Two weeks ago, the New York Times published a report entitled “How the U.S. Lost Out on iPhone Work,” detailing how Apple went from manufacturing most of its products in the United States in 2002 to today, where virtually all manufacturing is done abroad, especially in China. The piece provides an in-depth look at the Apple supply chain and demonstrates how “‘Made in the U.S.A.’ is no longer a viable option” for many companies looking to compete in a globalized market.
Today, Apple employs a mere 43,000 people in the United States, and most of those jobs are in business and sales operations. Your iPhone is designed, marketed and sold here in the U.S., but the actual manufacturing and assembly of the device is contracted out to other companies, most of which are foreign. The biggest of these Apple contractors is Foxconn, a Chinese company that manufactures 40 percent of all electronic devices in the world and employs 1.2 million people! To put that into perspective, Foxconn’s army of workers is twice as big as the United States Army (560,000 active personnel). Foxconn employees work 12-hour shifts, over 25 percent live in company-owned dormitories adjacent to the factories and many are paid less than $17 a day.
However, contrary to popular belief, the New York Times states that labor costs had little to do with Apple’s decision to move its manufacturing operations to China. Economists have found that if the iPhone were manufactured in the United States, the higher cost of using U.S. labor would only add $65 to the cost of each iPhone. The real advantage that the Chinese contractor Foxconn has over its American competitors comes from the incredible, abundant resource that is the Chinese people. In America, it is difficult to find people willing to work 12 hours a day, six days a week, regardless of the pay. However, in China, Foxconn is swamped by applications everywhere they go.
The scale of Apple’s manufacturing operations in China is mind-boggling, and impossible to imagine for a factory in the United States. The Foxconn factory that does the final assembly of the iPhone in Shenzhen is informally known as “Foxconn City,” and its employees number 230,000! The Times contends that the facility’s central kitchens cook on average three tons of pork and 13 tons of rice per day to feed its army of workers, and that 300 guards are employed to direct foot traffic so that people don’t get crushed to death by the masses of workers moving about the complex.
In an industry where change is constant and new versions of iPhones and iPads come out each year, the flexibility of Foxconn factories in China represents an important advantage over American competitors. At a factory in Chengdu where the iPad is assembled, 70,000 of the factory’s workers live in the company-owned dormitories right next door. If Apple suddenly decides that it wants to change the design of a product, Foxconn has an incredible amount of manpower in its dormitories ready to be called upon at a moment’s notice. If Apple decides it wants to scale up its operations, Jennifer Rigoni, a former Apple supply demand manager, contends that a Foxconn factory has the ability to hire 3,000 additional workers overnight. No factory in America could ever hope to have a similar level of flexibility or manpower; and what American would agree to literally live at their work?
Yet while China has huge numbers of unskilled laborers willing to work extreme hours, the fact that they have an increasing number of skilled workers is an essential component of their manufacturing dominance. The New York Times contends that the United States, according to industry executives, fails to educate enough people with the type of midlevel skill sets that are valued in factories and manufacturing. The article details how, when Apple was deciding where to build one of their factories, they concluded that they would need 8,700 industrial engineers to oversee 200,000 assembly line positions. In America, finding that many engineers would have taken up to nine months, but in China it took a total of 15 days. Fifteen days to find 8,700 industrial engineers!
The hours and conditions that are described in the New York Times piece are extremely harsh, and many workers seem forced to accept their sorry predicament simply for the lack of an alternative. In one of the factories, a large banner inside reads, “Work hard on the job today or work hard to find a job tomorrow.” However, “How the U.S. Lost Out on iPhone Work” shows that Apple’s decision to outsource to China had little to do with an abundance of cheap labor, like is stereotypically assumed. The huge scale and flexibility that factories in China have will likely ensure that China remains the place to go for manufacturing. Like Steve Jobs said when President Barack Obama asked him why they can’t make the iPhone in America, “those jobs aren’t coming back.”