Globalisation is coming back home
Chinese labour is starting to get more expensive, it would seem.
One day after Apple's stock suffered its biggest hammering in four years, interviews with company CEO Tim Cook appeared in both video and print covering a broad range of issues, including Apple's plans to move some manufacturing to the US and Cook's reasons for showing iOS chief Scott Forstall the door. When asked by NBC's …
Chinese labour was never the lure for companies. It was the high integration of the supply chain, with all needful elements nearby to the assembly plant. China has been far ahead of most countries in this regard for a while now, even outstripping Japan and Taiwan. The efficiencies of a highly integrated supply chain outweigh the labor costs for assembly.
This is why BMW now makes their X3 in the US, because the suppliers of their seats, tires, etc., are all nearby to supply components on a Just-In-Time basis.
I remain skeptical, given the US regulatory environment, but at least Apple is trying. HP and similar gave up long ago.
"This is why BMW now makes their X3 in the US, because the suppliers of their seats, tires, etc., are all nearby to supply components on a Just-In-Time basis"
OR its because the US is the biggest market in the world for SUV's, and shipping a car from China is exponentially more expensive than shipping costs for consumer electronics that fit in your hand.
I think this will be seen as folly, it will be massively expensive. Apple are struggling to compete on costs with Samsung and co now - how are they going to do it with more highly paid (and less efficient) US workers and paying US taxes?
Steve is gone, there's been little innovation since the first iphone (especially compared to the competition), and Cook seems to believe his own press.
The US had a real estate bubble, now they've had an Apple bubble, and its deflating back to a realistic level.
Apple have 30% margins they can cut, Samsung doesn't. Apple makes one phone model a year giving them huge economies of scale, reduced r&d and support costs. Samsung may indeed be able to knock out a phone cheaper than Apple, that doesn't mean that is the ground they need to compete on. Apple appears to still be selling a lot of phones and maintaining its historically obscene margins.
But can they?
Whilst I salute a company actually investing in their country of origin, isn't one of the reasons why their shares are so high, due to their large margins. If the margins drop it would be interesting to see if the share holders hold on or start selling.
I'm curious about what you mean by less efficent workers? Given you mention price seperately I assume you mean 'work done per hour' rather than per dollar paid.
One of the biggest misconceptions is that the US doesn't manufacture much and it has been in significant decline. The number of jobs has declined significantly (down to 12m from 16m in the last 10 years alone) due to automation but US factories account for 18% of global output. If anything it's workers (or rather their machines) are more efficent (in the same 10 years productivity has gone up approximately 35%).
Gone are the days of uncle Fred leaving highschool and spending his life welding car fenders (and getting at least a third of them upside down). Now his kids have to go to college to run the automated production lines.
I'm not passing comment on it being a better or worse situation, just that we actually make about the same amount of stuff, just with less people, and the biggest reason is the efficency of the workers and the machines. Yes there have been issues with segments of the industry being inefficent due in part to union demands but bankruptcies and offshoring has gone some way to dealing with that.
It's not just labour. It's also logistics and process. In addition to using fewer hands and more robots, the cost to ship a unit from South Carolina to Cupertino is lower than shipping a unit from Shenzhen. I'm sure one of the reasons to build iMacs and not iPhones in the US is you can put more iPhones into a 40' container than you can iMacs and that means the per unit shipping cost of iPhones is lower.
Also a side benefit of local manufacturing is not having to deal with time zones. Flaws can be found faster and problems can be resolved quicker when HQ and the factory floor aren't a half day apart. Even shipping samples by air for approval means waiting at least a day with the factory either on hold or potentially stamping out bad product the whole time and that doesn't happen when it's only across town.
I'm sure Apple has run the numbers and decided they won't be worse off and they'll probably get a nice tax break on any investment they make.
A whole bunch of the manufacturing process is in the process of being automated, and the more you can automate means the less "labor" you put into the product. Now that labor is becoming more expensive over "there", it makes sense to invest some $$$ in improving automation here and "make" it here as well.
