How the U.S. Lost Out on iPhone Work

Apple is usually a headline grabber to begin with but this article via the NYT is generating quite the buzz.  In it the article goes to great length to explain why Apple makes most of it's products in Asia and how America cannot compete.

There is no question that production flexibility is greater when it comes to producing electronic goods in Asia with shorter supply chain lines and a workforce that lives in corporate dorms who are available at the drop of a dime.  Although the cost of labor is cheaper in countries like China, for the most part the cost of labor as a percent of the total overall product cost is relatively small compared to materials, overhead, etc.

As cold as this may sound, American companies are not required to employee American workers.  Companies build products where they have a competitive advantage or where it makes the most business sense.  Just yesterday I saw a piece on CNBC where CAT  (Caterpillar) was pulling 2k to 4k jobs back to the US because this is where the demand for their products were.  It doesn't always make sense to make things in China just like it doesn't always make sense to build products here in the US.

Does the American workforce have the skills to compete in a new high tech global setting?  This is one of the points in the recent post [February 2, 2012 Making It in America].  I think that this needs to be the focus because the hourly assembly person is being replaced by a robot or a country that can assemble that product for less where it makes economic sense.

Here is the full article in the NYT as well as the highlights

• “They could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”
• Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.   In China, it took 15 days.
• It is hard to estimate how much more it would cost to build iPhones in the United States. However, various academics and manufacturing analysts estimate that because labor is such a small part of technology manufacturing, paying American wages would add up to $65 to each iPhone’s expense. Since Apple’s profits are often hundreds of dollars per phone, building domestically, in theory, would still give the company a healthy reward.
• But such calculations are, in many respects, meaningless because building the iPhone in the United States would demand much more than hiring Americans — it would require transforming the national and global economies. Apple executives believe there simply aren’t enough American workers with the skills the company needs or factories with sufficient speed and flexibility. Other companies that work with Apple, like Corning, also say they must go abroad.

• “Our customers are in Taiwan, Korea, Japan and China,” said James B. Flaws, Corning’s vice chairman and chief financial officer. “We could make the glass here, and then ship it by boat, but that takes 35 days. Or, we could ship it by air, but that’s 10 times as expensive. So we build our glass factories next door to assembly factories, and those are overseas.”
• Corning was founded in America 161 years ago and its headquarters are still in upstate New York. Theoretically, the company could manufacture all its glass domestically. But it would “require a total overhaul in how the industry is structured,” Mr. Flaws said. “The consumer electronics business has become an Asian business. As an American, I worry about that, but there’s nothing I can do to stop it. Asia has become what the U.S. was for the last 40 years.”
• “New middle-class jobs will eventually emerge,” said Lawrence Katz, a Harvard economist. “But will someone in his 40s have the skills for them? Or will he be bypassed for a new graduate and never find his way back into the middle class?”
• The pace of innovation, say executives from a variety of industries, has been quickened by businessmen like Mr. Jobs. G.M. went as long as half a decade between major automobile redesigns. Apple, by comparison, has released five iPhones in four years, doubling the devices’ speed and memory while dropping the price that some consumers pay.