Why won't Apple manufacture in the US?

The company can certainly afford to use factories here. As the iPhone, iPad, and Mac producer grows stronger, will it choose to employ more US workers?

By Benzinga May 30, 2012 7:01PM

By Louis Bedigian, Benzinga Staff Writer


Apple CEO Tim Cook says he wants the day to come when his products are manufactured in the United States. But will it ever really happen? And if so, when?


Cook spoke about the company's manufacturing practices at this year's All Things Digital conference. He started off by answering why Apple (AAPL) does not own the factories that produce its products. Apple has been criticized for using cheap labor in Asian countries to build products instead of hiring American workers.


Post continues below.

Executives decided a decade ago to outsource manufacturing to other companies that could handle it as well or better, he said, according to ATD's coverage of the event.


Fair enough. Apple can focus on engineering successful products while other companies can build the parts and assemble them. But why aren't any of those products made in the United States?


Cook said he would like to move manufacturing to the U.S., and added that some of the components of the iPhone and iPad are in fact built here. The main chip that runs the iPhone and iPad is made at a factory in Austin, Tex., owned by Samsung Electronics, Reuters reported. Some of the glass used in the devices are made in Kentucky.


Cook added that he hoped to someday move assembly to the U.S., but cited the decline in tool-and-die expertise here.


But there's an important point to be made, one that was left unsaid: The tool-and-die business and related industries have shrunk dramatically in the U.S. because companies like Apple decided to outsource the vast majority of their manufacturing.


"There are things we can do, and that's what we are working on," Cook added, according to ATD's liveblog of the interview. "We should do more semiconductor things in the U.S."


While Cook's statements should be viewed as a positive development for domestic manufacturing, they don't mean that Apple will start producing more parts in the U.S. or buying more from U.S. manufacturers. He said that Apple "should" do more semiconductor things in the U.S. He didn't say they were actually going to do them.


Chinese labor is simply cheaper


It's nice to hear that Apple is still buying any supplies from America. It may be old news, but not a lot of people were aware of it.


Now that we've gotten that out of the way, let's get down to the real issue: Apple makes products in China not because it can't do so here (as corporate executives, including Tim Cook, want us to believe), but because it is vastly cheaper.


Over the years I've heard numerous CEOs -- and even a few college professors -- claim that China is where the "talent" is, and companies will always chase talent. But there are hundreds of thousands of talented individuals all over the world. The Chinese can live on lower wages, however, so they are instantly more appealing to penny-counting corporations.


This is not something that corporate leaders want to talk about. Thus, you will often hear them use words like "efficient" and "effective" when talking about Chinese manufacturers. They want the public to believe that Chinese workers are so darn talented that there is no way for anyone else to compete, and the rest of us are just silly for wanting domestic factories. We should all get jobs in an office somewhere!


But aren't there nations capable of providing cheaper -- I mean "more efficient" -- office work as well? Let's send all of those jobs to China. Maybe then we can just sit around all day and never work.


Then again, if we don't work, how can we afford $500 iPads?


That's the conundrum Apple and other companies don't seem to understand.


Bring on the robots


Perhaps the only way for a domestic company to abandon China is if it finds some magical, ultra-innovative way to produce a product so cheaply that even low-wage Chinese workers can't compete. Occasionally, this works out. But in general, it's just not feasible.


Thus, the only way that a future iPhone could be made in the United States is if:

  • A) The process was almost entirely automated, thus eliminating the need for many human employees
  • B) U.S. salaries dropped so low that Apple was finally inspired to build an iPhone in America.

No one wants the latter scenario to occur -- although wages have been dramatically rising in China. The former has potential, especially when you consider the fact that someone would have to build and maintain the robots and machines that assemble future iPhones.


If those robots and machines are made in China, however, we won't be any better off than we are today.


AAPL shares closed Wednesday at $579.17, up 1.21% for the day, and up 43% this year. 


More From Benzinga
13Comments
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Executives, no matter how hard you try, you can't make 20 unskilled people do the same quality job as ONE skilled person.  The tech jobs in the US are disappearing because executives want to believe that if they out source where they can hire 20 people over there for less than the cost of 1 person over here, they're better off.

