Made in America, Again

Bringing manufacturing jobs back to the U.S. is politically savvy and can make economic sense.

Offshore labor: A worker in a Foxconn factory assembles consumer electronics for U.S. markets.

At a dinner for Silicon Valley big shots in February 2011, President Obama asked Steve Jobs what it would take to manufacture the iPhone in the United States. Apple’s founder and CEO is said to have responded directly: “Those jobs aren’t coming back.”

In December, Apple reversed course, saying it planned to assemble a line of Mac computers in the U.S. With that, Apple joined a wave of companies that say manufacturing in this country makes sense again. Companies that say they’ve brought back jobs include General Electric, Michigan Ladder, and Wham-O, which in 2010 hired eight people to make Frisbees in Los Angeles instead of China. An MIT study in 2012 found that 14 percent of companies intend to move some manufacturing back home.

The idea is known as “reshoring.” Although Chinese wages are a fraction of U.S. labor costs, rising shipping rates, quality problems, and the intangible costs of being far from headquarters all add up. That’s why some companies have begun to rethink the manufacturing equation.

MIT Technology Review interviewed Harry Moser, head of the Chicago-basedReshoring Initiative, about the trend. Moser, a former industry executive whose family has been involved in American manufacturing for a century, says he grew up “experiencing the glory of U.S. manufacturing.” He created the initiative to help companies compare the real costs of manufacturing at home and abroad, and to track the experiences of those who are returning.

Why are people talking about reshoring all of a sudden?

It’s actually been happening over the last few years. The obvious answer is that Chinese wages are doubling every four years. The consultants who five years ago were helping people offshore are now helping them inshore. And then you have President Obama making a big deal over how to reduce imports and start making stuff again.

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Is The U.S. Really Losing Its Innovative Edge?

Guest post written by Gerard J. Tellis

Gerard J. Tellis is Neely Chair of American Enterprise, Director of the Center for Global Innovation, and Professor of Marketing, Management and Organization at the USC Marshall School of Business. His forthcoming book is Unrelenting Innovation: How to Create a Culture of Market Dominance.

Gerard J. Tellis

Innovation is critical for the improvement in consumer living standards, the growth and success of firms, and the wealth of nations. In the late 19th and early 20th centuries, the U.S. surpassed Great Britain as the world’s premier economy on the strength of its innovations. These innovations spanned a wide spectrum of industries. Innovations flourished in a variety of heavy industries such as aeronautics, automobiles, defense, communications, electricity and power generation. Innovations likewise blossomed in consumer goods and services such as soap, photography, shaving and entertainment. The U.S. also pioneered innovations in university education, land ownership, home ownership and individual rights. The U.S. lead in innovation lasted through most of the 20th century.

 

 

Is the U.S. now losing its edge in innovation?

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Is Apple Prepping a ‘Made in USA’ Boom?

It could hinge on whether it picks Intel to make more chips for it

Dec 4, 2012, 9:42 am EST  |  By Brad Moon, InvestorPlace Contributor

Two potentially huge Apple (NASDAQ:APPL) items hit the radar in quick succession over the past few days.

First came rumors that the company was in talks with Intel (NASDAQ:INTC) to replace Samsung as the processor supplier for its mobile devices. Then, as the first shipments of Apple’s new iMac PCs arrived, reports rolled out that at least some of them bore an “Assembled in USA” sticker. CEO Tim Cook rose to prominence at Apple for moving production to China, but could the company be on the verge of a shift back to “Made in America?”

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If Intel manages to score the coup of becoming the chip supplier for Apple’s mobile devices, that would be a big story for both Intel and U.S. manufacturing. It was only weeks ago that Apple was supposedly in talks with Taiwanese chipmaker TSMC(NYSE:TSM) about the possibility of replacing Intel CPUs in its PCs with TSMC chips based on ARM (NASDAQ:ARMH) architecture.

Intel CEO Paul Otellini (the guy who brought Apple into the Intel fold but failed to break into the mobile market) retires, and all of a sudden Apple and Intel appear to be making up for lost time. With most of Intel’s chip fabrication plants in the U.S. (including factories in Oregon, New Mexico and Arizona), domestic manufacturing would benefit tremendously. Apple sold 43 million iOS devices last quarter alone — that’s a lot of chips.

Then there’s the story of the “Assembled in USA” iMacs that’s burning up the tech sites right now. Some (but not all) of Apple’s latest iMacs have been arriving on doorsteps adorned with the usual “Designed by Apple in California” message. But instead of “Assembled in China,” they’re marked “Assembled in USA.”

The FTC has very specific rules about how to qualify for that label. To comply, Apple has to be doing much more than just screwing bases onto cases. A factory somewhere in the U.S. has to be building these things.

How could you justify assembling a computer in the U.S. if you can pay ridiculously low wages in China? First of all, those low wages aren’t as low as they used to be. According to The Atlantic,they’re five times what they were in 2000 and expected to continue rising at the rate of 18% per year. At the same time, U.S. labor productivity has risen, while U.S. manufacturing wages over the past five years are now back at the level they were in 2000, adjusted for inflation.

