Apple wants U.S. manufacturing, but it ain't that easy

Apple wants U.S. manufacturing, but it ain't that easy

Summary: Critics want Apple to manufacture more products in the U.S. CEO Tim Cook does, too. But there's a lot in the way.

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TOPICS: Apple
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Let's make the iPhone in the good ol' U. S. of A. Who's with me?

There are few Americans who don't like the idea of an all-American iPhone, iPad or Macbook. "Designed in California," sure -- but why not made there, too?

During the D: All Things Digital conference this week, Apple chief executive Tim Cook suggested that he wanted his celebrated tech company to make more components, and perhaps assemble them, here in the U.S.

But it's not that easy.

Cook knows it. As a longtime operations guy, there are probably few things the man knows better than a supply chain. When he says the semiconductor industry is good in the U.S., it's good. When he says there aren't high-tech manufacturing skills in the U.S., he's probably right. But actions speak louder than words, and there are good reasons why Apple no longer makes its millions upon millions of products Stateside -- because it just doesn't make good business sense otherwise.

We've seen this film before. Before founder Steve Jobs died, he made headlines for the same reason, as the national economy crumbled beneath Apple.

Here's an excerpt from a New York Times report in January:

It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

The reason: there's a very real tradeoff between what's good for workers and what's good for business. When push comes to shove, business wins -- which is why Apple's American employees enjoy comparatively nice perks while employees of its supply chain partners live in 8,000-strong dormitories, ready to be woken up at midnight to start a 12-hour shift making new parts for an iPhone that received last-minute design changes from California.

Imagine trying to do the same with an American worker. Unions would never stand for it, obviously, and chances are the rest of the family unit wouldn't, either.

My point is not to illustrate the benefits and drawbacks of unions, or even what's fair; rather, I'm trying to illustrate a landscape in which American companies can go overseas for greater flexibility, lower price and sheer speed. So long as there are nations in this world willing to do work others aren't, outsourcing will exist. In the capitalist system, businesses can't win in the free market unless they exploit every advantage.

There's a reason Apple, and GE, and many other well-regarded American companies keep most of their money offshore: so long as there's a cheaper alternative, it will be taken. There is no morality in money-making, even if there's still plenty to be made.

(Speaking of GE, that company has run into similar issues -- though for refrigerators and turbines, not computers.)

That's not to say things aren't changing. GE CEO Jeff Immelt has said that the U.S. is becoming more competitive as American firms, tired of decades of deterioration, snap to attention. Wages in the U.S. are still elevated -- good for individuals but bad for business -- but the skills, flexibility and speed are catching up.

The question is whether we'd really want them to. Does the U.S. really want to compete with China when human rights and quality of life standards are a bit more slippery? Manufacturing is a powerful driver of the American economy, but it's just one part of it. Whatever happened to the concept of a creative economy? (Answer: we realized we can't win on creativity alone. There needs to be some elbow grease, too.)

We focus on Apple because it's a beacon of American success and its products are made of components from all corners of the globe, but the truth is that the company can't do this alone. "Made in America" is a nice tagline, but it's a naive, unnecessarily restrictive strategy for a global company. So long as other nations are willing to outdo each other for business -- Foxconn City, anyone? -- corporations will follow.

In Tim Cook's case, that means there are few reasons to swim against the tide, aside from public opinion. All Apple can do is ensure that its supply chain partners are acting in accordance with local law. (Thus the Foxconn flareup.) But how do you take one company to task when an entire industry practices this way?

If you want Apple to manufacture in the U.S., you can't just pressure Tim Cook -- you need to pressure every Samsung, Dell, Hewlett-Packard and Sony to do the same, along with the governments in each country that manufactures products for those companies, and every supplier in between. That's a bigger hurdle than any single organization can surmount.

So if the U.S. can compete on flexibility, speed and scale -- we're not a tiny country, after all -- and get partially there on wages, thanks to a down economy, there's only one thing left to address: skills. If I'm Tim Cook, lord of all that is vertical, I'd wonder backing accelerated industrial development in the U.S. -- starting with the creation of technical schools that could create that coveted workforce of engineers without a bachelor's degree -- could help return the balance back to the U.S.

The Midwest, the Carolinas -- these American manufacturing hubs already exist, but they're not geared for electronics. If the U.S. wants China's contracts, it needs to build a hub that can outduel the Shenzhen export hub.

Then again, capitalism need not be moral. At the end of the day, what's really in it for Apple? If we want Apple to manufacture its products in the U.S., we shouldn't keep asking Tim Cook about it. We'd probably need to go a bit higher up in the chain of command.

Topic: Apple

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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207 comments
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  • I'm just wondering

    You are saying that the US citizens aren't technically capable of building Iphones? As i'm pretty sure the 8000 people working at foxconn didnt have a University Degree, in fact i'm inclined to think most of them didnt have an education at all.
    danjames2012
    • really?

