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DesDizzy
A little disappointed at the low level of insight shown in this debate. Would ...
docdivakar
Junko, one thing I notice is (& am not sure if others here drew the same ...
Yoshida in China: Probing Apple's U.S. manufacturing gambit
Junko Yoshida
12/7/2012 3:00 PM EST
NEW YORK – At the beginning of this year, we launched a series called "Rebuilding America" in which we attempted to explore the prospects for reviving U.S. manufacturing. We acknowledged at that time that we could be accused of beating a dead horse since many in the electronics industry favor the outsourcing of manufacturing to Asia as a way to reduce costs.
Beyond that is the reality of globalization and what has been called the global "fragmentation of production." Still, we argued, the engineering importance of "making stuff" as a way of understanding the product design process can't be underestimated.
With that in mind, you have no doubt heard about Apple’s plan to spend more than $100 million to bring back “some production of Mac” to the U.S. from China. If you’re like me, you probably rolled your eyes and said, “Yeah, right!”
A healthy dose of skepticism is in order here.
First, what’s Apple’s business case? Setting aside the goodwill Apple has already gained from media coverage, we need to ask whether it actually makes sense to manufacture Macs at home.
We need to see a cost analysis. What’s the labor cost? What’s the shipping cost for finished products? Do we still have a supply-chain infrastructure capable of bringing all the components necessary to make Macs here and deliver them on time? What’s Apple's operating margin for this product line? How much will it cost to operate a U.S. factory?
We need to know the cost structure for moving in-shoring "some" production. Corporations frequently use cost as the alibi to ship jobs overseas. If some manufacturing jobs are returning, we must understand the business case for such a move.
Apple CEO Tim Cook, in interviews with Bloomberg Businessweek and NBC's Brian Williams disclosed none of these details. Cook never revealed the actual products Apple will be making in the U.S. or how many Apple expects to make.
Cook vaguely suggested producing some Mac computers here "beyond the assembly work" it already does stateside. Cook’s statements implied that Apple will have "partners.". For instance, he told Bloomberg Businessweek that the plan “doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.”
Again, what “people”?
So far, all we’re looking at is a symbolic gesture by Apple -- just in time for the holidays.
Next: 'Sandwich trap'
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Bert22306
12/7/2012 3:30 PM EST
Companies don't deal in macroeceonomic arguments. That's governments' job. Companies worry about the bottom line. Whether it makes sense to manufacture close to the customers or not is entirely a question of cost tradeoffs. It might make sense or it might not. For tiny products like cell phones, I have my doubts.
I was surprised to read this in the paper on my way to work this morning. If I remember correctly, Steve Jobs, in a conversation with the US administration about bringing manufacturing back to the US, said something like "Not only no, but hell no."
So I found this surprising. Maybe the change in management?
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dylan.mcgrath
12/7/2012 3:52 PM EST
In my opinion, it's pretty clear that Apple's decision to build some computers in the U.S. is aimed at nabbing a little good will. Google got lots of props when it strategically revealed that it's Nexus Q is made in the U.S.
http://www.eetimes.com/electronics-blogs/semi-conscious/4390828/Could-Apple-play-the--Made-in-the-USA--card--too-
In my opinion, there is a business case to be made for setting up shop close to customers. But it takes a back seat to the economic arguments associated with building stuff in China and other places.
That said, regardless of the reason, we should applaud this small gesture. Those of us who want manufacturing to revive in the U.S. should take any momentum we can get.
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dylan.mcgrath
12/7/2012 3:54 PM EST
PS- Just for the record, I think most analysts don't expect Apple to build that many PCs in the U.S. As the story notes, Apple has been cagey and has not given any numbers. It's largely a PR stunt.
Here's what analyst Craig Stice of IHS iSuppli had to say on the subject.
“The percentage of production likely to be shifted by Apple from Asia to the United States in 2013 is likely to be negligible, both for the company and for PC industry at large,” said Craig Stice, senior principal analyst for computer systems at IHS.
“Apple’s move appears to be a symbolic effort to help improve its public image, which has been battered in recent years by reports of labor issues at its contract manufacturing partners in Asia. However, given Apple’s high profile in the market, the company’s ‘insourcing’ initiative could compel other companies to follow suit and transfer production to the United States over the next few years.”
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garydpdx
12/10/2012 2:44 PM EST
PR stunt or not, further rumors have pointed to the Mac Pro as the Apple machines. These are big suitcase sized desktops - or rather, desksides - used by animation studios and such. Not high volume but often some customizing involved. My wild guess (and this is totally guessing) is that Apple may be experimenting with robotics for customizing special order machines, where standard boxes must now be opened up and modified by hand.
