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  • Apple and “Made in the U.S.A.”

    November 18th, 2016

    At one time a large portion of Apple’s production was based in the U.S., when the gear wasn’t being assembled in Ireland. Regardless, over time, as Apple built more and more mobile gear, it has become highly dependent on a very sophisticated Asian supply chain. As a result of the lower wages and heavy use of robotic construction techniques, the costs to Apple are much lower, so you pay less while still leaving them with a hefty profit margin.

    Now the issue of building Apple gear — and gear from most tech manufacturers — overseas has become a hot political issue over the past year or so, particularly when it comes to President-elect Donald J. Trump. Should the U.S. government be taking draconian steps to return lost manufacturing to this country, or is it a lost cause? Well, I’m not about the delve into the political issues. I’d rather look at the practical issues.

    So it is reported that some of Apple’s contract manufacturers, such as Foxconn, have been looking into the possibility of building such gear as iPhones in the U.S.

    But it’s not as if Apple doesn’t use U.S.-based assembly already. As many of you know, the Mac Pro, the few that are built each quarter, is reportedly assembled in Austin, Texas. Apple’s A-series processors (at least some of them) and Corning’s Gorilla Glass are also reportedly built in the U.S., and the App Store — for Macs and mobile gear — gives developers around the world plenty of work to do, which means jobs are being created. It was reported to be approximately 500,000 in 2012, and it’s probably several times that now. These are people who wouldn’t be working on production lines, but work at Apple headquarters in some capacity or develop software sold by Apple.

    So what about building iPhones in Austin or Reading, PA or somewhere closer to home? Major foreign auto makers have set up U.S. plants, although lower cost vehicles are moving to Mexico. Since Apple is based in California, why not?

    Now one thing this country doesn’t have is the sophisticated integrated supply chain the Foxconn and other contract manufacturers have set up in the cities in which they are located. Many of the people who work for them actually live in dormitories on a company’s own facilities. I won’t mention the salaries they receive — which have grown larger over the years largely at Apple’s influence — but the pay scales in the U.S. would be a number of times higher.

    Now Apple would obviously save on shipping costs, at least for gear sold in this country, so maybe they could consider manufacturing closer to where the product is actually purchased in other countries too. Still, when all is said and done, it would reportedly cost 35% more when you factor in labor, shipping and other expenses. Remember, too, these manufacturers would have to start from scratch to set up fabrication facilities, and other companies would have to set up close-by facilities to supply parts. Otherwise, shipping costs would be huge.

    With a 35% increase in production costs, the net result would mean a commensurate increase in the cost to customers. So a basic iPhone 7, now listing for $649, would sell for an estimated $876. Is that what you want for the privilege of a “Made in the U.S.A.” label?

    Remember, Apple isn’t going to eat those higher costs, nor would any other tech manufacturer. Somebody would have to pay and the end result would be lower sales, since fewer people can afford these products, and certainly higher inflation.

    Still with a climate where the U.S. might threaten to impose hefty tariffs on products built overseas and perhaps start trade wars, the end result could be the reverse of what’s intended. With much higher prices, fewer people would buy this gear, and that would hurt the economy. With lower sales, people would lose their jobs, and that might be enough to more than compensate for the jobs potentially gained at those manufacturing plants.

    It goes to show that just saying something for political effect may impact people on a visceral level. In the real world, things are far more complicated than they appear at first blush.

    Now as salaries increase in Asia, production will likely move to less-developed countries. Eventually, with a growing middle class around the world, the time may come where it will not cost a whole lot more to move production to more of the countries in which the product is sold. But don’t forget that factories are using more robotic assembly techniques, so the presence of a plant may not always mean that many jobs are created. Don’t assume you’ll be seeing workers with their soldering guns delicately putting circuit boards together. That is so yesterday.

    But it’s nonetheless true that Apple made a fairly big deal over the fact that the Mac Pro is assembled in the U.S., although parts may be sourced from different countries. Maybe more stuff will be made here in the years to come regardless of the political currents of the day. But forcing the issue will bring unintended consequences, even if it has an emotional appeal. And what about the populations in the UK and other countries where tech gear is imported? What about their needs?



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