Electronics Assembly
Reshoring

Apparently, We Can...

No company has been under more pressure than Apple to bring back jobs that were shipped overseas.

December 10, 2012

A couple of months ago, my blog post here asked “Why not Make Phones and iPods Here?” I followed up a week later with a second blog, imaginatively titled “Why not Make Phones and iPods Here? Part 2.” Now we have an answer: “We can and will.”

Apple has just announced that it will spend $100 million next year to make things closely related to iPhones and iPads. The things are computers. Specifically, iMacs. And iMacs are basically the big brothers of iPhones and iPads.

The details are still skimpy, but here’s what Apple President Tim Cook told Bloomberg BusinessWeek:

Bloomberg: You were instrumental in getting Apple out of the manufacturing business. What would it take to get Apple back to building things and, specifically, back to building things in the U.S.?

Cook: It’s not known well that the engine for the iPhone and iPad is made in the U.S., and many of these are also exported—the engine, the processor. The glass is made in Kentucky. And next year we are going to bring some production to the U.S. on the Mac. We’ve been working on this for a long time, and we were getting closer to it. It will happen in 2013. We’re really proud of it. We could have quickly maybe done just assembly, but it’s broader because we wanted to do something more substantial. So we’ll literally invest over $100 million. This doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.”

My immediate reaction is “public pressure works.” No company has been under more pressure than Apple to bring back jobs that were shipped overseas in the past 20 years. In one sense, singling Apple out wasn’t fair; most of the better-known consumer electronics companies source from Asian plants, so none are truly innocent when it comes to outsourcing. But, in several other important respects, Apple deserved condemnation.

Apple wasn’t first to shut down American production plants, but it did so with more gusto than similar companies. Cook himself led the move to China and, in smaller measures, countries near China. Steve Jobs was a product idea guy; Cook was the manufacturing leader.

Above all, Apple makes a very large target because of the way it presents itself. Apple sells image. More than any other company, Apple pushes cool. It even calls store people “geniuses,” which may be true in a few cases, but is certainly not applicable to the entire collective. And it marketed its leader, Jobs, to a greater degree (or, at least, more successfully) than its competitors managed. How many people know the name of HP’s current leader? Not many. (Meg Whitman, if you want to know. But can anyone name the previous CEO? Or the one that went before? Nope.)

There is at least one serious qualification to the “something more substantial” that Cook claimed. It seems that Apple won’t be returning to manufacturing itself. The best bet is a factory or two built and run by Foxconn Technology, Apple’s primary supplier in Asia. And Apple’s investment is, in Apple terms, insignificant—$100 million is less than 0.1 percent of Apple’s reserves.

iMacs do not account for much of Apple’s revenue. Less than 15 percent of Apple’s revenue comes from sales of computers including both desktops and laptops. iPads bring in about 20 percent of total revenue and iPhones account for more than 50 percent.

So, Apple’s rediscovery of American workers won’t transform our manufacturing sector. But it is a start, which makes the decision better than nothing.

And it is a tiny triumph for public opinion. My hunch is that Apple is coming back entirely because Cook is tired of being portrayed as an economic Benedict Arnold. (The photograph of Cook on the Bloomberg Businessweek cover has all the warmth of a Teutonic movie villain in very bad temper. It won’t burnish Cook’s public image.) My concern is that this one small gesture will take the heat off Apple and the entire electronics manufacturing industry.

I welcome the Apple news, but only moderately. I reserve final judgment until we see exactly what Cook has in mind.

What do you think? Am I being too hard on Apple? Is this a token gesture or something more meaningful? Should public opinion have any bearing on where and how a company manufactures its products? Share your thoughts!


Editor’s note: Before “Shipulski on Design,” “Leading Lean,” and “Uncommon Sense,” there was ASSEMBLY magazine’s longest running and most controversial back-of-the-book column, “Unconventional Wisdom” by Jim Smith. A nationally known expert on electronics assembly, Smith never hesitates to question the sacred cows of manufacturing and economics. You can read more from him at his “Science of Soldering” blog.

