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  • Why Isn’t the iPhone Made in the USA?

    August 6th, 2010

    This article may come across as unduly jingoistic, and for that I apologize, at least somewhat. What’s more, what Apple is doing isn’t especially different from the rest of the tech industry, but Apple also has some of the highest profit margins around, other than Microsoft of course, so maybe there’s some wiggle room.

    Now once upon a time, your Mac was built in the U.S. or perhaps in Ireland. Sure, Apple’s price structures were far less competitive than they are now. You really had to pay a whopping premium for a well-equipped Mac in those days.

    Over the years, Apple, as with most tech companies, opted to build their gear in Asia, but keep product design and support in this country. When you consider the huge savings in manufacturing costs, it made a whole lot of sense. Salaries are far lower over there, although they are increasing. So you could build gear in a state-of-the-art production facility, send it half way around the world — and sometimes use express shipping to satisfy early adopters — and still save a bundle of cash.

    Those savings went, in part, to the company’s bottom line, but it also meant that your Mac, iPad, iPhone and iPod cost a whole lot less than if they were assembled in America.

    Apple is, of course, not alone. I challenge anyone to identify a tech product, except for a few specialty designs, that are still assembled in North America (other than Mexico) or Europe. It just doesn’t happen.

    Now I am not against a third world country wanting to create a higher standard of living for its citizens. Certainly the people who work on the production lines in the factories building products for Apple and other companies have a higher standard of living than their neighbors. Indeed, Foxconn, one of the larger contract manufacturers, who assembles millions of products each year for Apple, has recently granted salary increase to their employees.

    What you see here is that, as wages improve, it will become less economical to farm out manufacturing. At what point does the cost of assembly and shipping from Asia to North America suddenly become less appealing to a company’s bean counters?

    Understand that this article is self-serving. The major industrialized nations all have high unemployment. Millions of potential customers for these products can’t even buy them because they have to struggle to cover housing, electricity, food and other survival expenses.

    Now you might see where I’m going. What sort of wages would it take to provide an adequate standard of living for someone working on the assembly lines in America? No, I’m not talking in terms of minimum wage, nor what one might get manning the counters at a fast food restaurant.

    I could, of course, also see where a factory job might serve as an entry-level position for a young person just entering the work force, maybe looking to provide a supplemental income to cover the costs of education, or perhaps just help someone establish a level of independence while still residing with one’s parents.

    Once you tally the cost of wages and benefits there is, of course, the expense involved in building a factory equipped with the appropriate state-of-the-art automated production systems.

    Indeed, would it at all be economical for contract makers to actually construct plants in the U.S.? I mean, auto makers from Asia and Europe are already doing that (and sourcing from local parts suppliers of course), finding that it’s cheaper to build a car here than to assemble and ship one across the pond. On the other hand, the cost of shipping an iPhone is minuscule compared to a two-ton motor vehicle, and the savings may vanish rapidly.

    Or maybe not.

    The real question here is, of course, whether the major tech companies are willing to weigh the costs of building their gear over there, with the attendant shipping and quality control expenses, compared to the costs involved in assembling them closer to where they are actually sold.

    I do concede that the answers to these questions are likely way above may pay grade. I do not pretend to have the answers, and I suppose that Apple and other companies are always busy looking into more efficient ways to assemble products.

    On the other hand, if the cost of domestic assembly was only slightly higher than building those products elsewhere, maybe it’s worth the investment, even if profit margins are slightly lower.

    Indeed, would a “Made in the U.S.A.” label on a new iPhone or Mac justify a slightly higher purchase price? I realize that’s a serious question that may not bring the answer you or I would want to hear. The real issue is whether Apple and other tech companies even care anymore. Perhaps they have become so accustomed to assembling their gadgets elsewhere that they won’t even seriously consider alternatives.



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    31 Responses to “Why Isn’t the iPhone Made in the USA?”

    1. Rod says:

      I (a former Apple employee) am curious about what the cost of manufacturing my favorite products (including Apple devices) inside the USA would be.

      Remember that most of the parts are made in Asia, meaning that to do final assembly in the USA would require shipping all of the parts to the USA.

