How the US Lost Out on iPhone Work..

[oracle]

Read an interesting article on CNBC about why Apple and many other multi-national companies manufacture their products in China and similar developing countries as opposed to their own countries.

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,”

One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.” The result is that “we can’t compete at this point,” the executive said.

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

The Chinese plant got the job.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days.

Read full article here

We all know reason manufacturing is moving to developing countries is due to cheap labour, but it seems that's not the only reason. These countries provide scale and flexibility in very short period of time that is unmatched anywhere else in the world.

After knowing the competition do you believe Governments in western countries should give up on supporting manufacturing in their own countries?

Thoughts?

Cheers,
Oracle.

 

[Intrinsic_Value]

read it already but its a truely great article.

Why?
because it highlights the structural weaknesses of many western economies.

Now as some of this forum might know, i am not very much interested in operational issues. I am very much interested in structural issues.

Why?
because operational issues are relatively easy to fix, structural issues much harder.

Now transpose that investment philosophy from a company to a nation.

Off course there will always be micro opportunities within the heystack of investment options.

This also ties back to my strategic investment hypothesis of 2008.

 

[Graemsay]

I read that myself too.

I suspect that the bottom line cost has a lot to do with it regardless of what the executives claim, as does the lack of protection for workers' rights. EU laws would prevent a 12 hour shift for five or six days a week in factories here.

The fact that a company like Foxconn will build and maintain the factory also reduces the upfront cost to Apple is probably a contributory factor.

The British vacuum cleaner company Dyson moved its production to the Far East some years ago, and cited a lack of a supply chain as a reason. In contrast, Triumph had to start fabricating components such as screws themselves because there weren't any local suppliers.

That said, Apple is keeping the core technology development in-house and in the US. The article makes the point that they still employ a significant number of Americans, but it's either in high-end development or low skill retail. The middle is being hollowed out.

I don't know if governments should do more to protect manufacturing jobs. A focus on high quality engineering hasn't done the Germans any harm, whilst allowing these skills to be lost in the UK has badly damaged much of the north of England and Scotland.

What I never get with Australia is that there's a huge mining sector, but this is shipped as ore. Why not build a bunch of smelters and furnaces, refine it locally, and then export it?

I suspect that a lot has to do with shipping costs and the containerisation of trade. It costs several thousand dollars to send a 40' container anywhere in the world. So the amount spent on delivery for an iPhone from China to the US is pretty marginal.

As an aside, a friend was working on a windsurf company. They were building in Tunisia to avoid shipping boards around the world, and actually were in something of a sweet spot during 2009 and 2010 due to their competitors building in Thailand and having high transport costs and then political unrest to contend with.

Unfortunately the Arab Spring came along last year (luckily during their off season for production ), so I don't know how things went after that.

But I suspect that if fuel remains expensive we'll see more regional production, rather than shipping from China or Vietnam. The real game changer will be 3D printing, which might remove the need for factories for a lot of products.

 

[Intrinsic_Value]

wellcome to the global village concept Graemsay.

We want to install our western values, yet we also demand free trade with the underlying value concept that free trade lifts all boats.

Well it does, but not in the way that some of the more well intentioned creators envisaged.

There has been a potential 20 year 'naked blanket' that has allowed various schools of thought to exist in harmony, essentially because of the fact that the degregation in western economies has been hidden through the increase in associated debt.

ie we borrow from the east, we buy from the east. Whilst this dichotomy existed, many economic models were harmonous in their forecast, regardless of whether it was more right or left thinking in its development.

Well the winds of change are now in place. For many this sits uncumfortably.

 

[Doovalacky]

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames..

They probably knocked off a 12 hr shift 6 hours before. Was it so important to wake 8000 people from their sleep. Not really, but they can get away with that sort of thing and meet an arbitrary deadline.

 

[Aaron_C]

They probably knocked off a 12 hr shift 6 hours before. Was it so important to wake 8000 people from their sleep. Not really, but they can get away with that sort of thing and meet an arbitrary deadline.

As an employee you are paid to do what the employer tells you to do. They didn't have to turn up - but they got paid to do so.