Why Does Apple Manufacture iPhone in Asia?

The New York Times has published a lengthy, but fascinating piece titled “How U.S. Lost Out on iPhone Work,” offering an interesting insight into Apple’s supply chain.

Not just Apple, but almost every consumer electronic company’s manufacturing is outsourced to Asian countries. So what’s the reason behind that?

You’d think it’s cheap, unskilled labor, but there’s a lot more behind these companies’ decision to move their manufacturing to Asian countries, than just saving money on paying wages.

NYT, speaking to many people both in and outside Apple, presented various examples where Asian manufacturers and suppliers proved to be lot more flexible and efficient than their U.S. counterparts.

Early iPhone prototypes had a plastic screen, prone to scratches, which obviously Steve Jobs didn’t like and demanded a glass screen instead. Apple eventually got Corning to manufacture the glass required, but it required a lot of processing to finally use it on the iPhone.

[F]iguring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments and an army of midlevel engineers. It would cost a fortune simply to prepare.

Then a bid for the work arrived from a Chinese factory.

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

one of Apple's assembly lines (Foxconn)

An ex-Apple employee who worked with foreign suppliers and manufacturers like Foxconn said:

“They [Foxconn] 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?”

China also has an edge over the U.S. when it comes to engineers:

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.

Apple says that the U.S. can’t provide them with workers who are skilled just about enough for their positions which have now been outsourced to China. The skill level Apple desires for these jobs is a degree in between high school and college.

The article makes for an weekend excellent read, and you should visit the NYT link below to read it in its entirety.

[via NYT]

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  • genXhippie

    sad.

    • Tommy

      Indeed.

  • here it is…

    it’s all about cheap labor, apple or any other company for that matter can say anything they want but at the end of the day why pay an American $10-15 an hour when you can get 10-15 employees over there for that amount and no insurance and get them to work 12+ hours per day.
    It’s called slavery as I remember it right but of course those corporations use another term for it.
    feel free to google some of the documentary videos/films online about how “well” those employees/slaves are being treated.

    • Chris

      I didn’t realise slaves were paid? I think your comment goes a bit far…

      • J

        Mabye sir we are just too privledged. You know we typical Americans are the worlds top 10 percent of the population in terms of wealth? That sir is slavery to us but to those men its an oppurtunity, don’t pity them sir because they are proud for what they do.

        • Chris

          Not sure how you got to the top 10% with spelling like that haha.

        • DaePrice

          Actually, if you make more than 30k a year, your in the worlds top ONE percent, not ten. if you make over 120k a year, you are in the worlds top .3 percent, and if you make over 250k, you are in the top .01 percent. Its easy for ANY american to become self rightious about the fact that the rest of the world is willing to work more for less, because most americans have had everything handed to them from the generations of sacrifice and genius before them.

  • axe

    Well would you mind paying USD 900 for an iPhone 4s? Why do uou think you pay $199 or $299 for 2 yrs contract new 4s? You should be glad the world has a place called china. It’s not cheap labour. It’s living lifestyle & cultural differences. If you think china cheap labour, i have not seen indonesian or bangladeshi.

    • axe

      I mean u hv not seen indonesian & bangladeshi.

    • Chris

      Thailand is another example. Of course, these companies dont have to deal with unions either.

    • Jaya_on

      They don’t have to take the job. And as I recall, there are 3000 aplicants eagerly awaiting employment with the company. Libs can be so stupid.

  • Kraken

    On the daily show, they said that at Foxconn, the low wages only reduced the costs of iPhones by ~30%. I know I would pay 30% more for my devices if it meant people were getting a living wage and humane working conditions.

    The real problem seems to be that the US is horrid at deploying people, and even worse at training people. The Chinese really shouldn’t have more and better engineers than us. With closer to ~30% unemployment (the official figures exclude a lot of people) we should be training new engineers to compete in the global economy. And the intelligent people should be able to be educated for free or at least without them incurring tens of thousands of dollars of high interest debt. Instead, we cut education and use the money to drop bombs, harass travelers, and buy billionaires more Chinese made Yachts.

    • genXhippie

      I totally concur, spot on.

    • D-R

      +1

    • Kiwiholden

      No way! I’d let them whip them just so I could pay 10% less.
      Talk for ya self.
      If there happy to do it I’m happy to let them

    • DaePrice

      Actually, the absolute root of the problem is the devaluation of the US dollar. A hundred years ago, the US out produced the rest of the world combined, thus, the dollar was accepted world wide as the reserve currency. One american could produce what 100 forigners could produce. Its where the slogan “made in america” came from. But as our gov. grew, and our socialised, aka Warfare/welfare spending exploded, the government began to devalue the currency by over printing. Americans were incentivised to NOT save, as they had done for generations before them. We were sold on this idea that an expanding monitary supply would cause people to consume more, thus stimulating production. Over time, there was no more savings in any accounts, thus, no more investment capitol. Instead, we sell the last bit of capitol we have to china via bonds and bailouts, so they can be agile and build factories to meet demand of american companies, thus leaving americans to suffer their own demise. Americans can’t compeat, because they sold their souls and the souls of their children to the Federal reserve for this utopian idea that there would be no more poverty ever again in america. Now its time to pay the piper. Don’t blame apple for investing wisely, blame the government and the federal reserve for forcing our own companies to have to look elswere because our own industrialization is simply a figment of the distant past.

  • Coozoe

    Our country is run by banks. Money is always the bottom line and also the only line. Apple is just one of the boys.

    Our schools have stunk for a long time too. We don’t get it and never will.

  • bunc

    I work for 3 US dollars an hour in Croatia. And in China they work for less for sure, this is not good when big corporations exploting people and getting richer all the time.

