Steve Jobs laid it on the line for President Obama last February.
When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.
But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?
Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.
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.
Why aren’t we viable any longer? Simple; we simply do not have the production capacity to do what China can do.
Most of the “save American jobs” folks who argue we should be doing everything we can in our power to save blue collar factory jobs will argue that the reason China and the rest of Asia have become such powerhouses in manufacturing jobs is because of the costs of labor, and while that sounds good on paper, it’s simply not born out by actual numbers. If the cost of labor was the motivator in manufacturing locations, the United States would have a gulf state manufacturing boom. States like Mississippi, Texas, Alabama, and Louisiana have the lowest labor costs in the entire country, and yet we don’t see jobs going there.
And while conservatives will also argue that environmental regulations, tax regulations, and other regulations are strangling businesses (something I do agree with), I think the real answer is a much simpler one and it’s explored in this article.
In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.
For Mr. Cook, the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.” The result is that “we can’t compete at this point,” the executive said.
The impact of such advantages became obvious as soon as Mr. Jobs demanded glass screens in 2007.
For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. But figuring 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.
The Chinese plant got the job.
“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”
The reality is that there is nowhere in the United States where this nimbleness exists. In China, things move quickly, and manufacturing districts give companies one stop shopping for all their parts and supplies, not to mention a ready supply of labor (not just cheap labor, but large quantities of labor).
How do we compete with that?
We can’t.
The article is really good and a worthwhile read if you’re into this sort of thing.