      Nah. That's just euphemism. He is trying to say that American Workers are lazy, thats what. Sure, the Foxconn workers don't have u degrees. But if Americans don't want to do manual labor, which making iPads are, the what incentive is there to open a factory in America?
      madfry
      • I don't have a problem calling anyone lazy.

        ...but there's a reason I didn't use that word in the article above: because that's not what I'm trying to say.
        andrew.nusca
      • That and...

        ...all it takes to build a factory in China is authorization from the Communist Party, which is usually a lot easier than getting authorization from elected officials here in the U.S.A.
        John L. Ries
      • American Workers Assemble BMW, Toyota, Nissan & Honda, make Samsung Parts!

        Lazy? haha... I suppose Americans working for Samsung, Toyota, Nissan, Honda and 100's of other foreign owned companies in America are lazy too!

        And they do it for higher wages than their counterparts in American owned Auto makers or Apple Inc for Electronics. Why? How are foreign companies able to come in here and pay Americans twice what American companies are willing to pay them, build better products and still make profits while doing it?

        Samsung started building chip production plants in Austin Texas in the late 90's. Because they wanted to be near their biggest product market, like Toyota, BMW and Honda. Near a University that produced educated Engineers that could work for them building products for the REAL #1 Electronics Corporation in the World (by both volume and revenue)!

        Since then Samsung has invested Billions of Dollars in facilities, that hire Americans at top wages, while still managing to make a profit. Why? Last year Samsung won the CiCi Top Award by investing Billions more than any other company foreign or domestic. Apple has never been even close to getting on that list. It seems as a nation w/ Big Media's help, we have a warped sense of Corporate Pride in making the Rich... Richer, killing the middle classes, making them poorer and think that's OK. We allow Apple to claim middle class salaries in foreign owned companies as theirs. WTF? When in actuality, Apple's share of parts made in that Austin Texas plant are under 10% of it's production output. Why? Because we are starting to treat American Companies better than our citizens and let them get away with ruining this country in the process all for Corporate GREED and Wall Street Profits gone wrong!

        How can the same American workers who build failed GM and Chrysler cars be used in foreign owned manufacturing on US soil, to build high quality cars like BMW's and Toyota's?

        What's to prevent Apple from bringing their Billions held in off shore banking back into the US and doing what Foreign owned companies are doing here? ...and yes paying higher taxes than the Apple's of America while doing it. All for Share Holders and Corporate management's GREED for ever more obscene profits. The greed that's Killing the middle classes while making them poorer, so they can't afford to buy their products eventually!

        This self centered brain dead greed is exactly what's killing the whole American Economy. When a company pays more for white collar upper management and cuts wages to skilled and educated workers used to build them, that's exactly why they'll end up making products in foreign countries that they can no longer sell here at any price. They don't realize they're killing themselves in process of GREED.

        Where will this Corporate Greed for ever greater profits that only benefit a few lead us? Right into the grave and in the end the middle class customers businesses depend on will die with them!

        Foreign Companies know something our domestic companies don't. That Corporate GREED without investing in your home market can kill you! That's because Foreign Companies don't sell Americans workers short and are a lot more willing to get into the modern production cycle than ignorant companies like Apple. Market Cap doesn't mean jack **** to the average American who buys Apple's products and it doesn't mean a hill of beans to Foreign private and publically held foreign corporations either. What counts to them is Total Assets, R&D and planning for the future with CAPEX investments in their own factories for future profits. Apple = lowest total assets, no factories, lease most property, all for greatest benefits in not paying taxes!

        And that's why the Samsung's of this World can come in here and invest, pay taxes and still make a profit. Because unlike Apple they aren't obscene profit centered in the first place. They know that without providing jobs, they'll have no customers to buy their products in the Future. That's why Samsung is the #1 Phone maker in America and NOT Apple!
        KronJohn
      • Notice the common pattern here?

        @KronJohn

        None of these companies you mention are unionized...
        iNcrediblyPotentPommeDeRoute
      • The legal framework matters

        @ KronJohn

        I gather that BMW and Mercedes workers in the US plants don't belong to the UAW. In Germany, of course, they do belong to the IG Metall trade union. Workers in the German motor industry earn about twice as much per hour, on average, as their US counterparts, even though the GDP per capita in Germany is lower. Germany also produces about twice as many cars as the US overall, despite a population 1/4 as big.

        The success of the German motor industry is one of many examples showing that the legal framework matters. German law protects German workers and German trade unions, and gives workers a considerable say in how firms are run. The system is also designed to promote co-operation between representatives of capital and labour, rather than confrontation.

        In the US and UK, trade unions waged war on capital, and once neoliberal politicians like Thatcher and Reagan got in, they destroyed the unions and gave everything to capital. You are reaping what they sowed -- both the arrogant, adversarial trade unions and the neoliberal politicians.
        WilErz
      • so, what was AN trying to say?