Earlier this year, The New York Times did the math and calculated that if Foxconn workers were paid equivalent U.S wages, it would add $65 to the cost of an iPhone. On a $649 device (the price of a base iPhone 4S at the time) with an estimated materials cost of $203, this would require Apple to either hike prices or bite the difference, cutting into its margins significantly.

However, an iMac is much more expensive. The cheapest is $1,299, so a potential uptick in labor costs may be less noticeable. And then there’s its size.

To get a sense of what it must cost Apple to ship one of these all the way from China, I tried an experiment using FedEx‘s (NYSE:FDXshipping calculator to compare the cost of shipping a 1.4-pound box (iPhone) and a 42-pound box (27-inch iMac) from Foxconn in Shenzhen to the FedEx hub in Memphis. The result: $448.732 vs. $2,620.72.

Obviously, Apple isn’t paying anything near the rate Joe Public would, and it also uses other shipping companies. But the point is clear.

Shipping an iMac costs six times what it costs to ship an iPhone. If a worker at Foxconn in China ismaking $2.50 an hour compared to an average U.S. manufacturing wage of $19.15 (a difference of $16.65), so long as an iMac took 3.5 hours or so of labor to assemble, Apple would be breaking even by shifting manufacturing back to the U.S. based on the savings in shipping costs.

That’s all hypothetical. But it shows how plausible it is that under current conditions, Apple might shift production of bigger products from China back home. Plus, Apple was facing limited supply of the new iMacs based on problems at Foxconn, so maybe it’s decided to take matters into its own hands. Perhaps a hit on margins is worth the insurance against a hit on revenue if Foxconn can’t keep up.

It doesn’t hurt that the iMac is a relatively low-volume product (compared to iPads and iPhones) and that Apple already has an assembly facility in Elk Grove, Calif., where it built iMacs until 2004 and once employed 1,500 workers. Apple continues to refurbish iMacs for resale at this site, so it retains some technical and distribution capability. As TechCrunch notes, employment at that facility has jumped 50% this year, suggesting something is up.

While it’s possible that Apple merely messed up on its iMac labeling or that Intel Inside iOS devices is wishful thinking on Intel’s part, it’s also possible that between the company’s flagship PC and its determination to free itself from all vestiges of bitter rival Samsung, Apple is shifting toward “Made in America.” If so, here are a few things to watch for:

  • Without a doubt, Intel shares would surge. The company has been largely shut out of mobile, and gaining Apple’s business — even if it does so under license from ARM — would immediately vault Intel into a market leader. If it inked a mobile deal with Apple, those rumors about Apple seeking to shift its iMacs and MacBooks away from Intel would likely go away as well.
  • Apple’s margins could well take a hit, and even a small decrease could spook investors. Still, computers make up less than a quarter of Apple’s total revenue (and iMacs are a small subset of that), so the actual bottom-line impact of assembling PCs in the U.S. would likely be minimal and may well be offset by “Made in America” goodwill among domestic consumers.
  • Shipping companies could actually take a hit from any loss of Apple business. During the iPad 3 launch, for example, it was reported that Apple’s massive shipments form China (at premium rates) boosted the price DHL charged customers for international shipments by 20%. A steady stream of Apple shipments come from China to the U.S., and the vast majority (if not all) is by air.

At the time of writing, Apple hadn’t officially commented on either the “Assembled in USA” iMacs or the Intel talks. Expect all eyes to be on Cupertino for Cook’s response to both. In the meantime, the search is already on for a way to identify the U.S.-assembled iMacs while still in the box, so that consumers can choose them — and send Apple the message that they prefer to buy American.

As of this writing, Brad Moon from http://www.investorplace.com didn’t own any securities mentioned here.

Made in USA Certified:  www.USA-C.com

In China, Human Costs Are Built Into an iPad

An explosion last May at a Foxconn factory in Chengdu, China, killed four people and injured 18. It built iPads.

An explosion last May at a Foxconn factory in Chengdu, China, killed four people and injured 18. It built iPads. (Color China Photo, via Associated Press)

By NYT   and   Published: January 25, 2012

The explosion ripped through Building A5 on a Friday evening last May, an eruption of fire and noise that twisted metal pipes as if they were discarded straws.

When workers in the cafeteria ran outside, they saw black smoke pouring from shattered windows. It came from the area where employees polished thousands of iPad cases a day.

Two people were killed immediately, and over a dozen others hurt. As the injured were rushed into ambulances, one in particular stood out. His features had been smeared by the blast, scrubbed by heat and violence until a mat of red and black had replaced his mouth and nose.

“Are you Lai Xiaodong’s father?” a caller asked when the phone rang at Mr. Lai’s childhood home. Six months earlier, the 22-year-old had moved to Chengdu, in southwest China, to become one of the millions of human cogs powering the largest, fastest and most sophisticated manufacturing system on earth. That system has made it possible for Apple and hundreds of other companies to build devices almost as quickly as they can be dreamed up.

