - report

Posted:
in iPhone edited January 2014
An in-depth report on Apple's manufacturing operations details the gains in flexibility, diligence and skilled labor availability that the company gains from producing its devices overseas, while offering rare commentary from its current and former executives.



The New York Times presented on Saturday a close look at the Cupertino, Calif., company's move toward foreign production. The article was based on more than three dozen interviews with current and former Apple employees and contractors, as well as talks with "economists, manufacturing experts, international trade specialists, technology analysts, academic researchers, employees at Apple’s suppliers, competitors and corporate partners, and government officials."



According to the report, Apple holds a "central conviction" that overseas production facilities offer scale, flexibility, diligence and skilled workers that U.S. factories are no longer able to match.



Authors Charles Duhigg and Keith Bradsher related an anecdote from a dinner last February with President Barack Obama, Apple co-founder Steve Jobs, and several other tech luminaries. Obama reportedly asked Jobs why Apple is unable to to bring is manufacturing back to the U.S.



A guest at the dinner noted that Jobs candidly replied, "Those jobs aren't coming back."



Though Apple employs 43,000 people in the U.S., twice as many as it does overseas, some have criticized the company for not creating more jobs in its home country. The report noted that an additional 700,000 people work on Apple's products via the company's network of contractors, but most of them are located outside of the U.S.



“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, a former economic adviser to the White House.





Jobs and President Obama at a dinner last year.





But, the company's executives have indicated that moving work overseas is their only option. A former executive recounted an instance prior to the launch of the original iPhone where 8,000 employees were woken up in the middle of the night to begin outfitting glass screens, a last-minute addition for the handset. Within just a few days, the factory was producing more than 10,000 iPhones a day.



“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”



Sources revealed that the last-minute adjustment came about because Jobs demanded a change in the iPhone just weeks before its scheduled launch. He had reportedly noticed that the keys in his pockets had scratched a prototype device he had been testing.



“I won’t sell a product that gets scratched,” Jobs was noted as saying. “I want a glass screen, and I want it perfect in six weeks.”



One Apple executive left the meeting and quickly booked a flight to Shenzhen, China to address the issue, according to the report.



Betsey Stevenson, the Labor Department's chief economist until last year, said U.S. companies used to prioritize American workers even when it meant higher costs. “That’s disappeared," she said. "Profits and efficiency have trumped generosity.”



But, others took issue with the claim, noting that workers with the mid-level skills required for factory work are in short supply in the U.S.



One Apple executive defended Apple's decision to produce iPhones overseas by noting that the device is sold in more than a hundred countries. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible,” the executive said.



“We shouldn’t be criticized for using Chinese workers,” one current Apple executive told the publication. “The U.S. has stopped producing people with the skills we need.”



The company did, however, used to pride itself on making its products at home. For instance, Jobs told the Times in 1984 that the first Macintosh was "a machine that is made in America."



Tim Cook, Apple's former chief operations officer and current chief executive officer, has been credited with developing Apple's overseas supply chain. One former high-ranking executive said that Cook decided to move much of its manufacturing to Asia because it can "scale up and down faster" and "Asian supply chains have surpassed what's in the U.S."



“The entire supply chain is in China now,” said a different former Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”



Apple manufacturing partner Foxconn has risen to become a giant in the industry. The company is estimated to assemble 40 percent of the world's consumer electronics.



“They could hire 3,000 people overnight,” said Jennifer Rigoni, who served as Apple’s worldwide supply demand manager until 2010. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”



"Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones," the report read.



The effort took just 15 days in China, compared to estimates by Apple's analysts that it would take nine months to find the necessary workers in the U.S.



Economists expect that the U.S. economy will adapt and find a way to replace some of the middle-class jobs it has lost overseas, but they warn that some workers, especially older ones, could be left behind during the transition.



“New middle-class jobs will eventually emerge,” said Lawrence Katz, a Harvard economist. “But will someone in his 40s have the skills for them? Or will he be bypassed for a new graduate and never find his way back into the middle class?”