      What would be the cost of making everything (hard disks, processors, chipsets, etc.) in the USA? How would Apple (or any other leading technology manufacturing firm) convince all of the companies that make the parts to make them in the USA?

    2. Eddie says:

      Most of the money made on the iPhone goes to the HD/screen makers and to Apple–not the country where it’s all assembled. A better question would be why can’t the USA lead in manufacturing state of the art screens and other valuable components. The assembly part is not where you want the US to be in.

      • @Eddie, Consider it one part of a whole puzzle. Obviously building parts must become part of the equation too. But building flat panels represents a very expensive investment. There aren’t that many plants that do it, and this may be one area where it would take time to change things.

        Peace,
        Gene

        • Richard says:

          @Gene Steinberg,

          It is not just a matter of flat screens. The industrial base of the United States has deteriorated to the point that many items essential for national defense are no longer produced domestically and place us at risk of a shortfall in the event of changing political winds.

    3. Steve W, Indialantic FL says:

      In 1984, when Macs were made in the USA, Steve Jobs said he had all Apple’s imported manufacturing equipment painted yellow, so that everyone on the factory floor could see them at a glance.

      Insert punch line here:________________.

    4. Louis Wheeler says:

      The simple answer is that there is a hostile business climate in many American cities which makes it inexpedient to manufacture here.

      This is why businesses within the US, as well as from over regulated Asian and European countries, are being relocating to US states with lower taxes and fewer regulations, less crime, governmental corruption and Trade Union power, such as in the South and the SouthWest. This natural movement is how the Manufacturing Belt became the Rust Belt. The manufacturing jobs in the Rust Belt are gone and will never be coming back under the present business climate. The State and Local bureaucracy built up over the last hundred years guarantees that the Rust Belt will, eventually, become rural. The City of Detroit is being forced to demolish old buildings so that farming can be introduced into the city center. When the welfare funds dry up, even the poor will relocate.

      Companies with powerful Trade Unions cannot compete in a world market, because they serve the needs of their Union members even when that damages their employer’s long term survival. General Motors is an excellent example of this. It is likely to follow British Leyland’s lead and go out of business less than a decade after it was taken over by the government. General Motors was not allowed to go into bankruptcy, because a court appointed administrator would have invalidated the excessive employment and pension contracts resulting from long term Trade Union extortion. Before the financial meltdown, General Motors was selling its cars for $4000 less than they cost to manufacture because of its employee overhead. UAW refused any compromise. When General Motors goes belly up, then its employees will play the victim card once again, this time for taxpayer funds.

      Labor rates alone do not determine where companies will relocate to, productivity matters, as well. US employees, for many decades, were the most productive workers on the planet. They constantly produced more with less labor input. Now, the world is catching up, but the biggest deterrent to manufacturing is high taxes, onerous regulations and Trade Union coercion.

      I see nothing on the horizon which will improve the US business climate and much that will not. The US government’s recent social legislation — Nationalized Health Care, Financial Reform and the coming Cap and Trade along with classing CO2 as a pollutant — will push more companies, and high income individuals, out of America. We, working class folk, will be unable to follow them, so we must suffer through the coming Second Great Depression.

      America will recover from this debacle once the Progressive Elitists are thrown from power. The Progressives have been erecting the causes of the Second Great Depression for the last hundred years. They think that if the economy is devastated, then the public will turn to the Progressives and give them even more power. This is both unAmerican and delusive. A huge backlash is building against the Left, even among their Democrat Party constituents. It is possible that neither political party will survive the next ten years.

      • @Louis Wheeler, I knew I had broached a political subject, so let me just point out that many of the larger corporations have been responsible for moving all or most of their manufacturing offshore, a trend that started long before there were “Progressive Elitists,” or whatever you wish to call them, in charge.

        If this was a political blog, I’d go toe-to-toe with you, Louis, but it’s not. Let’s move on.

        Peace,
        Gene

        • Louis Wheeler says:

          @Gene Steinberg,

          ” many of the larger corporations have been responsible for moving all or most of their manufacturing offshore, a trend that started long before there were “Progressive Elitists,” ”

          As I pointed out, it is rational, simple cause and effect, for companies to move away from locations, even within the US, which have a hostile business climate. This is what created the Rust Belt.

