Wouldn’t it be something if Apple products, like your iPhone or MacBook, were made right here in the U.S.? There’s a growing interest on reshoring, or the act of returning manufacturing jobs to US soil, for several reasons. Two being the rising cost of manufacturing overseas, especially in China, and the growing pressure from Americans to bring more jobs back to the US.
We need large companies to take the lead in reshoring efforts, and Apple’s Tim Cook may be the one to do it. In his first interview since taking over the helm at Apple, Cook revealed his plans to bring some Mac manufacturing to the states, setting off a bevy of discussion addressing international trade, the US economy and the future of the consumer electronics industry.
Reshoring interest growing
In July, engineering professor at MIT David Simchi-Levi published a survey which showed that there’s a lot of manufacturing companies interested in reshoring for reasons such as “to get products to market faster and respond rapidly to customer orders; savings from reduced transportation and warehousing; improved quality and protection of intellectual property.”
“When companies began shifting manufacturing facilities to Asia in the 90’s, a lot was based on cheap oil,” Simchi-Levi told Mass High Tech in an interview. “At that time, oil was maybe $25 a barrel. Now it’s closer to $100 barrel – that’s an increase by at least a factor of four or more, which has enormous implications on supply chain logistics and costs.”
And it looks like Apple was part of the survey who stated that they were interested in reshoring, as Cook announced that they will be investing more than $100 million to shift production of their devices in the US by next year.
“Next year we’re going to bring some production to the U.S.,” Cook said in an interview with Bloomberg Businessweek. “This doesn’t mean that Apple will do it ourselves, but we’ll be working with people and we’ll be investing our money.”
But what does it actually mean for Apple if they reshore? Below we have analysis from Contributing Editor John Cassaretto, followed by 5 Perks and 5 Hurdles Apple will need to consider in their reshoring efforts.
More jobs in the U.S. There are a lot of jobless Americans and they want companies such as Apple to offer more jobs stateside. By reshoring, Apple could become the hero company, deemed as one of the best American companies to work for. And the good PR wouldn’t hurt. Companies like Apple face increasing pressure to bring jobs back to the U.S., and its rivals know it. When Google launched the Nexus Q, they were quick to emphasize the “Made in the USA” label you’ll find on each device.
Quicker response to customer demand. A lot of people like to customize their devices, like adding more storage to their iMacs. These customized products get their final assembly in the U.S., but they are still made overseas. So Apple still has to wait for stock to arrive before they can customize your gadgets, which could take weeks. If Apple made their products here, stock would be readily available for customization, and you get your devices faster.
Reduces cost for transportation and warehousing. If Apple does reshore, they would no longer need to worry about transporting products across oceans and worrying about whether or not they would arrive on time. It would also eliminate the need to pay for warehouses to store their products, since they’d probably add storage where they produce them.
Protection of intellectual property. Asking others to build your device is a recipe for disaster. It’s as if you’re a teacher about to give an exam, but you’ve let one of your students write the test. That student will more than likely make lots of copies of the exam and sell them to other students for the right price. And this is the reason why there are a lot of iPhone knockoffs in China. They know how to make Apple’s products and they have the materials to do it.
Preservation of quality. Apple has been plagued with yellowgate, WiFi-gate and a lot of other “gates” with recent iPhone launches. The problem here is that they don’t always know where their suppliers get materials, and it can be difficult and costly to run quality assurance when a manufacturer is overseas. So if they move production back to the U.S., there’s a huge chance that Apple could be more strict in quality control.
Lack of educated engineers for supply chain management. This is something even President Obama has emphasized as an issue for companies looking to bring manufacturing jobs back to the U.S. China has more skilled engineers than the states for managing the supply chain, and have developed quite a talent in recent decades, especially given the focus of overseas manufacturing for consumer electronics in particular.
Cook hopes that bringing more jobs to the U.S. will encourage education stateside to address the cultural and economic demands of reshoring, and he’s well aware of Apple’s influence in leading this charge.
Keeping investors happy. If Apple reshores, they’re facing bigger expenses, as wages in the U.S. are much higher. Apple is a for-profit company: spend less while making more.
“America does not produce iPhones here because we, the average middle-class American family, demand that Apple outsource its production to China,” Baizhu Chen, a professor of clinical finance and business economics at USC Marshall School of Business, said about Apple reshoring.
“The 10 largest shareholders of Apple are all either mutual funds or institutions. The largest shareholder is Fidelity, and the second Vanguard. If Apple is not able to generate good returns for the average American, we will punish these mutual funds by moving our retirement money to somewhere else. So who decides to locate the manufacturing bases of Apple, Dell, and Nike to China or other countries? Average Americans, who seek high returns on their investments.”
Potential for increased production costs since they need to provide higher wages for US workers. According to Chen, in 2010, minimum wage in China was at $2/hr. while in the US it was at $34.75. So if they move production in the US, they would be paying more for wages. That could add up to $25 billion in labor cost per year. Though Apple’s pockets could probably cover the cost, investors aren’t going to be happy about it.
The ability to meet demand may be impaired. Right now, Apple products are in high demand and the company can barely keep up, often running out of products the minute they become available in stores. Foxconn is able to provide huge supplies of Apple products since they have a lot of workers who get low wages. If they shift too much production to the U.S., Apple may not be able to produce as many devices since they would probably need to pay more at higher wages.