For its part, Apple has lobbied the government to allow a tax holiday that would allow it and other American corporations to bring home overseas cash. The WIN America lobbying group, which Apple supports, argues that doing so would allow the companies to create more jobs in the U.S. Two-thirds of the iPhone maker's $81 billion cash hoard is currently located overseas.

«1345678

Comments

  • Reply 1 of 148
    Quote:
    Originally Posted by AppleInsider View Post










    maybe wrong link
  • Reply 2 of 148
    wizard69wizard69 Posts: 12,672member
    Seriously there are good reasons to wake somebody in the middle of the night, sticking screens on iPhones isn't one of them. I smell a workers revolt coming to China.



    They are right about one thing though, it would be very hard to find Americans willing to work with those sorts of expectations. Who would want to be packed in a dorm just to have a job.
  • Reply 3 of 148
    If Apple could first create assembly factories in the USA and then gradually move the parts manufacturing here it would get the ball rolling. If they started the assembly here, local companies would spring up to supply parts. That is how it works. That is how it works in China too. Apple could take the first step by assembling iPods here and then other products.



    It would take much less money to ship containers of parts to the USA than individually boxed products. In time those parts would be coming from within the USA.



    All of the benefits Apple claims are in China would become the norm in the USA in time.



    From the article:

    "One Apple executive defended Apple's decision to produce iPhones overseas by noting that the device is sold in more than a hundred countries. ?We don?t have an obligation to solve America?s problems. Our only obligation is making the best product possible,? the executive said."





    It is true that there is no morality requirement within any corporate structure. That comes form leadership. Leaders show us their morality in the ways they operate their businesses. Apple claims a moral high ground every time they proclaim how environmentally friendly their products are made. They do that also when they look into labor practices in China and publicize it. So when an Apple executive says they don't have an obligation to solve Americas problems, it is a lapse in moral judgement.



    If Apple wants to play the morals game, then they should be all in and start helping the nation where they sell their products. I know that China is the new market that will dwarf the US market soon. If they want to abandon the USA then they might as well move all of Apple to China. At least that way they can claim to be supporting their home country. I wonder what the Chinese government would do to Apple if it were based there. Would they start ordering Apple to make products for the government for free? Would they tell Apple it could no longer sell the good products to the foreign markets? Who knows what a communist government would do to them.



    Apple has freedom in the USA. They should support that freedom by manufacturing products in the USA.
  • Reply 4 of 148
    Quote:
    Originally Posted by Smallwheels View Post


    So when an Apple executive says they don't have an obligation to solve Americas problems, it is a lapse in moral judgement.



    When someone thinks that solving America's problems is more important than caring about problems all around the world, ignoring the problems of Chinese workers who might become equally as unemployed, for instance, or the benefits Apple has given to those people who are generally worse off than the residents of Flint, Michigan, then I think there has been a lapse of moral judgment. If you want to talk about patriotism, go right ahead. If you want to talk about morality, however, I think you're missing something.
  • Reply 5 of 148
    shompashompa Posts: 340member
    Just suggesting that other countries have more skill to produce stuff then other countries is plain racism. Its ok as long as the racism is against "western" countries.



    There is nothing that the chinese can manufacture that US/EU can't manufacture at the same/better quality. The problem is regulations and corrupt governments that are in the corporations pockets.



    Outsourcing is one of the most destructive things to western countries. Just look at the rise of Samsung and HTC. Both companies started as OEMs to westerns companies. Then they figured out that they could use the same devices and put their own brand in on them. They have no culture of innovation, but great culture of OEMing.



    The people who write these reports show the same self hate as many other seems to have.

    These kinds of reports would never be published in non western countries. Not even in countries that are in the stone age.