          A tyrannical US Federal government is taking over or controlling an ever larger part of the economy. It makes sense, under these incentives, for entire industries to move out of the country. Technology no longer confines us to specific localities. Cities are becoming more obsolete every day.

          The Progressive Elitists took over the Democrat party in 1906, although the first Progressive President was the Republican Teddy Roosevelt. The Reform Movement (Progressivism or Fabian Socialism) was apolitical. Herbert J. Croly, in his book “The Promise of American Life,” thought that the Progressives would subvert the corrupt Republican Party, but the Democrat leadership folded instead. The first Democrat Progressive President, Woodrow Wilson, was elected in 1912. Many of our current problems started then.

          “If this was a political blog, I’d go toe-to-toe with you, Louis, but it’s not.”

          Why do you persist in acting as though this were a political blog? I’ve been repeatedly asking for a debate, but you don’t know enough history to refute me. When you can’t win arguments, you want to move on. Another phrase for that is “covering up.”

          I am not in favor of big businesses. The Big Corporations in America were the result of FDR’s National Recovery Act which cartelized businesses. I am as much against them as I am Big Labor or Big Government. It was the Progressives which created Big Businesses since Federal regulations disproportionally favor them.

          A free economy diminishes Big Businesses. US Steel was a good example. When it was created, US Steel had over 50% of the market, but that had dropped to below 25% in 10 years.

      • Richard says:

        @Louis Wheeler,

        I think that you are aware that there is no constitutional basis for political parties. In fact, the founders had no idea that parties would emerge and, when they did, were not at all pleased with their development. The problem is that the two parties have integrated themselves into the government to an extent which never would have been tolerated by the founders. Why, oh why, does the state give preferred status to the two parties even to the extent that almost all states subsidize the parties by running their primaries?

        Add to that the seniority system in congress which invests the likes of Barney Franks and company with enormous power simply because they have been around a while.

        It will be interesting to see if the re-election rate of incumbents dips in the upcoming elections or whether the power of incumbency will continue to overcome the will of the people who have been so poorly represented. At risk is the consent of the governed.

        • Louis Wheeler says:

          @Richard,

          ” In fact, the founders had no idea that parties would emerge and, when they did, were not at all pleased with their development.”

          President Washington warned against Factions (or political parties) in his Farewell Address.

          The problem is there are power seekers in both parties. Many people want to suck from the Public Teat. Once you have political power you act to preserve it; that is what Gerrymandering is all about. It is all a plot to thwart the consent of the governed. Nothing that Obama is doing has our consent.

          I agree withThomas Jefferson that a revolution is needed every generation to set things aright. We are on the verge of such a revolution now. We live in interesting times. It appears as though the American Republic will either be reconstituted or go down in flames.

      • Vito Positano says:

        Hi, Louis Wheeler,
        You mean relocate where they can pollute more, perhaps into your state, and you will be able to drink more polluted water.

        • Louis Wheeler says:

          @Vito Positano,

          The US Supreme Court in 1813, as a war time measure, gave to people (and businesses) the right to pollute other people’s air or water by overturning the British Common Law of Nuisances which would have prevented pollution. No one, under that law, had the right to change another’s environment for the worse without being sued for damages. It’s only common sense. The businesses didn’t ask for this right; it was political stupidity.

      • K Riggs says:

        @Louis Wheeler, Never has the current problems with our economy and government been better summarized. You, Louis, are a clear-thinking American!

    5. Brett says:

      Apple has historically been associated with high prices, and this is one of the main reasons cited for the Mac’s relatively low market share. More recently, at least in part due to offshoring production, Apple products have become more price-competitive, and this has helped them grow market share.

      Sadly, I doubt that Apple could continue to thrive if they brought their manufacturing back to the US. Consumers have shown time and again that lower prices are more important that “buying American”.

      • justmy2cents says:

        @Brett,

        I know plenty of people that drive 50+mi to find/buy shirts, socks, boxers, etc, that are made in the US… I think Apple could do just fine if they moved even some of their manufacturing back to the US.