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junko.yoshida
12/7/2012 4:25 PM EST
Apple's "insourcing" initiate could only oompel others to follow, IF there is really a business case for it. I want to know if there really is.
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docdivakar
12/12/2012 11:57 AM EST
Junko, one thing I notice is (& am not sure if others here drew the same parallel) there are many good lessons to draw from Automobiles manufactured in the US, including some of the pricey models (like BMW's in Tennessee). Granted we are comparing apples to star fruits(!), I believe there are good manufacturing practices that can be emulated to get the 'high' labor cost out. As others have pointed out, manufacturing consumer electronics products is an art. It is high time US perfected that art!
MP Divakar
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bill123
12/7/2012 6:25 PM EST
There are many foreign car makers producing cars in the US. Samsung has a big chip manufacturing fab in Austin making SoC's for Apple and memory chips.
Nobody finds that hard to believe or question the economics. But when an American company announces that they will resume manufacturing in America, their action is labeled as a PR stunt.
Has the American people completely given up all hope for competing in manufacturing ?
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any1
12/8/2012 7:48 AM EST
I think that both Apple and Lenovo are simply "testing the waters" to determine what manufacturing costs really would be here in the US. You can try to estimate and get a general idea of what you THINK the costs would be, but you won't really know until you actually do it. Tim Cook is a supply chain expert and he knows there is value having multiple manufacturing locations. You don't want all of your eggs in one basket, etc. IBM used to make Thinkpads in NC, Lenovo acquired that heritage. The know how is still there. It will be interesting to see how these two "experiments" work out.
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resistion
12/8/2012 6:44 PM EST
Apple would have higher ground if it mentioned the recent deaths at Foxconn. However, not so. So it may not be so charitably viewed.
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seaEE
12/10/2012 1:15 AM EST
I don't think it is a question of logistics or supply chain. It wasn't a really a question when things moved overseas. Labor was less expensive and management made it happen. Somebody says "do it" and it gets done. Bringing it back will probably be easier. And given the breadth of electronics distribution in the U.S. (Arrow, Avnet, Future, TTI, Digikey, Mouser, Newark, Allied...) engineering builds will probably become a whole lot easier. In fact there are probably more than a few Apple engineers breathing a sigh of relief that they can now spend more time with their families and no longer have to make multiple trips to China every year. I look forward to further EETimes coverage and analysis on this as the events unfold. If Honda can manufacture cars in the U.S. then Apple ought to be able to build a PC here.
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rolling
12/10/2012 1:19 AM EST
What does manufacturing means? Mac chips are already made in America by Intel. PCB boards? Displays will not be made in the USA and will come from China, Taiwan or Korea. Plastic molding? Final assembly? Boxes? Globalization is driven by costs (wages, logistics), regulatory costs (taxes, healthcare, pension) and regulation arbitrage. High value added products (planes, chips, medical devices) can still be made profitably in the US but I don't hold my breath for finished electronic goods like PCs.
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Frank Eory
12/10/2012 12:42 PM EST
Excellent question -- how do we define "manufacturing"? Most people would probably agree that it must be more than just packaging the final product for shipping, but would also agree that final assembly & test of the finished product qualifies as manufacturing.
We all know just how global the electronics supply chain is, but many of our fellow citizens outside of our industry do not. I think it's important If we look at the complete value chain of a product, beginning with IP creation (design) and ending with final assembly & test, and consider which process steps add value, how much value and where.
I was reading a discussion forum on another web site about this Apple announcement, and it was startling how little some of the commenters knew about the U.S. content and U.S. added value in many familiar electronic products. Part of this is due to country of origin labeling and perhaps some of it is due to misconceptions fostered by the news media.
One commenter, for example, believed that Apple's products are "made in China with Chinese components" and that even when Apple moves some Mac assembly to the U.S., it will just be "assembled in USA with Chinese components."
Another wondered why seemingly all hard disk drives are "Made in Thailand", despite the fact that he was referring to drives from WDC and Seagate -- both U.S. companies.
Likewise some ICs, even those fabricated in U.S. fabs, might be labeled "Malaysia" if the packaging/assembly site was located in that country -- leading some people to believe there is no U.S. content or U.S. added value in that IC.