    Nationalism is good. Its time to bring back EU/USA jobs home. Our politicians job is to make it possible. Education/taxes/permits. Instead our politicians are today like Football teams. Some cheer for one team, and others for the other. Almost like religion. *hint* No politic ideology is 100% right, every single issue should be addressed by facts and evidence. Not team ideology like today. That is why no one should have a "party" that they vote for.
  • Reply 6 of 148
    drdoppiodrdoppio Posts: 1,132member
    Quote:
    Originally Posted by AppleInsider View Post


    ...





    Jobs and President Obama at a dinner last year.



    ...



    Wow, that dinner looks like... like a disaster...
  • Reply 7 of 148
    Quote:
    Originally Posted by shompa View Post


    Just suggesting that other countries have more skill to produce stuff then other countries is plain racism. Its ok as long as the racism is against "western" countries.



    There is nothing that the chinese can manufacture that US/EU can't manufacture at the same/better quality. The problem is regulations and corrupt governments that are in the corporations pockets.



    Outsourcing is one of the most destructive things to western countries. Just look at the rise of Samsung and HTC. Both companies started as OEMs to westerns companies. Then they figured out that they could use the same devices and put their own brand in on them. They have no culture of innovation, but great culture of OEMing.



    The people who write these reports show the same self hate as many other seems to have.

    These kinds of reports would never be published in non western countries. Not even in countries that are in the stone age.



    Nationalism is good. Its time to bring back EU/USA jobs home. Our politicians job is to make it possible. Education/taxes/permits. Instead our politicians are today like Football teams. Some cheer for one team, and others for the other. Almost like religion. *hint* No politic ideology is 100% right, every single issue should be addressed by facts and evidence. Not team ideology like today. That is why no one should have a "party" that they vote for.



    So the steps to create your utopia would be to:



    1) Remove the minimum wage.

    2) Create general poverty and massive unemployment so that there is not just a labor glut in the US but a labor crisis forcing people to either work for a dollar a day, or face starvation.

    3) Deregulate so that companies don't have to provide their workers with safe working environments, fair labor standards, or fair benefits.

    4) Move the jobs back to the US.



    What you don't understand is that while labor conditions in China have improved greatly due to the impact of international business, those labor conditions are still massively worse than anything that's acceptable in the US. This is not a problem with the US. It's a result of the success of the US system. This is why labor is so much cheaper in China, and why efficiency is also so much better.



    Eventually, as China becomes more modern socially and politically, labor conditions, and expense, will continue to increase in China. Then labor will move somewhere else that has terrible and cheap conditions, where those places can be given an opportunity to improve (this is a good thing, morally speaking). This kind of labor will never return to the US, thank God, for it to do so would mean that the US has sunk to third world economic status.



    Of course if the Republicans have their way, that might just happen. A good number of people might just become so poor that we are forced to cut the minimum wage and allow companies to hire people for $1 a day. Then I guess you could say the Republicans were responsible for the return of manufacturing jobs to the US! Yay!
  • Reply 8 of 148
    Quote:
    Originally Posted by tonton View Post


    So the steps to create your utopia would be to:





    What you don't understand is that while labor conditions in China have improved greatly due to the impact of international business, :?



    Eventually, as China becomes more modern socially and politically, labor conditions, and expense, will continue to increase in China. Then labor will move somewhere else that has terrible and cheap conditions, where those places can be given an opportunity to improve (this is a good thing, ?



    Of course if the Republicans have their way, that might just happen. A good number of people might just become so poor that we are forced to cut the minimum wage and allow companies to hire people for $1 a day. Then I guess you could say the Republicans were responsible for the return of manufacturing jobs to the US! Yay!







    :Indeed!



    Germany ( which fears China will knock out its industrial output ) is trying to do the same thing in the southern european countries ( austerity is to punish and impoverish ). But it will be still impossible to catch up with Brazil, India and China massive soon-to-be-lift-out of poverty workforce.
  • Reply 9 of 148
    irelandireland Posts: 17,539member
    And cheaper labour + higher quality.



