Many people work under the impression that the reason that Apple Inc. (NASDAQ:AAPL), for example, outsources the bulk of its manufacturing to China in the presence of massive factories where the workers work for salaries that no American could live off at the end of the month. While there is some truth to this, Chinese labor is indeed cheaper, and factories like the many owned by Taiwanese company Foxconn Technology Co., Ltd. (TPE:2354), are able to pull from a wealth of trained laborers the moment they receive a purchase order from a company like Apple Inc. (NASDAQ:AAPL). It’s easy to forget that in addition to marginally cheap labor, China also provides speed to the manufacturing equation.
Alex Hillsberg of Finances Online recently broke down the supply chain and the challenges that a company like Apple Inc. (NASDAQ:AAPL) faces when it wishes to begin production of, say, a new iPhone.
According to a recent interview, Corsair Capital's founder Jay Petschek did not plan to be a hedge fund manager. After holding various roles on Wall Street, Petschek decided to launch the fund in January 1991, when his family and friends were asking him to buy equities on their behalf. He realized the best structure for Read More
Apple’s China outsourcing reduces production time from 9 months to 15 days
Mr. Hillsberg, courtesy of an info-graphic shows that the time it takes to hire 8,700 engineers to oversee 200,000 factory workers. In China, this process takes 15 days, in the United States this same hiring process would take nine months. That is a staggering amount of time lost.
“Most rare earth metals come from China,” the report also states, noting that 90 percent are mined in Inner Mongolia and China. This is one of the primary reasons that Apple Inc. (NASDAQ:AAPL) manufacturers the bulk of its product line in the Middle Kingdom.
Apple CEO Cook says “skills have left the U.S.”
The Chinese government and media have long been accused of treating Apple Inc. (NASDAQ:AAPL) poorly in its reporting, scapegoating Foxconn and Apple every time a worker kills themselves or a consumer electrocutes themselves with an iPhone. The fact is, as the report points out, Foxconn Technology Co., Ltd. (TPE:2354) is not an Apple Inc. (NASDAQ:AAPL) factory but manufacturers 40 percent of the world’s consumer electronics including products from Amazon, Dell, HP Motorola, Nintendo, Nokia, Samsung and Sony.
Apple Inc. (NASDAQ:AAPL) has, wrongly, been accused of using only China to assemble its products, a misnomer that CEO Steve Cook pointed out in an interview with NBC’s Brian Williams saying, “we’ve been working for years on doing more and more in the U.S. Next year, we’re going to do one of our existing Mac lines in the United States,” a product he later revealed to be the Mac Pro.
Additionally, he noted some inherent difficulties with the labor supply in the U.S. saying, “It’s not so much about the price as it is about the skills, etc. Over time, there are skills associated with manufacturing that have left the U.S.,” Cook said.
“The consumer electronics world was really never here,” Cook stated. “It’s not a matter of bringing it back, it’s a matter of starting it here.”