        So, what were you trying to say, AN?

        Americans will not put up with as much abuse, poor working conditions, and pay that is as low and quality of life as low as what they put up with in Red China.

        The capital equipment they're using in Red China and India and Malaysia... were developed in the USA and UK and Europe and shipped over there at rock-bottom prices. Americans do actually have the knowledge, the industriousness, the physical dexterity, but it's going to cost you, and that would cut into the execs' and investors' margins, and they don't like that prospect. Besides, since they've given away the store to the knock-off outfits over-seas, it would be, as those same execs say, "uncompetitive", and it's their fault.
        Professor8
      • He is not saying lazy...

        Please open your mind people! He is not saying lazy. He is saying flexibility. Case in point Germany. There actually is an electronics industry in Germany. Not a place known for its low cost labor. The reason why there is an industry is because governments, companies, and people are flexible to get things done.

        Case in point startup's. How many hours do they work? They work a huge number of hours for relatively low pay, in the hopes for a better payout. This attitude, which does exist in America, does not exist at the worker level. At the worker level the attitude is punch in, punch out.

        Apple is willing to be fair, but they need certain things. By fair I mean look at the dividend payout, they are even paying it to option holders. Right now those things are not with workers.

        BTW this does not mean lower pay. It can mean performance based pay. What if the idea of profit sharing and performance went from top to bottom? What if the union said, "ok let's make a deal. We want say 50% of our pay based on base, and the rest on performance. And here are our performance indicators and calculations?" But that is not what the union is doing. I am not saying that China has this. BUT if America were to do this, I am sure many companies would think twice about not manufacturing in America.
        serpentmage
      • @kronjohn: That's quite a rant, but you seriously overlook several things

        Like the fact that foreign-based manufacturers pay far, far more in import tariffs than American-based ones, so it's much cheaper for them to build IN America for American customers.
        Like the fact that many, if not most of those foreign manufacturers use non-union labor so they're not having to subsidize the lazy workers to keep the good.

        There are so many arguments in your rant that are simply bogus, as if Apple was the root source of all these issues that have been growing for more than 60 years.
        Yes, American laborers do tend to be lazy. When a fruit farm in California hired dozens of Americans to pick its crops at double the minimum wage, the vast majority of those laborers quit in less than 1 day of picking, whereupon that same farmer hired immigrants to do the same task at below minimum wage and saw far more productivity.
        In other words many, if not most Americans feel they are "too good" to work as a common laborer.
        Vulpinemac
    • Oh, sure they are.

      ...but not for that price.

      Please read the full article. There's much more at work here than just education.
      andrew.nusca
    • Read the Jobs interview from awhile back...

      It's not a matter of who is more educated, it's a matter of whose received the right education for these types of jobs. The FoxConn employees don't need a university degree. Having a bachelors degree is meaningless to these factories. It's more a trade school type degree, with a very specific focus. The author is right, for tech manufacturing on a large scale to return, companies have to work with education. There's no point in a school building such programs until there are such jobs for students fill. The flip side is, there's no point for companies to build factories until there are people to fill the jobs.

      And don't discount the socio-ecomonic factors there either where you have 10s or even 100s of thousands of people who are willing to pick up, leave and go live in a dorm at some plant. I just don't see the same thing happening here in the states. The economy may not be great, but it's got to get allot worse for that type of "follow the work" phenomenon. We're at a different time/place in comparison, and quite honestly, I'm not sure we want to be in the same place.
      TroyMcClure
      • You make a good point

        We had that period a long time ago, where people moved to where the work was, yet have sinced moved past that. China is large enough geographicly that they'll always have that period.
        William Farrel
      • Where do you live?

        I moved to California, because that's where the best tech jobs still are. My dad had to move to Denver, Richardson, Denver, Richardson, China, and Richardson again. So, let me know where you're living, and I'll bring you a lot of competition for your job. I know a lot of smart, hard working folks looking right now.
        tkejlboom
    • Sure and watch iPhones cost $1000+

      Due to unions, lazy workers, lawsuits for discrimination, poor product quality control...

      As for not having an education, look at most TSA employees and they'll be the ones building your iPhones.
      Pete&Pete
    • Because it's nothing to do with intelligence...

      It's about training and education.

      The US (and most western nations) view manual labor as "failure" for those who don't have the requisite skills for anything else. Our education systems emphasise knowledge based jobs as superior to skill based jobs, which are superior to manual jobs. At our highest aspiration, we all want to be dot-com millionaires, or successful traders, people who make money due to a single innovation, or their understanding of something, make millions and then put people around us to continue to make us millions, while doing very little ourselves (I'm not saying we're lazy, but that would be, i suspect, the ideal job for most of us.)