    Meanwhile, I don't want to talk about Obama as it will only make me angry.
  • Reply 10 of 148
    lukeilukei Posts: 329member
    Quote:
    Originally Posted by shompa View Post


    Outsourcing is one of the most destructive things to western countries. Just look at the rise of Samsung and HTC. Both companies started as OEMs to westerns companies. Then they figured out that they could use the same devices and put their own brand in on them. They have no culture of innovation, but great culture of OEMing.



    Wrong ref Samsung, they have a long history of internal supply and innovation before they even took an order outside their own country. They also have a significant number of patents and history of innovation (37 awards at CES this year alone). Don't believe the hype which is often highly offensive to the highly qualified engineers they have at Samsung...



    Top-50 US Patent Assignees in 2010 (As reported by IFI)

    International Business Machines Corp\t5896

    Samsung Electronics Co Ltd (Korea)\t 4551



    Fact is factories (i.e. workers) in China/Vietnam/Taiwan/South Korea/etc are significantly more flexible in their attitude and are willing to do work which the West has long since lost interest in doing. That's based on 20 plus years of dealing with factories in Europe, US and Asia. The real issue for the West now is that the middle class is growing, particularly in China, and the ability to hire worker as described in the article is becoming harder and harder. Put simply less people in Asia want to work in factories.
  • Reply 11 of 148
    jragostajragosta Posts: 10,473member
    Having manufactured and sourced products from around the world, I have experience on both sides of this topic. The truth is that neither extreme is fully correct - the truth is somewhere in between.



    Is it true to say that it's impossible to get the work force needed in the U.S.? No. There are workers in the U.S. who will do what is needed. To cite one example, I managed a company that averaged just over $1 M in shipments per month. We got an emergency order one Friday for product that required us to ship $600 K worth of product the following Monday. We were able to accomplish that by bringing in people over the weekend. It CAN be done.



    OTOH, the work ethic here is different than it is in China and other developing countries. In many parts of the world, survival depends on doing everything your employer asks of you. If they want you to come in in the middle of the night to cut glass screens, you do it. In the U.S., the more common response would be "I'll be there in the morning" because of overtime laws and because people figure they can get another job. Plus, there is a belief in work-life balance here that just doesn't exist elsewhere.



    It's a self-correcting phenomenon. When I was younger, Japan was much as China is today. Employees worked 70 or 80 hours. Taking vacation was frowned upon. Labor rates were low. Today, employers WANT you to take your vacation and work week is more in line with global standards. Salaries are easily comparable to developed countries. The same thing is happening in China.



    In addition, there are structural differences that are probably more important than the labor rates:

    - Health and safety rules. These cost American manufacturers billions of dollars. I'm not arguing that they should be eliminated, but it is clear that they add cost to U.S. manufactured product.

    - Environmental rules

    - Legal liability

    - Tax rates

    - Overheads (facility costs, indirect costs)

    - Workplace rules on what employees will do (ask a plant manager to add 'toilet cleaning' to his list of job responsibilities and see what happens).

    - And the big one -- currency manipulation. A MAJOR factor in China's rise to its huge role in global manufacturing is the fact that they artificially manipulated the value of the yuan over the last 30 years.

    And so on



    The only way to level the playing field would be for countries to implement tariffs to adjust for those societal standards. For example, if we require that an item be produced in a safe, environmentally clean manner, we should require the same thing whether it is produced domestically or imported. If the importer refuses to do so, there should be a tariff to make up for that cost advantage. Similarly, we should not tolerate currency manipulation from foreign governments - although this would have been easier if we had taken action 20 years ago in the case of China.



    Unless we address these issues on a macro scale, it is entirely unreasonable to expect individual companies to simply ignore them and pretend that they're not at a disadvantage when they manufacture something in the U.S.