    6. Richard says:

      It is sad that government policy, over many administrations, has essentially encouraged moving production of many things “offshore”. When all the jobs are gone, what will have been the point?

      I do note that there was a recent article indicating that many of the Foxconn workers are paid the equivalent of $270 a month. It was unclear if this figure was after their recent pay increase.

      I also note a number of “American” automobiles are produced in Mexico while a number of “Japanese” automobiles are produced in Ohio, Tennessee or Texas, for example, which leads me to believe, as I always have, that, when properly trained and lead, the American worker can compete with others. There was even a report a few years ago which showed that Hondas produced in the U.S. had fewer sample defects than those produced in Japan.

      I should think that the owners of Apple, the shareholders, some of whom visit your site, should be asking your question of Steve and the BOD.

      • Louis Wheeler says:

        @Richard,

        You seem to obsess about jobs. Jobs follow freedom and we have little economic freedom in the US and getting less. We are resting on our economic laurels; our standard of living is due for a big drop. Obama’s social changes will impoverish us. He knows this. It is all part of the plan.

        No business man wants to have branches at long distances; it magnifies his problems. It’s worse when there are language and cultural differences. US businesses relocated because it was too painful to stay in America.

        Did Toyota, when it started manufacturing in America, place a plant in Detroit? No, it opened up one in Tennessee. Why? Because their average workers make $40 thousand a year, not $72 thousand like in Detroit. Why did Toyota start manufacturing in America, at all? That resulted from Anti-dumping tariffs from the 1960s which were placed on Japanese made cars. It was suddenly cheaper for Toyota to manufacture in the US.

        NAFTA broke down the tariff barriers between the US and Mexico, so it became advantageous for American car makers to manufacture in Mexico. Lower labor rates were only part of the cause; Low regulations, taxes and no Trade Unions were far more important.

        • Richard says:

          @Louis Wheeler,

          Louis,

          You have an unfortunately all too common misconception of NAFTA. It does NOT “break down tariff barriers”. The barriers are still in place for U.S. goods going to Mexico and other places. This is not balanced, open, free or fair trade. Take your pick. The only duty-free vehicles going into Mexico are the stolen ones.

          Without going into the gory details, governmental policy has encouraged corporations to move production elsewhere. Indeed, many corporations themselves have moved elsewhere.

          I am not sure where you studied economics, but, without them, the nation will be in dire straits.

          • Louis Wheeler says:

            @Richard,

            True, NAFTA is not free trade. Only a fool would say it is. Or someone setting up a straw-man position.

            Free Trade could be proclaimed on a single page, it would not need many hundreds. NAFTA is a flawed pettifogging, political document and it has its quirks. It is easy to state where NAFTA excessively favors Mexico, but it is far better than the treaty which preceded it. Freer trade is better than the restricted trade we had had.

            When the Obama administration stopped those duty free vehicles, Mexico retaliated by slapping a 10% tax on California produce which threatened 5 thousand jobs. This was stupid of both countries. It was the Trade Unions which opposed those trucks and Trade Unions oppose Free Trade.

            You are exaggerating the benefits of Big Corporations; rarely are they big due to market conditions such as economies of scale. Big Businesses have utility mostly in their ability to contend with Big Labor and Big Government. I am against all three. All three are against economic freedom. They restrict competition.

            I am in favor of small to medium sized businesses, myself. They employ 58% of American workers. They create 80% of all new jobs.

            US companies are moving elsewhere because the government is pushing them out with excessive taxes, regulations and union favoritism. Everything Obama is doing is damaging small to medium sized businesses, not the big ones.

            SMB companies cannot afford to relocate outside the country so they will shut down or slow down business activity while laying off workers until the business climate improves. Many self employed people are going on strike — going Galt in the common parlance.

            The Federal government is diminishing our economy; Obama bragged about that to the Europeans. Unemployment will not be coming down as more restrictions and higher taxes are put into place.

    7. justmy2cents says:

      I’d gladly pay a little more to buy an iPhone, MacBook Pro, or iMac, that was made in the US.

