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The real reasons for offshore outsourcing of manufacturing become clearer

This is a seminal article and one that western companies and governments should study.  The general assumption is that manufacturing work is outsourced overseas due to lower wages.  Not so.

How the U.S. Lost Out on iPhone Work | NY Times

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

This story developed following a question last year from President Obama to Steve Jobs.  The backstory is that Apple has 40,000 employees in the US and up to 700,000 people worldwide engaged in making Apple products.  This in contrast to the US Auto sector, or GE, that each had at one time several hundred thousand US workers.

Obama to Jobs:

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.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

It begs the question.  Why does someone not try to build a manufacturing facility in the US that goes head to head with the Foxconns of the East?  To say it cannot be done is too easy an answer.

Written by Colin Henderson

January 22, 2012 at 19:08

Posted in Uncategorized

8 Responses

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  1. I don’t think Americans will sleep in bunks and work 16 hour shifts for $17!

    The way to compete is with technology/automation, which is what the US does (successfully) in a lot of manufacturing industries. But that equally doesn’t create jobs.

    One surprising fact is that US manufacturing output is higher than ever, in dollar figures, but the factories are filled with robots and the odd engineer with a Master’s degree.


    January 22, 2012 at 19:13

  2. Even with automation and robots, jobs are still required.Witness the 700K people making Apple products. I suspect the union issue is a looming issue on this matter. Unions by there nature will resist progress on any front including employee expertise, automation, and hours. The example in the article could never happen in an American factory. Yet it happens in startup offices every day. Employees are willing … it must be the system that holds them up.

    Colin Henderson

    January 22, 2012 at 19:27

  3. The environmental hazards and unsafe work conditions are extraordinary and well-documented. These jobs are not coming back because of dramatically lower wages, ease of pollution, “disposable” workers, 70+ hour work-weeks, etc. etc. “To say it cannot be done is too easy an answer” is too easy of an answer – we do not want this life for ourselves or our country. We have to figure out what we want and want to be, and that process will be painful. But these jobs are not coming back, as the labor, regulatory, and environmental arbitrage are too compelling.


    January 22, 2012 at 20:01

    • Adamchik,

      You are exactly right. My family business is apparel. We outsource manufacturing domestically because we like the shorter supply chain and quality control, but it is also a small business. I looked at bringing it “in-house” and the regulatory burden was so huge that I gave up. The USA has regulated itself out of jobs, and that isn’t going to change any time soon. My uncle has a large apparel business – he manufactures in Vietnam. A QA engineer is a lot cheaper and has lower risk than a regulatory compliance officer. We missed a month payment for a workers compensation policy for one employee in NYC and received a $25k bill. Seriously.

      Jason Knight

      January 23, 2012 at 19:33

  4. Interesting discussion.

    For more color, I strong recommend this recent podcast on This American Life:

    Its the story of an Apple aficionado who transforms into an amateur investigative journalist and visits Foxconn.


    January 22, 2012 at 20:17

  5. The thing that I took from this article is less to do with wages and more to do with approach. The Chinese government have provided subsidies and investment money to build new factories that are designed to provide the services required. We know that in the US large scale innovation was government originated (internet, universities, NASA, Defence). The Chinese government have addressed innovation in commerce. We may not like that nor the implications but that is the hand being dealt.

    This following quote is astounding – this was by design and has occurred in less than 10 years.

    Foxconn Technology has dozens of facilities in Asia and Eastern Europe, and in Mexico and Brazil, and it assembles an estimated 40 percent of the world’s consumer electronics for customers like Amazon, Dell, Hewlett-Packard, Motorola, Nintendo, Nokia, Samsung and Sony.

    Colin Henderson

    January 22, 2012 at 23:53

  6. […] this link: The real reasons for offshore outsourcing of manufacturing become … Comments […]

  7. Some of these same Chinese workers lept out of factory buildings to their deaths due to the strain of working too many hours, correct? How do you expect Americans to compete against slaves?


    January 23, 2012 at 11:04

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