“He’s in trouble,” the caller told Mr. Lai’s father. “Get to the hospital as soon as possible.” Read more of this post

How U.S. Lost Out on iPhone Work

iPhone - People flooded Foxconn Technology with résumés at a 2010 job fair in Henan Province China NYT   1-22-12

iPhone - People flooded Foxconn Technology with résumés at a 2010 job fair in Henan Province, China.

By NYT  and   Published: Jan. 21, 2012

When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.

But as Steven P. Jobs of Apple spoke,President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest. Read more of this post

Apple Lists Its Suppliers for 1st Time

Apple released a list of its major suppliers for the first time on Friday, bringing the company up to par with other big American corporations, including Hewlett-Packard, Intel and Nike, which have released similar lists.

The list accompanied a report detailing troubling practices inside many of the technology giant’s suppliers. Apple said audits revealed that 93 supplier facilities had records indicating that over half of workers exceeded a 60-hour weekly working limit. Apple said 108 facilities did not pay proper overtime as required by law. In 15 facilities, Apple found foreign contract workers who had paid excessive recruitment fees to labor agencies.

And though Apple said it mandated changes at those suppliers, and some showed improvements, in aggregate, many types of lapses remained at general levels that have persisted for years.

Labor rights groups, journalists and academics have long asked Apple to reveal the names of its suppliers. While other companies have published the names of firms providing parts and services, Apple has resisted, with some inside the company citing the firm’s culture of secrecy.

Judy Gearhart, executive director of the International Labor Rights Forum, an advocacy group for workers’ rights, was disappointed Apple did not reveal the location of the suppliers on its list, complicating outside efforts to monitor the progress at the factories. Some plants on the list are relatively unknown, with Web sites that do not list where facilities are situated.

“It’s a bit of a half-step really to say, ‘Here are the names of the factories, go look through a haystack,’ ” Ms. Gearhart said. “But it’s a start.”

Steve Dowling, an Apple spokesman, declined to comment beyond the report.

The calls for Apple to disclose suppliers became particularly acute after a series of deaths and accidents in recent years.

In the last two years at companies supplying services to Apple, 137 employees were seriously injured after cleaning iPad screens with n-hexane, a toxic chemical that can cause nerve damage and paralysis; numerous workers have committed suicide, or fallen or jumped from buildings in a manner suggesting suicide attempts; and in two separate explosions caused by dust from polishing iPad cases, four were killed and 77 injured.

Apple, based in Cupertino, Calif., posted the supplier list on its Web site on Friday as part of something it calls its supplier responsibility progress report, a document typically published in February. Apple provides aggregate statistics of audits examining labor, discrimination, worker health and safety, environmental and other practices.

The list consists of 156 companies, accounting for 97 percent of what Apple says it pays to its suppliers. Apple’s tally of its suppliers includes many big-name companies like Intel and Nvidia, both makers of chips for Apple’s Macintosh computers, along with other parts makers like Samsung Electronics, Toshiba and Panasonic. The list also includes less recognized companies like Zeniya Aluminum Engineering, Jin Li Mould Manufacturing and Unisteel Technology.

But the list excludes many of the secondary suppliers — companies that provide parts to firms that directly contract with Apple. For instance, though the American glassmaker Corning has manufactured the strengthened glass in iPhones, it does not appear on the list because it technically does not contract with Apple, but with an intermediary that finishes the glass before it is delivered to an assembly factory.

Apple said 229 audits were conducted as part of this year’s supplier responsibility report, an 80 percent increase over the number the year before. The company said the facilities where repeat audits were done had shown fewer violations.

In an e-mail to Apple employees, Timothy D. Cook, the chief executive, said Apple had used its influence to improve living conditions for the people who make its products, including employee housing. “To meet our requirements, many suppliers have renovated their dorms or built new ones altogether,” he wrote.

This is the sixth such report Apple has issued. The company began conducting audits and publishing reports after news articles in 2006 showed poor working conditions at Foxconn, a Chinese manufacturer of Apple products.

Apple said in the report that it recently became the first technology company to join theFair Labor Association, a nonprofit group that aims to improve conditions in factories around the world. Apple said it would allow the association’s auditing team to gauge the performance of Apple’s suppliers against a code of conduct and publish the results.

“We welcome Apple’s commitment to greater transparency and independent oversight, and we hope its participation will set a new standard for the electronics industry,” Auret van Heerden, the association’s president, said in a statement.

Jeff Ballinger, a global labor activist, said he was skeptical that transparency alone would change the behavior of Apple’s suppliers, unless Apple was willing to pay more. “They can say forced overtime is a big problem, can you give Saturday afternoons off?” he said, adding that the factories’ “response is going to be raise the prices you give us.”

“That they don’t want to do,” he said of Apple.

By  and   Published: January 13, 2012

 A version of this article appeared in print on January 14, 2012, on page B1 of the New York edition with the headline: Apple Lists Its Suppliers For 1st Time.
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