      At a push, most of us would be happy doing a skill based job. Something we've had to train for, or have an innate skill for but which separates us from "the pack" and allows us to find worth in that.

      The majority of us would only consider a labor intensive job as a last resort, when all else has failed, when we have flunked out.

      At some point in our past, working on the line for GM, assembling something for Apple or IBM, or building a component for Boeing was a great aspiration, it's what a significant proportion of the population would tell you they wanted to do when they graduated. Sure, they'd love to work their way up, but they were more than happy to start at the bottom, and more than aware that not everyone made it up the corporate ladder, and happy to work, even if it never happened to them. My father in law went to GMI, where he trained in manufacturing, and retired as a GM employee, some 50 years later.

      Ask most people today, and the idea of doing something like that is laughable, and synonymous with failure. Manufacturing just isn't a desirable career any more.

      I genuinely believe if Apple moved it's manufacturing to the USA, UK or Western Europe, regardless of the unemployment figures, they simply wouldn't be able to find the tens of thousands of bodies they needed to maintain production levels.

      I worked for a while for a manufacturer of components for BMW (we made locking mechanisms). We employed only 50 or so manufacturing staff at our factory, and still, over 70% of our employees were agency workers. We certainly didn't do it because it was cheaper for us???agencies are very expensive???but because of necessity. People simply didn't want to call it their career, and we couldn't get enough contracted employees.
      There were regularly days, especially around the holiday season, when our workforce was down by 20% because the agencies just couldn't find people who were interested in the work.

      Would you really be happy with a 6 month waiting time for your iPhone 5 because 20% of the staff couldn't be bothered to show up, during the busiest manufacturing period of the year, because I genuinely believe that this would be what happens.

      I'm not saying that this can't ever happen in the west again, I think it can, but I think we really need to change our education system to make practical, vocational education a real part of our system again, and to make manual jobs a great aspiration again, rather than relegated a position where it is viewed as the last chance saloon for those who failed at everything else.
      loplop
      • Loplop Nails the Problem - First and Last Paragraphs are Priceless

        Read loplop's first and last paragraphs CAREFULLY. The reason we are not able to compete is that both our education system and our value system are seriously flawed. Why do we believe that a "skill-based job" is not also a "knowledge-based job?" Why do we believe that an investment banker with a degree from a prestigious and expensive business school is more successful or more intelligent than someone who chooses a technical profession or vocation that allows that person to design and build tangible products? The technical career is much more fulfilling if not nearly as financially rewording. The technical career also has the potential for a much greater and more lasting value to society, and yet most parents cringe at the thought of their son or daughter becoming an engineer, a technician, or - heaven forbid - a factory worker.

        As long as this attitude prevails in the U.S., we will not be capable of competing with the highly motivated people in China and other Asian countries. Not only has our manufacturing capability virtually disappeared in the U.S., our ability to understand the manufacturing process and to design durable and practical products will also soon disappear as it follows our skilled labor offshore.

        In addition to our flawed education system, our unbelievable arrogance, elitism, political correctness, environmental fanaticism, and downright laziness have distorted our value system to the point that we can no longer compete.
        Samaaa13
      • Good perspective.

        However, the numbers don't show Foxconn to be doing any better. Foxconn is estimated to have an annual turnover rate of 35%. Their workforce is heavily constituted of migrant labor. These are not skilled labor jobs.

        Meawhile, HP's build time on a laptop has INCREASED 50% to 3-4 weeks. This is not to compensate for a material or design change. This is performing the same basic commodity operations as before. Maybe Apple is just better at it, but China is not a magic bullet. It is not a country of Androids that can continuously crank out high quality product.

        Meanwhile, I've witnessed engineering operations outsourced to India and China because annual cost of operations was lower. 5 years later, they have a 100% project failure rate. How is that a cost savings? I'm willing to deliver absolutely nothing in half the time for a fifth the money they paid in India right here in the good old USA.
        tkejlboom
      • RE: ...intellgence...

        You said:

        [i]At our highest aspiration, we all want to be dot-com millionaires, or successful traders, people who make money due to a single innovation, or their understanding of something, make millions and then put people around us to continue to make us millions, while doing very little ourselves [/i]

        which aptly describes [b]Wall Street[/b], and the condescending attitude held by many of the elites.

        Also:

        [i]At some point in our past, working on the line for GM, assembling something for Apple or IBM, or building a component for Boeing was a great aspiration, it's what a significant proportion of the population would tell you they wanted to do when they graduated. .... Ask most people today, and the idea of doing something like that is laughable, and synonymous with failure.[/i]

        if they were being charitable; and even more so if they looked upon you as being a "special needs" person. (I won't use the "r"-word here; but it fits.)

        Societies' attitude must change; it is that simple.
        fatman65536
      • Like to yak allot? (NT)

        NT
        The Danger is Microsoft