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public opinion matters

Harry Moser
January 10, 2013
Of course public opinion should play a role in where a company makes its products, especially for consumer products. If Apple can sell more here because the product is made here, and thus make more profit, that is an easy decision. --Harry Moser, director, Reshoring Initiative

well-paid employees are best customers

Kathy
January 10, 2013
The two comments that I have on this issue are: * Customers often influence corporate decisions more than the company's workforce or government. * If you want more customers, you need to employ people at wage/salary levels where they can buy your products.

Apple will benefit

Jonathan
January 11, 2013
The short answer is yes. I do believe that a company’s primary responsibility is to its shareholders and stakeholders (i.e. employees), which may lead companies to export some or all of their work overseas. However, when you build a brand in the way that Apple has, in which you are selling your corporate image as much as you are selling your product, the answers might be a bit different. Until very recently, Apple didn’t return dividends to its shareholders. They are an immensely wealthy company by any measure and the slight loss of margin should more than be made up for by the “good will” this move will show.

not that significant

Steve
January 11, 2013
Ironically, Apple is bringing their least popular product back to the U.S. to build.

not impressed

Silvia
January 11, 2013
I am not impressed. It is just because Foxconn wants to expand into US. Plus, Tim Cook mentioned during a recent interview that Apple’s localization decision is “not so much about price, it’s about the skills, et cetera. Over time, there are skills that are associated with manufacturing that have left the U.S.” They have not left. Apple and others have moved them to low-cost countries, so that Tim Cook could get $378 million in total remuneration in 2011. It is utter nonsense that we do not have the right manufacturing skills at any level in the U.S. I am proud that our workers have formal training, can read and interpret a blueprint, etc. and do not need photos to perform even the most elementary task. That competence should be paid a right and fair price.

It's cheaper for Apple to manufacture in China

John
January 14, 2013
It’s good to hear that Apple is responding to public opinion, since it’s the customer that is paying the money to get valuable products that are made in U.S. But, the transportation cost, together with the parts inventory cost are huge, as many critical parts including ICs, chips, PCBs and plastic parts are made in China. Apple will need to keep a large volume of these parts in inventory to buffer production, and that will lead to higher prices.

bottom line rules

Chris
January 14, 2013
I agree with Jonathan that Apple will gain considerable “good will” here in the United States. But truthfully, the U.S. only accounts for 40% of its sales. While significant, many customers around the world really don’t care where Apple builds its products. The idea of manufacturing in the United States for such a large corporation would ultimately be about the bottom line. Simply put, if it’s less expensive for Apple to manufacture a specific product in the United States than China, then Apple will manufacture that specific product in the United States for the cost savings. Not merely to earn good will from only 40% of its customers.

offshoring = high inventory costs

John
January 25, 2013
With respect to David’s comment, U.S. suppliers have to pay high shipping costs for finished goods from China. Also, manufacturers typically have to maintain 6-8 weeks of inventory due to long lead times, which adds to the cost of overseas manufacturing. I agree the supply chain is a problem, but it might be better to stock higher levels of raw material than finished goods. Then, the products can be assembled as demand levels dictate. This reduces the pain of change management. When a US supplier wants to make a major change to a product sourced overseas, it either takes months to see the change or results in high costs for rework of the excessive stock and overnight shipments. The total cost has to be considered. If you make products that don't change very often, then outsourcing may be advantageous. Products with many design changes don't fit that business model very well. I have worked in both situations. In the U.S. manufacturing model, an immediate design change could take place in as little as two days. In overseas manufacturing, it typically took 6-8 weeks to see the new change hit the warehouse. One last thing, with contract manufacturing comes "contracts," with today’s volatile markets, controlling your own manufacturing domestically allows you to throttle up or down according to demand. A valuable feature in this economy!

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