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Apple’s Announcement to Move Some Manufacturing to the U.S.- Expedient or Opportunistic?

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Yesterday was Apple CEO Tim Cook’s day to shine in the media in the U.S..

With the able assistance of Apple’s public relations teams, exclusive public interviews were coordinated with Bloomberg BusinessWeek, which featured an exclusive cover story article, Tim Cook- The Apple CEO speaks, and with NBC News program, Rock Center and its host, Brian Williams.

In terms of supply chain related news, traditional and social media have been hyping Cook’s announcement that Apple plans to build some Mac computes in the U.S. in 2013.  The company has plans to invest $100 million in that effort, and in both interviews, Cook stated that Apple has been working on this goal for a long time.  Cook, however, did qualify that Apple will not own its own manufacturing in the U.S., which implies a continued contract manufacturing arrangement.

Traditional media will continue to hype Cook’s various statements and announcements. However, being what we are, one of the top ten blogs commenting on global supply chains, Supply Chain Matters will focus on the supply chain implications of these two Cook interviews.

First, in our view, the announcement that Apple will have some Mac production in the U.S. is one of political expediency. Apple has been feeling lots of heat these past months regarding the incidents of labor unrest in Foxconn plants in China, the need to engage the Fair Labor Association in continued independent audits, and the numerous traditional and social media reports that allege that Apple has stashed hoards of its cash across foreign entities to avoid U.S. taxation.  Apple was also a topic in the U.S. Presidential debates, with the direct question, what will you do to encourage companies like Apple to shift more jobs to the U.S.?  Now, Apple has expeditiously responded. That aside, Supply Chain Matters applauds the decision.  As Cook stated, it represents an opportunity, not only for Apple, but for other high tech and consumer electronics companies to rebuild manufacturing and certain supply chain process competencies in the U.S.

There were statements by Cook that, in our view, were somewhat on the mark and deserve amplification.  Brian Williams asked in the Rock Center interview- What would be the financial impact to the product if, for example, the production of iPhones were shifted to the U.S.?  Cook’s response was that rather than a price impact, the real issues reflect a skills challenge.  Skills were identified as the existence of talented manufacturing process engineers, as well as experienced manufacturing workers.  Cook pointed to deficiencies in the U.S. educational system, as well as the ongoing challenge of recruiting skilled manufacturing workers in the U.S.  Great answer!  But perhaps, there is much more unstated.  High tech and consumer electronics firms long ago shifted the core of consumer electronics supply chains to Asia. Foxconn alone represents a production workforce of over a million people, not to mention many more of that number spread across Apple’s Asian based suppliers. Add many other consumer electronics companies and the arguments of existing capabilities in people, process, component product innovation and supply chain across Asia remain compelling.

Cook noted the 20 year personal relationship he has with Foxconn chairman, Tery Gau,  Unstated is that Apple’s zeal for total perfection in product design and functionality leads to lots of product changes, some last-minute.  The relationship with Foxconn allows for incredible flexibilities, with stories of Foxconn calling out workers at midnight to work an additional shift to accommodate an Apple last-minute requirement. Cook noted in the BusinessWeek interview that certain Apple engineers have actually slept in Foxconn dormitories.  Readers might view that as a statement that puts Apple in a positive light, or an implication that if you demand round-the clock attention, best you also sleep in dorms with workers so  you can be close at hand on a moment’s notice.

However in today’s dynamic times, nothing remains static, including supply chains.  Labor costs in China have risen dramatically at double-digit rates.  The Asia “ring-of-fire” has been incredibly active of late, the latest reminder coming today with yet another significant 7.4 magnitude earthquake and small tsunami striking the same area of northern Japan.  The severity of typhoons and floods in the region has been on the increase and insurers have taken notice with higher insurance rates. Transportation costs to and from Asia remain stubbornly high with lots of excess capacity to financially recover from.

All aside, we will view the announcement by Apple to move certain Mac production to a “made in the USA” connotation as indeed opportunity.  Tim Cook has presented the announcement in the context of challenge, and has asked other high tech companies to join in the “experiment”.

Let us see what opportunity can provide.

Bob Ferrari

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  1. It’s interesting to see how things are starting to change. China, the powerhouse for cheap labor is starting to slow down as labor rates are increasing. It won’t be long until the Chinese start demanding similar wage rates as workers in the U.S. My concern is that because history repeats itself, we may one day be faced with the same problem of having everyone wanting to export more than we import leading to another downturn in the economy. However, I am glad that we are bringing jobs back and claiming the, “made in the USA.”