  • marcello

    it reminds me of a similar story reported by a software engineer employed for a while by tiscali in Sardinia, italy. they were somehow asked to live in dorms & be avail 24hr for Tiscali requirements & they were signing a contract that wouldn’t last longer than six months.

    this is however a policy for start-up companies only can benefit government funds & hire very young & inexperienced, (not unskilled, i have opened & fixed iPhone screen myself several times & it does require some skills to do glass, digitizer & LCD maintenance) employees who do not get affected by giving up their privacy while sharing dorms. marcello l’aniello

  • Patsy

    What a bunch if bs. I own an I phone and it will be the last apple product I buy. We as Americans need to stop buying products that are not made here in our own homeland. Not to mention sending our jobs over seas and putting us in the the unemployment line. To all of those who want to open there eyes on what’s going on out there, get the book “Death by China” and read it!

    • John

      You’re so ignorant. How do u think we get our fruits and vegetables year round? Overseas! If you will stop buying products that aren’t made in America then you should just starve and die in a ditch somewhere.

      • Greg

        It’s easy to only buy vegetables and fruits that are in season. I just today purchased 2 heads of celery in Virginia that were grown in California. Two weeks ago I got strawberries from Florida. There are PLENTY of veggies grown year round in the US. In addition. If the workers were in the US, and got say 12.00 / hr. They would pay taxes, and then purchase other goods with their salary. And then the taxes would pave roads, build schools and pay for other infrastructure expenses. The workers would then buy houses, apartments, food, appliances from other persons and those persons would get paid and buy goods and services, and so on and so on. In addition think about how taxes actually work . I buy something for 100.00. 7% of that is tax. leaving 93.00. The person I buy the item from spends 93.00 and 7% is tax leaving 86.50. this cycles for 11 transactions then the money is completely consumed by taxes. Then government takes that tax money and buys goods and services from private companies and pays employees. The cycle begins again. There is your economics lesson for the day.

      • DaePrice

        I think you will find it interesting that around two thirds of the world food is produced in america…..

  • Tony

    And this is why the China, US & Europe will never go to war. We employ them with our manufacturing products. Without us and Europe, they would still be farmers. And our education, they love coming here also. I work in silicon valley and I see this all the time. In fact, silicon valley should be called “silicon-indo-asia”. Thats how bad it is. It is cheaper to hire them than American born educated students.

  • Hmmm?

    They may need that kind of scale now but what about when they first launched the iphone? And 8700 engineers to oversee the manufacturing of iphones, really?

  • Andy

    I have no idea what you guys are angry about. To you it might be slave wages. But to them it is not. I was in Hong Kong a few years ago and a plate of food at a local restaurant cost me 2 usd. The same dish in the united states cost much more. So for them makingwhat they make is still pretty good pay. If we forget about China and just us the US as an example we can see what i mentioned. I use to live in Michigan the avg home cost 100-200k. Now I live in San Fransisco California area and the same sized homes would cost 400-500k minimum. So if we consider that factor alone, a living wage in Michigan would be MUCH less then in California.

    • T

      Cost of living affects where you live and how much you make.

      • -X-

        Nice!…straight and direct to the point all in 1 semtence…unlike Dumbo above…

  • Grime

    Why Does Apple Manufacture iPhone in Asia? Its simple, MONEY! I remember watching a documentary about Walmart, Wal*Mart the high cost of low price. Walmart’s a very profitable corporation, Apple’s worth more so I’m guessing they probably use similar business practices. To those that think Apple’s phones would be more expensive if produced in the US, I say look at Apple’s profits. I think I read an article here that said Apple makes earns 52% of the profits made in the handheld mobile industry. What that boils down to is that Apple sells their device for a lot more that what it cost to make, and I’m guessing a lot more than other competitors in the mobile industry. Assuming Apple’s like most corporations I’m guessing the stock holders and the CEO’s and other big wigs see most of the profit and the little guy, especially those in countries where cheap labor is common place, see very little. Here’s a clip of how bussiness is done in China according to a Chinese factory worker at Walmart. Why Does Apple Manufacture iPhone in Asia? I’ll let you decide. http://www.youtube.com/watch?v=5CzbT1hGwmM

  • jbfan

    God created heaven and earth.. the rest made in China.

  • Joe

    What a bunch of ignorant comments, especially those who promote protectionism and buy local. Learn a little about the economy work before spewing out absurd diatribe.

    And for those who said they are willing to pay 30% more for their phones so that it is made in the USA. Guess what, electronics are not only sold to US Consumers. It’s also precisely this egocentric view that makes Americans look like morons to the rest of the world.

    The truth is, Apple pays Foxcoon less than 15 bucks to assemble an Ipad or Iphone. If you want the workers to be treated better, tell Apple to make $385 instead of $400 on every Iphone they sell..

  • Matt

    Apple is in business to make money, not to help the American economy, or to help anyone but Apple.

    You cant make money if you cant make the product that your customers want. In technology if youre late to the game, youre out of the game.

    Their decision makes complete sense to me. Some people can be really blind when it comes to the whole issue of China.

    The thing that Apple does better than most companies that “buy from china” is quality control. There isn’t any quality control on commodities that come from China. Hence the cliché of “its Chinese build crap”.

  • derrick

    it’s about more then cheap labor. it’s cheap labor and an abundance of mechanical and electrical engineers. They need well over a thousand engineers on site to deal with manufacturing problems that arise. And politicians in American have little interest in educating fellow americans in areas of engineering. They won’t fund education or at least Republicans really have no interest in it.

    • pete

      engineers how smart you need to be 2 put a f….k cover over and iphone or assemble and iphone