How U.S. Lost Out on iPhone Work
Chris Rawson │ www.tuaw.com
Look at the back of your iPhone, or your iPad, or on the bottom of your Mac. You'll see the following words embossed somewhere: "Designed by Apple in California. Assembled in China." Many Americans, all the way up to the President himself, have wondered why Apple has outsourced virtually all of its manufacturing overseas. At a dinner with several top US technology executives last year, President Obama asked Steve Jobs flat out what it would take to bring those jobs back to the US. According to Jobs, there's simply no way for it to happen.
Why not? Why can't iPhones, iPads, and all the rest of Apple's magic gadgets be built in the States? More generally, why can't more US-based consumer electronics and computer companies do their manufacturing work domestically, helping to create American jobs and boost the struggling economy?
The New York Times asked that question, and after an extremely well-researched report involving interviews with both former and current executives at Apple, the answer the Times found is both simple and chilling: iPhones aren't made in America because they just can't be. The infrastructure and labor force doesn't exist at the levels necessary to support Apple's operations -- it's not even close.
The Chinese factory where most iPhones reach final assembly employs 230,000 workers. I just asked Siri how many cities in the US have a population higher than that, and the answer was a mere 83 cities -- and that's total population, not workforce. With an average labor force of around 65 percent of the population, only 50 US cities are large enough to provide that kind of labor pool... and even in the biggest US city of them all, New York, 230,000 people still amounts to almost three percent of the city's entire population. Can you imagine three out of every hundred New Yorkers on an assembly line, cranking out iPhones every day?
Over the past couple of years, we have heard a great deal concerning working conditions at factories owned by Foxconn. The Chinese manufacturing company is responsible for assembling consumer electronics for most of the major vendors out there, including Apple. Around a fourth of those 230,000 people live in company-owned dorms or barracks right on factory property; that's almost 60,000 people living and working at the factory. Many of the people at "Foxconn City" work six days a week, twelve hours a day, and they earn less than US$17 per day. It may sound inhumane by American standards, but these jobs are in high demand in China -- so much so that Jennifer Rigoni, former worldwide supply demand manager for Apple, told the New York Times that Foxconn "could hire 3,000 people overnight."
Those are just a couple examples of how the scale, speed, and efficiency of Chinese manufacturing outstrips anything the US is currently capable of. But the Times' report is full of more evidence, and it's damning. Even though the 200,000 assembly-line workers putting part A into slot B could potentially be classified as unskilled labor, the 8700 industrial engineers overseeing the process can't be -- and according to the Times, finding that many qualified engineers in the States would take nine months. Chinese manufacturers found them all in 15 days.
With the notable exception of the A5 processor, most of the components used to make the iPhone are also manufactured overseas, many of them within a relatively short distance of the final assembly plant. Shipping those components to any potential US-based factories would incur greater costs, and even worse from Apple's perspective, manufacturing delays.
Traditional defenses of outsourcing of manufacturing jobs have revolved around cost. "It costs more money to build in America," the reasoning goes; "You have to pay your workers more, you have to pay benefits, insurance, higher taxes. Everything costs more." Since companies want to make a profit, that added cost inevitably gets passed on to the consumer in inflated prices for goods.
To exaggerate the point, many have claimed that an American-manufactured iPhone would cost thousands of dollars. It turns out that's hyperbole; according to the New York Times, the increased cost of paying American wages to workers would add $65 to the cost of an iPhone. The other costs, added together, probably wouldn't drive the unsubsidized price of a 16 GB iPhone 4S over US$1000. But the dollar cost of manufacturing in America isn't the biggest issue that's driving Apple's decision to outsource manufacturing to China. Instead, it's about who can build the greatest number of iPhones within the shortest period of time, all while remaining flexible and instantaneously adaptable to Apple's needs. According to one current Apple executive, "The US has stopped producing people with the skills we need."
The Times provides a telling example from the early days of the iPhone, before it ever hit the market. It's hard to believe now, but originally the iPhone's screen was going to be made from the same scratch-prone plastic that graced the fronts of its contemporaneous iPod models. In mid-2007, just over a month before the iPhone was scheduled to hit stores for the first time ever, Jobs realized the folly of using that plastic when the screen of the iPhone prototype he was carrying in his jeans pocket had accumulated dozens of scratches. "I won't sell a product that gets scratched. I want a glass screen, and I want it perfect in six weeks."
Anyone who knows how Jobs worked knows that he wasn't bluffing -- if the iPhone didn't meet his standards, it wouldn't go on sale, period. Six months of anticipation had driven demand for the first iPhone into a frenzy, so Apple knew it was going to have to crank them out as quickly as possible. But the last-second change to what was arguably one of the iPhone's most central components meant initiating the kind of mad scramble that simply wouldn't be possible in US manufacturing. Apple would have been an industry laughingstock for as long as it took to overcome the manufacturing delay. Instead, what might have taken months to transpire in the US took place in six short weeks; Apple sourced a virtually scratchproof glass from Corning, and Chinese factories rapidly managed to integrate it into the existing iPhone design.
As it's an American company reaping unprecedented financial rewards, many Americans have lamented the fact that the rewards coming back into America are so comparatively meager. Apple employs 43,000 people in the United States, less than a fifth the number of contractor employees assembling iPhones at one Chinese factory. One could argue that Apple's success has come at the expense of the American manufacturing workforce, but if the New York Times' report is anything to go by, it seems the workforce Apple would have needed in America never existed to begin with.
