Why the United States Will Never Build the iPhone

January 27, 2012

Apple's decision to ship much of its production jobs overseas to East Asia has been a source of criticism for the company, but the move is only a minor event in a massive exodus of manufacturing to that region.  In this context, important factors in Apple's choice can highlight crucial gaps in America's manufacturing sector and explain why it is gradually losing out to foreign competitors, says The Atlantic.

The most commonly pointed to reason, the price of labor, is significant.  Apple analysts estimated that to build its iPhone in the United States would increases costs by $65 per unit, significantly driving up the price tag or cutting into corporate profits.  This factor alone makes overseas production seem attractive and is often touted as the sole reason, but the Apple decision highlights a number of other factors:

  • The flexibility of the Chinese workforce, such that thousands of workers can be made immediately available for unexpected production expansions.
  • Relaxed labor regulations that, for example, allow laborers to work longer with little notice.
  • Proximity to other manufacturers -- many electronic components are already located in East Asia -- solidifies supply chains, thereby decreasing wait times and transportation costs.
  • In addition to an enormous population of unskilled laborers, China produces 600,000 engineers each year (versus 70,000 in the United States) who are skilled administrators.
  • The Chinese central government's direct support for individual manufacturing enterprises allows for rapid expansion of facilities and production capacity, further augmenting the competitiveness of Chinese companies.

The reports on Apple's decisions to move its production abroad was particularly timely because it allowed Americans to see that it was not merely lower wages that were causing their economy to shed jobs.  A number of factors have conspired to attract blue-collar jobs offshore, leaving the United States with the position of a chronic net importer.

The point regarding supply chains is particularly troubling, as it suggests a reason for why this trend might not only continue but also accelerate.  It suggests that the exodus of manufacturing has a momentum effect, such that each operation that moves overseas increases the incentives for other operations to do the same.

Source: Jordan Weissmann, "Why the United States Will Never, Ever Build the iPhone," The Atlantic, January 23, 2012.

For text:

http://www.theatlantic.com/business/archive/2012/01/why-the-united-states-will-never-ever-build-the-iphone/251837/

 

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