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Philip..5
12/10/2012 11:32 AM EST
Yes it was cheaper to make US companies more money overseas. President Bush even pushed hard for it. And now what we are no longer the leader in technology. Jobs and manufacturing must be kept in the USA. I never understood why we sent American jobs over seas! How may people lost there jobs and the snow ball effect. We send drones overseas that are open to invasion. The gps is weak and the video images can be seen by our adversary. When will USA government turn around and take pride in American workers! Our engineers are super but there must be a temwork effort on the USA.
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kwerner
12/10/2012 1:11 PM EST
Apple's success is based as much on a mystical glow of coolness and virtue as on hardware and software superiority. As Apple's hardware superiority vanishes, its software superiority declines (even ignoring its "Fruit Loop" mapping program), and its share price plummets, the company needs to find some way to restore the glow. A gesture toward domestic manufacturing might help - a bit.
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jackOfManyTrades
12/11/2012 3:16 AM EST
Who makes more money? Apple or Foxconn? Manufacturing is the part of the process where it's hardest to add value and compete. Apple keeps in house in the US the parts of the process where most value is added (design, marketing, selling) and outsources the part where least value is added (the manufacturing). I find it curious that it is assumed by everyone here that moving the manufacturing back to the US is automatically "a good thing".
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jackOfManyTrades
12/11/2012 3:26 AM EST
Or to put it another way: the fact that it is uneconomic to make stuff in the US is surely a good thing? Would you rather the economy of the US was more like that of Turkey/Vietnam/China so that it was economic to make stuff in the US?
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Sparky_Watt
12/11/2012 1:47 PM EST
You can't sell without a product and a customer. The US as a customer is declining. The more people that struggle to make ends meet, the less they buy. Unless we come up with a way for the average American to make more money, we will fail economically, and our failure will bring down much of the world. The only way the average American can make more money is to give them a product to sell. It is simple economics. If we send our money overseas by buying things made there, we must also bring it back by selling things there that were made here. If we don't, our money will leave and lose value. We will have less, and it will be worth less.
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Bert22306
12/11/2012 9:29 PM EST
"The only way the average American can make more money is to give them a product to sell."
I don't think that's right. People make money when they add value to the economy. And they make MORE money if they add more value than the average "other guy." "Add value" means doing whatever it is that the economy wants. You do that better than most others in the field, and/or you do something in demand that few others have mastered, you make more.
So in principle, if all we did was generate IP, and of course all the other more menial local jobs, that theoretically should be enough.
The problem is, the Chinese aren't stupid, right? If they do the manufacturing, what's to say they can't also generate IP? So we need to diversify. That's my take.
China and India are gymongous. It stands to reason, there is a LOT of talent there.
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sprite0022
12/11/2012 7:19 PM EST
yeah right, not all americans losers with this game rule.
there are 10-30% americans are losers though, those who want to occupy everything.
those who don't have a decent degree or gift to fit in the higher value part of apple chain.
they are staving or freezing to death now.
you all better come up with a solution.
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seaEE
12/11/2012 10:50 PM EST
Being able to manufacture a consumer product is a real art and science. There can be a range of skill levels involved. Having that range of skills in the U.S. further diversifies our economy and gives it a greater richness and strength. I would hate to see all electronics manufacturing move out of China, just as I hated to see a lot of it move out of the U.S. I think the electronics industry is something that all countries can participate in both to their benefit and to the world's benefit.
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sprite0022
12/12/2012 1:21 AM EST
I start to have a feeling that china is THE heaven chosen place for mass production.
(kinda like abrabs are the chosen place for oil reserves, so they can focus on prayers...)
1. population 1.3 billion...
2. industrious.
3. safe society, chinese folks are peace loving, mild. so they can get packed in high density, economic scale.
4. lacks higher level wisdom to get em into higher margin business (0 nand , 0 cpu)
5. u name it...
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DesDizzy
12/12/2012 12:11 PM EST
A little disappointed at the low level of insight shown in this debate. Would toss out a few obvious points from a BA perspective;
1) It is normal to evaluate/re-evalute your manufacturing cost structure periodically.
2) The MAC line are "high-end" computers.
3) The Chinese labour market cost increases are well documented.
4) The beginning of a new product cycle is an optimum time to change manufacturing dynamics/process
5) A high percentage of high end computer consumers (Graphics/film etc) are in the US.
I could go on, however, it would seem that this, is an ideal time to announce something that has been in the works for many years i.e. bring high end highly configurable products nearer to end users using new manufacturing machinery and methods, solving logistical problems and without cost penalties. Ergo, logical business process.
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