      If Apple could continue to make a healthy profit making them in the US, and selling at the same prices, even better.

    8. tcarlson says:

      http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-and-now-for-some-good-news-2044578.html

      Sadly, Apple will just shift its gadget production from China to sweatshops in Vietnam unless you, the consumer, grow a conscience and say no.

      • justmy2cents says:

        @tcarlson,

        And in the meantime?

        My conscience is fine TYVM. I’m one of those crazy people that goes out of my way to buy as many things as i can that are made in the US. If there were a computer company making computers (and core components) in the US, and I could get it hackintoshed, I’d be happy to say “No” until Apple got a clue.

        I write Apple’s feedback asking them to make more goods in the US at least once a month, and ask my friends, family and clients to do the same.

        Rather than mitch and bone here, perhaps people should actually tell Apple they care about this.

    9. SteveP says:

      After reading the article I just knew that Louie and his “objective” viewpoint would pop up somewhere!

      Also, the “sweatshop” stuff is BS.

      And in case people don’t recall, Apple is an INTERNATIONAL company. Made in the USA has no meaning for a significant portion of their customers. Plus the more the wages of overseas wages increase the bigger the market for Apple and other companies like Boeing.

      • justmy2cents says:

        @SteveP,

        Yes, but good wages here would increase Apple’s potential market as well. There’s plenty of skilled labor looking for work that would be happy to buy Apple’s products.

      • Louis Wheeler says:

        @SteveP,

        ” I just knew that Louie and his “objective” viewpoint would pop up somewhere!”

        The proper name for my comments come under the heading of “Free Market Economics.” Gene’s could be classified under the name of “New Left, Marxist or Communitarian Economics.”

        Gene would not logically attack my position, just dismiss it as he always does.

        I simply thought that it would be useful to have an alternative view which does not demonize businesses. Both individuals and business leaders respond to incentives. If you make it impossible to earn a profit in one location, then people will move.

        “Also, the “sweatshop” stuff is BS.”

        I agree. Wage rates depend on living standards. A person could make a low wage in a foreign country, yet have a good life because prices are low. The US is not causing people around the world to be poor; that is the result of poor education, low capitalization, bad or exploitive governments and other long term problems. Southeast Asia quadrupled their standard of living within the last ten years.

        The Chinese factories have no problem hiring new employees. The suicide rates in those factories is lower than among teenagers in the US.

    10. Richard says:

      Gene,

      “One more thing…” (I couldn’t help myself.) About your “way above my pay grade” observation…I suspect that you may own one or more shares of Apple stock. If so, that makes this issue one that is precisely at your pay grade. You and the other shareholders own the company. Steve and the BOD (even though they own stock as well) are merely “hired hands” who are supposed to be responsible to the shareholders (as a group anyway).

      😉

      Peace to you,

      Richard

    11. Derek Bolander says:

      Equilibrium.

      It’s about the world economies reaching equilibrium. Until manufacturing and labor costs become the same worldwide, we’ll continue to see corporations relocating to cheaper places. Perhaps over the next century we’ll see a slowing of corporate migration and maybe even a relocation to places physically closer to customers. For now, globalization is painful to those with more wealth and prosperous to those with historically no wealth.

      • Louis Wheeler says:

        @Derek Bolander,

        The world economy will never reach equilibrium, because governments are constantly changing the conditions which produce wealth. It looked for a while there, as though Ireland was the hope of Europe, but its government sabotaged that.

        The point is that actions have consequences. Bad public policy produces poor economies. High taxes and business restrictions cause individuals and companies to bail out of bad business climates.

        Unfortunately, the whole world is pursuing bad policy. The world economy hasn’t hit bottom yet. A housing bubble is imminent in China. Many political actions, such as protective tariffs, will be coming to shut down world trade. We’ve already seen hints of that in the Obama administration; his politic base is clamoring for it.

    12. SD says:

      Now why can’t they move that production to let’s say Haiti or Central and South America, friendlier nations right in our backyard and I’m sure you’d save on shipping! If foxxcon workers are paid about $270 a month that’s not much less than some folks in our backyard make a month.

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