Yahoo Finance Reborn in the USA: What to Make of Apple's American Manufacturing Plans
The company plans to start building computers in the United States next year. This might be a milestone. It could also just be a PR stunt.
(Reuters)
Apple tends to get treated as a symbol of everything that's both right and wrong with American industry -- its ability to design and market brilliant products, and its reluctance to build them here at home.
So, there might be a temptation to treat the announcement that Apple will start manufacturing some of its Mac computers stateside next year as a milestone of sorts, a sign that when it comes to making consumer electronics, the U.S. is on the rebound. And who knows -- five years from now, we might find out that was the case. But as of this moment, it's too early to tell whether this is a meaningful experiment, or a PR move by a corporation that's been skewered for its labor practices.
In any event, this much is worth remembering: Whatever Apple does in the long term, there's plenty of manufacturing that appears to be returning to our shores anyway.
In interviews with NBC's Brian Williams and Bloomberg Businessweek, CEO Tim Cook, who as chief of operations under Steve Jobs helped mastermind Apple's Chinese outsourcing efforts, explained that the company would begin building one of its current Mac lines in the U.S. as of 2013. Here's the exchange from Businessweek:
You were instrumental in getting Apple out of the manufacturing business. What would it take to get Apple back to building things and, specifically, back to building things in the U.S.?
It's not known well that the engine for the iPhone and iPad is made in the U.S., and many of these are also exported--the engine, the processor. The glass is made in Kentucky. And next year we are going to bring some production to the U.S. on the Mac. And next year we are going to bring some production to the U.S. on the Mac. We've been working on this for a long time, and we were getting closer to it. It will happen in 2013. We're really proud of it. We could have quickly maybe done just assembly, but it's broader because we wanted to do something more substantial. So we'll literally invest over $100 million. This doesn't mean that Apple will do it ourselves, but we'll be working with people, and we'll be investing our money. [Italics mine]
Apple has been dogged by bad press related to the dire factory conditions at its manufacturing partner, the Taiwanese behemoth Foxconn. So it's possible to read this as an attempt at currying a bit of public goodwill, especially as it follows months after the company's arch rival, Google, announced it would attempt to build one of its own gadgets domestically. But Google's orb-shaped streaming media player, the Nexus Q, was a bit of an oddity that appears to have been pulled from the market before its official release. Mac computers, on the other hand, make up a small-but-important chunk of Apple's revenue. The $100 million the company is throwing at this effort is pretty much a rounding error in the scheme of its finances. But it's not nothing. This would appear to be an honest-to-God effort to mass manufacture a popular computer in America.
And for a while now, consensus has said that would be all but impossible. Labor costs have been one concern. With today's assembly methods, it still takes lots and lots of hands to pack components into smartphones and laptops, and hands are cheaper on the east coast of China than on the West Coast of the United States. Just as importantly, most of the supply chain for consumer electronics, from TVs to computers, now lives in Asia. Sure, as Cook says, the iPhone incorporates glass and processors produced here. We're still far from the center of the tech manufacturing universe.
But that could one day change. Some of the reasons have to do with big picture shifts that are changing the geography of global manufacturing. As this month's Atlantic cover story reports, companies such as GE have found that offshoring wasn't the money saver they were led to believe and are now starting to return some of their factory operations to the U.S.. Chinese wages are rising, as is the cost of shipping goods back and forth across the world. Meanwhile, American manufacturing workers -- battered by the recession as well as decades of watching their jobs shipped abroad -- have taken pay cuts, and our natural gas boom has kept energy costs extremely low. For those reasons and others, U.S. companies involved in advanced manufacturing are finding it's often cheaper to build products at home than abroad.
Electronics manufacturing itself might also be on the verge of a major transformation. Foxconn, which alone produces 40 percent of the world's consumer gadgets, is now hoping to begin automating much of its assembly processes, replacing its notorious lines of Chinese factory girls with industrial robots. That's actually great news for America. The rule of thumb for U.S. manufacturing is that the higher the profit margins are on a product, and the less human labor involved in producing it, the easier it will be to make in the States. If Foxconn, or any other company, figures out how to build a Mac or iPad with fewer human fingers, there's no reason that work couldn't move back to the United States, assuming enough of the supply chain could be routed back here along with it.
So on the one hand, we're just talking about a single product, and one that barely qualifies as a core part of Apple's business anymore. As a result, it's hard to know how serious this initiative really is. On the other, this could be a perfect low-impact way for Apple to test the waters back in the States. And it certainly seems like a more serious attempt than Google's.
But it's comforting to know that if the economics don't work for Macs, they'll probably work for plenty of other companies.
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