Apple to start manufacturing in U.S.

appleRecently, Apple CEO Timothy Cook announced that the company plans to invest $100 million in manufacturing operations in the United States next year.

This sounds like great news for the suffering U.S. economy but whether this decision will be beneficial to the U.S. economy or if this is just part of a public relations strategy by Apple is yet to be seen. The $100 million Apple is investing in this new manufacturing transition only amounts to 1/100 of Apple’s profits from last quarter.  More and more, high-technology manufacturing is made by robots, therefore this investment wouldn’t necessarily be going to produce thousands of new jobs here in the United States. The number of employees that will be added to the payroll is a mere 200.

When comparing manufacturing costs in China versus the United States, Apple’s move makes sense. The benefits of bringing these jobs back to the U.S. is that the company will not have to deal with union demands, Chinese regulation, or disputes with other contractors. China leads with a 72 percent profit margin for production compared to the U.S. profit margin of 46.5.  Although this seems like a significant difference, 46.5 percent is still not too shabby and the long-term benefits could be worth the move. As China’s wage rates and currency rise, skilled workers grow scarcer, the United States still maintains a strong lead over the nation in terms of productivity.

With the rapid emergence of China, India, and other developing countries transitioning to “middle income nations,” the cheap-labor-for-exports model is losing ground. In the future, we will start to see companies target manufacturing in the same country where the product is marketed. Apple is also changing the view on manufacturing with a shift toward more automated manufacturing. The final assembly is the least complicated part of producing it but the company is seeking to have more of the initial components made in the U.S.

Regardless of whether this is a public relations ploy or a new economic strategy for growth, Apple is thinking ahead about manufacturing.

Posted by: Elizabeth White

Sources: Reuter’s, Bloomberg Business

Photo source: courtesy of flickr user afagen

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One Response to Apple to start manufacturing in U.S.

  1. Investing $100 million in manufacturing operations in the United States is a very small percent of total manufacturing currently offshored by Apple, and for good reason, US infrastructure cannot support all Apple manufacturing.

    From: http://www.tuaw.com/2012/01/22/why-apples-products-are-designed-in-california-but-assembled/

    “Why not? Why can’t iPhones, iPads, and all the rest of Apple’s magic gadgets be built in the States? More generally, why can’t more US-based consumer electronics and computer companies do their manufacturing work domestically, helping to create American jobs and boost the struggling economy?

    The [New York Times]* asked that question, and after an extremely well-researched report involving interviews with both former and current executives at Apple, the answer the Times found is both simple and chilling: iPhones aren’t made in America because they just can’t be.”

    See, here:*
    http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html

    Additionally, moving Apple’s PC business to the US is smart since its production volumes are decreasing. The PC business is dying. This is the main reason Blackstone backed out of its discussions to purchase Dell, recently, in a WSJ article titled: “PC Slide Doomed a Blackstone-Dell Tie”, below:

    http://online.wsj.com/article/SB10001424127887323309604578433063194818472.html

    (Dell went private so it could set strategy and restructure against a dying PC business, without the watchful eye of Wall Street)

    Below are ways to consider reshoring and outsourcing (not offshoring) and, why both can work. (Knowing sometimes it just makes sense to offshore)

    http://www.ventureoutsource.com/contract-manufacturing/benchmarks-best-practices/electronics-assembly/outsourcing-decisions-yes-or-no

    Short link: ow.ly/jng8x

    I’m happy to discuss in detail if there are questions. A lot of the reshoring initiatives and decisions behind such are being hyped for various reasons. Concern of manufacturing executives should be focused on gathering good information from all sides to help make more informed decisions. Reshoring is good, but it’s not always the best answer for longer term company planning.

    Mark Zetter
    President
    VentureOutsoruce.com
    http://ventureoutsource.com/mz

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