If this weren't the case, ALL automobiles would be made "overseas with American components" and brought back here. Of course, the labor that IS done here will most likely be done in right-to-work states (which is probably a "good thing").
Now when will AAPL go north of $700? Gotta love that stock!
When you have a product that's labor intensive to assemble then you make is somewhere where labor costs are cheap ... so if they plan to build the new devices in the US then you can probably bet that they are going to cost a lot less to assemble.
In other words, they are going to be made differently ... I'll leave the rest to your imagination...
"The consumer electronics world was really never here," he said, "and so it's not a matter of bringing it back, it's a matter of starting it here."
What a load of crap. So I suppose all those television, radio, computer, cell phone, and you name it products that started life here in the good ole USA were NEVER made here?
And I agree with other posters, this isn't about bringing it to the US, its about reducing costs through automation. Notice, however, that it will still be Foxconn doing the work. So while the production may be coming stateside, the cash will still be headed to Cupertino and China.
"What a load of crap. So I suppose all those television, radio, computer, cell phone, and you name it products that started life here in the good ole USA were NEVER made here?"
Most were made in Mexico, Japan or south east asia. No one has historically manufactured the volumes Apple needs.
Maybe not in your lifetime but that's patently untrue. All of those items where mass manufactured in the US up until the end of the 80s when industry lobbies managed to get protectionist laws changed and then capital fled the country for regimes with a more 'negotiable' position on pretty much everything.
Along with massive government debt it's all part of the Reagan legacy.
You're right and Cook knows that because Apple was making Macs in the US up until at least the Power Mac G4.
However he probably meant the mass market consumer electronics industry which was never really in the US. There was never an electronics assembly line there with enough scale for making the millions of machines demanded these days.
The Japanese took that ball to the Asia Pacific region starting with the Sony TR-63 transistor radio.
"So I suppose all those television, radio, computer, cell phone, and you name it products that started life here in the good ole USA were NEVER made here?"
Shhh - Tim is trying to make himself and Apple sound like pioneering genuine american heroes...
You weren't expecting Apple to sell itself using boring things like straight facts were you (he says swearing at his macbook which just crashed again, but was marketed as "it just works" :-)
Well scrollbars now look remarkably similar and by default are set up better for touch, even if you use a mouse. Launchpad is spectacularly unintuitive if you're using a mouse, you have to click and slide then release the button to change page when a simple click at the side of the screen would have done the job. Their calendar/address book/notes apps looks pretty much the same and they had the opportunity to take out the iOSation in Mountain Lion or at least put a tickbox in preferences asking if you wanted Aqua or Skeuomorph nonsense but they didn't.
So Tim's definition of working together seamlessly seems to include making it look and feel the same even if it isn't the same, which I doubt the OS for desktop/laptop and slabs ever will be. Despite the seamless look, Windows 8/Phone 8/RT aren't the same under the hood either. Like the rest of the interview, it's impossible to get a clear answer out of him.
Its natural for Apple to explore manufacture in the USA and elsewhere. You never really know how good or how much it will cost until you try.
Several Mac models already come with "Assembled in the USA" labels.
Apple tried very hard through the 1980's to build in the USA, but trying to be competitive with a factory in California stacks the odds against you.
"You never really know how good or how much it will cost until you try."
Or how much a pliant President who cares more about announcements than managing the budget will give you in free handouts.
After all it was the 1 question Obama asked Steve Jobs at an industry seminar...
Apple's existing directly-operated manufacturing facility was in Ireland, albeit actually in a large council estate, but still not a particularly low-cost economy.
Believe all its churning out recently are Mac Pro's but it has previously made the larger iMacs and the server line, when they had one.
Going back further it manufactured practically everything, but that was when Wales churned out most of the TVs for this part of the world and Scotland had a thriving semiconductor industry!
Apple's existing directly-operated manufacturing facility
was is in Ireland, albeit actually in a large council estate, but still not a particularly low-cost economy.
It's in the process of expanding at the moment. Not thanks to manufacturing though - the new jobs are tech support and office jobs. They make the Mac Pro alright, but I suppose they're priced high enough to somewhat absorb the extra manufacturing cost.