    Now, that is not to say that there is no place for U.S. manufacturing. Just that it's harder. For example, I had one job where our product was an essential safety product and delivery times were critical. Well over 10% of our deliveries had to be shipped in under a day (sometimes the same day). If you have to add a full day in travel time, that would make the product impractical - so Chinese production was not an issue for this particular market. Being successful as a U.S. manufacturer isn't easy, but it can be done.
  • Reply 12 of 148
    Quote:
    Originally Posted by lukei View Post


    Fact is factories (i.e. workers) in China/Vietnam/Taiwan/South Korea/etc are significantly more flexible in their attitude and are willing to do work which the West has long since lost interest in doing. That's based on 20 plus years of dealing with factories in Europe, US and Asia. The real issue for the West now is that the middle class is growing, particularly in China, and the ability to hire worker as described in the article is becoming harder and harder. Put simply less people in Asia want to work in factories.



    This is because these (together with Eastern Europe, India and to some extent Latin America) are emerging economies. Once they have completed "emerging", they will no longer have the economic appetite for this type of mass labor. These jobs will move to the new emerging economies. India is the last of these economies which will rise, and some will rise faster than others. China has been rising quickly, and will continue to do so, but there are a lot of regions in China that remain untapped in terms of labor migration, so they have a long way to go. That's why China remains a great place to do business.



    Assuming no political or other economic disasters in the current and future emerging economies, within 20 years, it will no longer be cost effective to manufacture in China. Within 30 years it will no longer be cost effective to manufacture in India. After that, Africa will be the next Asia, assuming governments settle down to become stable enough to allow for long-term outside investment. Savvy investors will take note and make billions.



    But we don't want those jobs back in the US, jobs which are only suitable for emerging economies.
  • Reply 13 of 148
    c-rayc-ray Posts: 40member
    Quote:
    Originally Posted by wizard69 View Post


    Who would want to be packed in a dorm just to have a job.



    A lot of people in China, or so it would appear.



    It wasn't that long ago that China was a developing country. Some parts are now very advanced. Some parts might compare with 1950s Appalachia in the US. China has maybe 4x the people that the US does.



    When you get very hungry for a job (and 3 square meals and a roof over your head) you might be surprised what you would do.
  • Reply 14 of 148
    Quote:
    Originally Posted by jragosta View Post


    Now, that is not to say that there is no place for U.S. manufacturing. Just that it's harder. For example, I had one job where our product was an essential safety product and delivery times were critical. Well over 10% of our deliveries had to be shipped in under a day (sometimes the same day). If you have to add a full day in travel time, that would make the product impractical - so Chinese production was not an issue for this particular market. Being successful as a U.S. manufacturer isn't easy, but it can be done.



    Luxury manufacturing is a different market. By luxury manufacturing, I'm referring to high cost, high skill, high detail manufacturing like quality cars and boats, artisan goods, German and Japanese heavy machinery, Italian leather goods and textiles, or even American textbooks (manufacturing of which costs 5x as much as printing and binding in Asia due to durability requirements). Not necessarily manufacturing of luxury products, much of which can be made using the same cheap labor as the stuff sold in Walmart.



    There is a market for American luxury manufacturing. A small part of the Auto industry, for example. Textbooks, as I mentioned. Aircraft. I hate to say it, but weapons (a market that I personally wish would disappear). Artisan quality furnishings and clothing.



    If we want more luxury manufacturing in the US, we need to produce more goods in the US that require it. When was the last time a good quality printing press was made in the US? The Germans and Japanese have had that market for ages. Eventually, the Chinese will make a great printing press, and the Germans and Japanese will lose market share (and jobs). That's just how it goes.



    Cars were our market for a while. The Germans maintained high quality, partly due to postwar rebuilding. The Japanese exploded onto the market in the 70's and haven't looked back, but now China is taking over that market as well. The only way the US, the Germans and the Japanese can stay in that market is to innovate and demand only the best in quality of design, engineering, artisanship and quality, with premium pricing to match.



    So what's the next product that needs luxury manufacturing? That's what the US needs to concentrate on building, and that's where the only manufacturing jobs will be.
  • Reply 15 of 148
    Quote:
    Originally Posted by shompa View Post


    Nationalism is good. Its time to bring back EU/USA jobs home. Our politicians job is to make it possible. Education/taxes/permits.



