Recently, there has been a lot of news about Apple and their overall success in the American market. A lot of their success has been attributed to their ability to properly control their supply chains and manufacturing costs.
For those unaware, Apple is currently one of the most profitable companies that this country has ever seen. The New York Times reported that last year it earned over $400,000 in profit per employee, more than any financial institution, oil company or software company. How does one go about making that much money per employee? Doing everything as cheaply as possible.
Most of Apple’s profit comes from the fact that their products are inexpensive for them to produce and sell and they eventually turn around and sell those products at a markup of 200 percent. Generally, when you consider common business practices, this isn’t much of a profit until you realize that the 200 percent mark up is on a $200-$300 item (cost, not sale price). Most people don’t realize that their iPhones (like the 4S) cost between $250 and $350 to actually manufacture market and sell. Furthermore, the price that they are paying is not the actual price of the device, as we in the United States get our phones subsidized by the carriers. So, an iPhone 4S 64GB is really costs $900, not $400. When you take that into consideration, you begin to understand why Apple prefers to make iPhones and iPads over Macbooks and Mac Pros. Contrary to what some may believe the iPhone is almost entirely made in China by companies like Foxconn (also known as Hon Hai) who have huge factories in mainland China. Although, many of the parts that go into the iPhone are not made in China…
So, what does any of this have to do with why Apple has left America when it comes to manufacturing? Everything.
Apple’s defenders claim that their products are extremely complex and require huge amounts of skilled engineers. The truth is, there are plenty of extremely skilled engineers right here in the US that would be more than willing to work for Apple. But there’s a hitch. They’re also cheaper. Apple claims that the price of labor really wasn’t the deciding factor, but rather the ease by which they can obtain that labor is really what makes China attractive. Once again, we’re going to have to call them on this.
The real truth when it comes to why Apple manufactures in China, is really no different from most other companies. Apple simply does it on a much larger scale and people are beginning to take notice. Apple did pick China because of their workers’ flexibility and their sheer scale, but these are mere excuses to brush aside the truth. Chinese workers are cheap, and there are many of them. Not only that, but the working conditions which they are able to sustain are much lower than of any developed country. Their relative cheapness to the American worker alone is one of the prime reasons for Apple moving to China.
Being cheap is only one part of the equation when it comes to Apple and Foxconn. One anecdote has been recently been circulating around, which mentioned Steve Jobs and his desire to have a glass screen on the iPhone. This demand was made at the very last minute and within 48 hours of the decision being made the glass screens were in the factories and the workers were already producing iPhones. This anecdote serves to say that having Chinese workers also means that they are willing to start work at any time and working through the night if they have to. None of these things are necessarily untrue of American workers, except for the fact that they would be more expensive to convince to do this and there are more labor laws in place that would prevent an employer from forcing their employees to live on premises.
If you think money and labor are the only reasons why Apple went to China, you’re perhaps missing one of the most important factors. Apple and many of America’s greatest industrial powers which have exported our manufacturing to China have also exported one extremely important thing as well, Pollution. Companies like Apple realize that they cannot have their local suppliers continually produce Aluminum unibodies for their iMacs, Macbooks, iPhones and iPads without creating huge amounts of pollution in the nearby streams and air. Making aluminum is not necessarily one of the cleanest processes, but in the West we have pollution laws in place that prevent companies from doing too much damage to the communities around them.
The one big factor that a lot of people are missing is that Apple has a lot of competition out there that actually takes responsibility for their manufacturing and doesn?t blame America?s shortcomings for not building in America. There are so many examples its almost impossible to begin. For example, Samsung spent over $3B to build and then expand a semiconductor fab in Austin, Texas. Building extremely complicated chips is actually much more expensive than what Apple does and requires much more skilled labor, yet, companies still come to the US. A company by the name of Globalfoundries, another semiconductor manufacturing company, is also in the process of building a multi-billion dollar fabrication facility in upstate New York and they?re already hiring. Not to mention, there are some other notable companies like Intel which just recently expanded operations in its New Mexico fab (short for a semiconductor fabrication plant) spending $2 Billion to upgrade that one alone. Intel is one of the biggest supporters of American manufacturing as nearly all of their Fabs are still located in the US with billions of dollars being re-invested into them every year.
We should also look at Apple?s competitors in the mobile space to accurately represent the whole market. Companies like Nokia wholly own their own factories and many of their devices are made in one of their 11 factories around the world including ones that they have located in Finland and Hungary and their newest in Vietnam. Nokia?s own manufacturing is extremely well known and has had a reputation for being some of the highest quality in the industry. One really interesting thing about Nokia, though, is the fact that they have an extreme focus on renewable resources and using recycled and recyclable materials. Nokia is by far the most environmentally conscientious company in the tech sector and they without a doubt set an industry standard when it comes to being green.
Companies like HTC also are responsible for their own manufacturing as they are already from one of the world?s biggest technology manufacturing hubs in the world. HTC?s pedigree is originated from their ODM business and as a result, HTC manufactures their own devices and takes full responsibility for their employee?s labor conditions and pollution.
The real issue is that Apple has found a way to disconnect themselves from the dirtiest part of the business in order to make themselves appear to be not involved in the process. They have taken their manufacturing facilities out of the US and shifted them entirely to China, because its easier for them to control what the workers do and how they do it and it costs them a fraction of what it would in the US.
So, when it comes down to it. Apple didn’t leave America because we weren’t a suitable place for business. Apple didn’t leave America because we don’t have enough engineers. Apple left America because they don’t want to deal with 1st world labor laws, pollution concerns and labor prices. It was easier for them to take all of those things and have someone else in another country deal with those problems. Or in the case of many of Apple’s suppliers and manufacturers, not deal with them until they become a problem. That’s the beauty of today’s technology industry. It allows a company like Apple to give the designs and BOMs to a company like Foxconn and claim no responsibility for their actions.
The best things we can do to change this is to demand that Apple and companies like them take responsibility for their suppliers and manufacturers. We must demand that they tell us who is supplying them and whether or not they are treating their employees well. We must demand to see what kind of pollution our products are actually creating and to accurately measure it. Because I’m sure there are thousands of ‘Environmental Activists’ that own iPhones and don’t even have an idea of how much pollution went into the making of their phone. The worst part is, they could have probably reduced it if they were simply more active and informed consumers. But in the end, Apple’s marketing wins people over and they forget what they believe in and what lies beyond talking to Siri.