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Is Apple feeling the pressure or seeing the future?

In a December 6th interview by Brian Williams from NBC’s “Rock Center” – Apple CEO Tim Cook announced that a particular Mac product line would be manufactured in the US starting in 2013.  Many saw this interview and immediately had visions of a floodgate being opened where hundreds of thousands of jobs currently based in China would land back in the good ole US of A.  One has to wonder – why and more importantly – why now?  There is no doubting that Apple could use a good shot in the PR arm.   Their reputation has surely taken a beating in the press after an increased occurrence of riots, violence and deaths in Chinese factories that manufacture the majority of Apple products (see my earlier blog posting for details of the issues plaguing these manufacturing factories in China).  The timing of such an announcement is equally curious as we are on the verge of falling off the fiscal cliff which guarantees increased taxes and spending cuts in less than 30 days if a bi-partisan agreement cannot be reached.  Additionally, US unemployment rates hover around 8% with Apple’s home state of California having one of the highest rates in the nation at 10.2%. And let’s not forget – it’s the busiest time of the year with the holidays right around the corner and this year experts expect Apple sales to be less brisk than in past years – especially iPad sales which face stiff competition from the significantly lower priced Kindle Fire and other Android-based tablet devices.  Cook’s announcement which implies additional jobs at at time like this is bound to bolster their suffering corporate image with many of their stakeholders – including holiday-shopping consumers.

However, perhaps this is not just a PR hoax.  Has Apple seen a future where the total cost of manufacturing is no longer cheaper in locations like China?  Is Apple remembering the history of manufacturing in this country?  A proud history that started with a boom in the 19th century and survived up until a steady decline started in the 1950s when Japan, trained under Dr. W. Edwards Deming, entered the global stage offering higher quality and lower cost manufacturing options.   Japan became a viable option for many organizations as US labor costs continued to rise primarily due to increases in taxes, labor rates, infrastructure, and environmental and safety regulations.  In the 1970s and 1980s, Japan started facing their own increased costs in these very same areas which then allowed countries like China to grab a very large portion of the manufacturing pie with their lower costs.  Many now see China on the same path as the manufacturing greats like the USA and Japan – forced to increase manufacturing costs due to increases in labor rates, infrastructure costs and compliance costs of developing employee safety regulations.  In 2012, Chinese manufacturers faced a steep increase in costs as the minimum wage increased by 13.6%.  Increases like this will continue for both direct labor costs as well as indirect costs narrowing the gap between Chinese and US manufacturing costs.  Add in costs for shipping and insurance of manufactured goods from China back to the US for assembly and that gap narrows again – possibly to the point where US companies start looking domestically for manufacturing.

As exciting as Cook’s announcement was this week it will take years before those hundreds of thousands of jobs we’re all dreaming of land back in the US.  In order for companies like Apple to bring back jobs they need to ensure that they have replicated the capabilities that currently exist in China.  That means access to large numbers of qualified employees working in factories, like the Shenzhen, China factory – that are capable of producing 10,000 iPads a day.  It will be interesting to see how Apple utilizes their $100 million investment.   Will it be training US employees or building out massive manufacturing facilities?  Whichever way they go, there is still much to celebrate with this announcement – especially from a corporate social responsibility standpoint – as we know that those working in these US-based jobs will not endure the lack of basic human dignity that their Chinese counterparts do now.  Bravo to Apple for taking a big bold step – please don’t let us down.

References

Local area unemployment statistics (2012). United States Department of Labor.  Retrieved on December 8th, 2012 from http://stats.bls.gov/web/laus/lauhsthl.htm

Apple CEO Tim Cook announces plans to manufacture Mac computers in USA.  (2012).  Retrieved from http://rockcenter.nbcnews.com/_news/2012/12/06/15708290-apple-ceo-tim-cook-announces-plans-to-manufacture-mac-computers-in-usa?lite

Whitney, L. (2011). iPad sales to hit 22 million over holiday quarter, says analyst.  C|Net.  Retrieved from http://news.cnet.com/8301-13579_3-20095452-37/ipad-sales-to-hit-22-million-over-holiday-quarter-says-analyst/

Johnson,L. (2012). History lessons: Understanding the decline in manufacturing.  Retrieved from http://www.minnpost.com/macro-micro-minnesota/2012/02/history-lessons-understanding-decline-manufacturing

Mojonnier, T. (2012). China’s supply chain rocked by 13.6% labor cost increase.  Retrieved from http://businesstheory.com/136-increase-chinas-minimum-wage-compete-global-manufacturing/

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