And let's not kid ourselves; Apple wouldn't be doing anything in Ireland if it wasn't for the creative accounting practices they're able to get away with...
"Apple's existing directly-operated manufacturing facility was in Ireland"
Home of comparatively low taxes and abundant business friendly accounting loopholes?
Finance-wise Ireland isn't a high cost country, so if you invest a lot in automation (as opposed to workers) then its a low cost place for them.
Finance-wise Ireland isn't a high cost country, so if you invest a lot in automation (as opposed to workers) then its a low cost place for them.
Production line staff are mostly temporary agency workers so would presumably be funded from a cost center other than HR.
They're brought in for the busy periods, and send downtown to sign on at the dole office when things get quiet. So whether it makes sense for Apple Ireland to invest a lot in automation is debatable.
Amusingly enough "mac" as in "MacBitch* kinda sorta means "son of", or so I'm told.
"Next year we will do one of our existing son lines in the US"
Think of the children...
That's still better than relying on chinese labor to make your sons, come to think of it. Or so momma says.
Apple really solved this challenge.
Now they are glueing iThingies together. This means they are generally unserviceable and defective units are only fit for the garbage dump.
A really, really 'Green' solution.
I wonder if Apple, in their competitor product strip downs, ever have wondered why others batteries are removable and that they actually use screws?
One thing Apple is now facing - America actually has Labour Laws which means no 7 day work weeks and unpaid overtime such as the Foxconn plants operate under in China.
"Thank f*ing christ. Now, if he'd just go one step further and remove half the irrelevant iOS crap that's already made its way into OSX, that really would be nice"
I wouldn't thank anyone just yet. Cook is straight from the school of Jobs, where you not just deny but outright ridicule any suggestion right up till the point you're ready to release something right along those lines. Laptop/Tablet convergence is such a blindingly obvious thing to want that everyone wants to do it. Microsoft have proved with the Surface that the hardware capability is there, even if the software side of things still needs a fair bit of working out.
There's a clear dividing line between how users use a Desktop/Laptop and an iDevice.
Former - serious power, full-blown apps, decent keyboard and a multi-window screen.
Latter - apps with specific functionality, restricted capability, finger-screen interaction.
Both types great, just different uses. I ride a bike and drive a car. Will the car morph into a bike or vice-versa? No, each serves a different purpose.
It used to be the case that anything built in the US had lots of really cool goodies and extras attached but the quality was poor (The UK with its' one-time union riven, quality damaged industry managed to shrug off that image and become renowned as a quality cottage industry specialist.). You can argue that isn't the case now but the mercs that are built in the US went through a phase of causing real concern to MB as to poor quality finish and that was very well publicised.
Whether or not it is still the case the US factories produce poor quality materials, it has remained in the collective memory. All it will take is one report of quality failures and you can bet that the competition will use that historical fact to taint the waters.
P.S. In British military parlance US is still used to mean unservicable.
Ever since the invention of the IF-THEN-ELSE statement (and given that storage is cheap), it's perfectly straightforward to follow the "Unified Driver Architecture" example and create one unified (i)OS that reacts to its run-time hardware environment. For example, once the OS has booted to a state of awareness of the hardware, it can pick and choose which modules to load. Modules common to all platforms provide significant advantages both in terms of compatibility and in terms of long term maintenance. Plus you have one team to house and feed. This type of UDA approach isn't new (Nvidia) and should be implemented for cross platform OS merging - unless formally proven to be not feasible (in such cases fire those involved in the white paper and do it anyway).
This already happens, to some extent. The OSX installer will detect which hardware drivers are required in a given installation. Also, the discs that used to be shipped with a Mac where only good for that model, as they lacked the full range of drivers included in the Retail edition. Now, the Restore function tells the server what drivers it needs and downloads them in a rebuild.
It does make sense to have as many common modules as possible, but I personally preferred the previous lower levels of iOS functionality in OSX. It was easier to support in a business environment.
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