 

Wrong.

 

If your company was profitable before, the compensation of that ONE person was less than the value he brought to your company.  However, paying less for 20 people who don't know the job, nor have the experience to be able to do it as effectively as that ONE person did actually costs your company more in the loss off efficiency and quality.

 

You want to save money on salaries?

 

Start at the top!

 

Too many executives are using nepotistic, almost incestuous, relationships within compensation committees and have been effectively awarding themselves 1000 times their actual value to the company.  Very few executives of any publicly held company are worth more than 1,000,000 per year, based on the performance of their companies, and therefore should have their salaries reduced accordingly.

 

Or maybe, we should outsource the executive jobs over seas and replace ONE executive with 20 cheaper individuals...

May 31, 2012 9:18AM
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US workers cannot compete with the Chinese, because of health care costs. If a US employer would offer health care benefits, just the cost of the benefits, would equal more than a Chinese worker's hourly wage. Why do hospitals and doctors, charge so much for there services here in the US?

Answer=Because they can.

May 31, 2012 3:03AM
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It is the 900% markup they place on their products is why their made in China. They have no intetion to bring production to the US. It will cut into their inflated pricing. I know you will say it is supply and demand that causes the inflated price, but 900%? Just like sheep lead to slaughter, so are idiots led to parting with their money. Apple is sitting there trying to look like they care about the US economy, while they only care about their inflated profits and pay.
May 30, 2012 11:41PM
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Apple spends $7 labor (5-10 hrs) to build an iPhone or iPad in Asia. Why spend $150-300 in USA? Apple's competitors would kill them on price alone.
May 30, 2012 11:23PM
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The Metro Detroit area has quite a few laid off tool and die workers.  If you put out a help wanted sign, there will be applicants galore. The lack of skilled tool and die workers is by design. 90 day shops were common in the 70's and 80's. On the 89th day they laid you off so they wouldn't have to pay benefits. The apprentiship programs, technicals schools, were also abandoned about the same timel. My father is a retired tool and die maker.

May 31, 2012 9:44AM
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It's ALWAYS about labor, not taxes or regulations. I once worked for a company that did approximately $100 million in sales with a 6 percent net profit. U.S. labor costs were about 40% of sales, taxes were 35% of the $6 million profit, or abour $2 million. Moving to Mexico saved them 90% on labor costs (China is cheaper still), or $35 million+. So the next time some Apple genius or republican congressman mentions our high tax rate as the reason, just think, $35 million labor savings vs. 2 million in corporate income tax? No brainer. Yes, our corporate tax rate is too high, but NO, it is not the reason corporations move offshore.

In case you were wondering, I spent 35 years in manufacturing and crunched the numbers on many outsourcing moves. Numbers don't lie, CEO's and congressmen do.

Jun 1, 2012 5:44PM
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Pete Rose was punished for betting against the  "home team". REFUSING TO BUY APPLE'S PRODUCTS IS THE WAY TO SANCTION THEM FOR NOT MAKEING THINGS IN OUR COUNTRY!
May 31, 2012 7:56AM
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That was a bit of a left leaning opinion. If Apple tried to manufacture un the U.S. the stock price would drop by 50%. The overly burdensom government regulations and union trouble makers would kill the company. And the truth is there are not enough workers in this country who have the training, want the training, and who really give a damn enough to make it work. You can't turn a product around in this country as fast as you can in China.
May 31, 2012 1:40AM
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What a crock! Tim Cook mentioned the parts that are made in the US Why won't ALL of the companies manufacture in the USA is the real question.Just look at Foxconn on Wikipedia to see how many of our products come from there as well as our cars have had parts made from all over the world for years, yeah blame it all on Apple That's what all the cool kids are doing….
May 31, 2012 10:33AM
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it is always about the tax code,not taxes,by tweaking the code as to reward companies to produce and manufacture products here as opposed to abroad,if you incentivized the code some would come back tomorrow,most people truly don't understand the code in many instances to promote or benefit someone you spend $10you get to write off $100....where would solar be without the tax break 
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