    This has zero to do with education/taxes/permits. It is called Capitalism. The foundation of Capitalism is worker exploitation. What you are suggesting is we roll back worker rights. Do you want to be forced to work 12+ hour days, seven days a week, no paid overtime, no vacation, no sick days, live is a dormitory next to the factory so you can be called to work 24 hours a day, no rights, no breaks, get paid one USD a day, etc...



    People in the USA work too much for too little today. that is the real problem. The rich have sucked so much money from the lower 99%, that there is little money available to buy goods. If no one is buying anything, no companies hire because there is no demand. Thus you have a cycle of no growth...a recession.
  • Reply 16 of 148
    jeffdmjeffdm Posts: 12,946member
    It seems to me that rousing people at night for a project with a six week time line is more a show of force than actually getting something productive done in itself. Doing fine work while tired isn't a recipe for success. Work to fix mistakes made while exhausted might as well been avoided by doing it after a good night's sleep.



    The recent documentary on Foxconn was a little disturbing, having roommates (8 to a room there) isn't necessarily terrible if you're single, colleges, the military, campgrounds do it to varying degrees. Big name music acts have 12 people bunking in a bus. However, it's definitely not a lifestyle for extended periods of time. What's worse is that people often didn't know the names of any of their roommates.
  • Reply 17 of 148
    solipsismxsolipsismx Posts: 19,566member
    What's with the demolished house? Not the inclusion of the pic, but I wonder why Steve was so adamant about fighting for the land when he knew he wasn't going to be around to enjoy it. Because his wife wanted it? Because he simply wanted to win?





    Quote:
    Originally Posted by JeffDM View Post


    What's worse is that people often didn't know the names of any of their roommates.



    That's the part that bothered me about.
  • Reply 18 of 148
    lukeilukei Posts: 329member
    Quote:
    Originally Posted by tonton View Post


    Assuming no political or other economic disasters in the current and future emerging economies, within 20 years, it will no longer be cost effective to manufacture in China. Within 30 years it will no longer be cost effective to manufacture in India. After that, Africa will be the next Asia, assuming governments settle down to become stable enough to allow for long-term outside investment. Savvy investors will take note and make billions.



    But we don't want those jobs back in the US, jobs which are only suitable for emerging economies.



    I'd agree in the main with what you are saying but I don't think it will be as long as 20 years. There is a significant compression of the timeline from developing to developed nation. I'd give China another 10 years maximum before it starts to see mass movement of manufacturing elsewhere. In certain industries (for example textiles) when you consider shipment times, cost of warehousing and include labour many Eastern European countries are close to the same cost as China, can't speak about the US market only Europe. I'm not so sure about Africa, there are lots of cultural differences and as you highlight lots of political 'issues' but you are right that in certain categories it is already starting to happen there, mainly under Chinese management/ownership.



    Once the factories are gone from China a highly educated multi-lingual nation will take on a lot of our professional services businesses. The whole thing is a big challenge. My job is reasonably senior (C level) and in the main can be done from pretty much anywhere in the world save for what I view as an essential part which is site visits.



    With that in mind and with the increasing better education in China/India/etc what jobs will we in the West do?
  • Reply 19 of 148
    I've said this many times before: these jobs are not coming back to the US.



    Its not just about bulding a plant and finding some workers (both if which will take ages in the US). We lack the component supply chain, the training facilities, the worker discipline, the supervisory capabilities, the quality mentality, and hunger for achievement (that we once had).
  • Reply 20 of 148
    Quote:
    Originally Posted by wizard69 View Post


    Seriously there are good reasons to wake somebody in the middle of the night, sticking screens on iPhones isn't one of them. I smell a workers revolt coming to China.



    They are right about one thing though, it would be very hard to find Americans willing to work with those sorts of expectations. Who would want to be packed in a dorm just to have a job.



    There's more to the story than that. According to the NYT:



    "Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames."





    A biscuit and a cup of tea, and then a 12 hour shift. The American worker cannot compete.
Sign In or Register to comment.