China has to play fairly carefully with Apple. On the one hand it's an American company that puts microphones and cameras into the cafes, offices, and bedrooms of many of their citizenry; but on the other hand, with decreasing competitiveness due to rising wages there isn't anything specifically _stopping_ Apple or other American tech companies from moving manufacturing out of China. Foxconn alone employs about 4.3 million people, and while it would be very difficult to move operations to Tiawan, Singapore, Japan, or even the United States; it would also provide a number of benefits since any new hosting country would very incentivized to make the move happen.
I think you've got it backwards, it's Apple that needs China's market and China basicallly has them over a barrel on these secondary products.
What China has to be careful of is eventually the US/EU decide to get tough on Chinese protectionism and impose significant barriers to goods manufactured in China. And that would also be bad for Apple again since they make their stuff in China.
If China keeps giving western tech companies a hard time they might stop making their stuff in China. That would hurt the Chinese economy far more than they gain by local companies taking a little business from Apple and such.
For most American companies in China, this is true.
For Apple it is not.
From Ben Thompson at Stratechery:
This is a very big deal. Feel free to ignore anyone making snarky comments about China’s average monthly wage being the same as the price of an iPhone 5C. The two pertinent facts about China are that:
There is tremendous income disparity
There are a TON of people
So while many Western markets may have a greater percentage of the population that can afford an iPhone, the absolute number of Chinese who are potential customers is very high as well.
Sure, those are facts. But here's another fact: Just because you have a large population doesn't mean your economy is destined for greatness. It doesn't mean you're destined to overtake the U.S and it doesn't mean your destined to evolve, improve or exceed. All it means is that you have a lot of people living in your country (poor people). Will they become middle class? Maybe. But it's most definitely not "certain".
The fact of the matter is that they do have a large population size and that presents its own problems for economic growth, believe it or not. Hell, it presents problems for the long-term stability of the country. Right now China's biggest threat is itself - corruption in China is a pervasive and massive problem (Source: https://www.transparency.org/cpi2014/results). China isn't the only country with a massive population; India has one too. Ben Thompson's facts are also true about India.
What does any of those have anything to do with whether Apple needs China or not? Apple does not care if China is not destined for greatness or to overtake the US or to solve the corruptness problem. They only care if the number of people willing and able to purchase their products does not decrease.
> Feel free to ignore anyone making snarky comments about China’s average monthly wage being the same as the price of an iPhone 5C. The two pertinent facts about China are that:
I've seen plenty of Chinese people whose actual individual monthly wage was almost certainly less than the price of an iPhone; it didn't stop them from having iPhones.
Last I heard, Google, Facebook, Yahoo, Adobe, and a huge slew of smaller tech companies (if you want to stay in the same industry as Apple) had all colluded together to suppress wages.
I have a hard time believing anyone who claims this was an exception to a rule. It seems far more likely to believe it is the rule.
They lobbied for things like H-1B visas that let them get cheap people with limited options for career movement. You get the benefit of on-shore workers under tighter control and suppression of wages.
They colluded to influence labor standards over many years to declare broad swaths of overtime eligible employees as "exempt".
Apple and those tech giants got caught doing more direct collusion and unethical behavior. That isn't an unknown or shocking revelation. Pretty sure the mall bagel place I worked in tossed resumes from several other eateries.
I would say it happens, and collusion is not a good free market practice, and I disagree with it. Are the 'lower' salaries lower than related industries or worker tiers? Did the tech bubble generate over-average salaries, and now the big tech companies can't get tech workers to work for less? I worked at a law firm years ago, where they brought in some Russian programmers on visas for less money, but still the salary was better than what other workers in the same firm were making. The Russian workers also had a more disciplined software development background than the other American workers at the firm, were more productive and incited vicious, misplaced anti-Russian sentiment. I also remember when word processors were making a fortune in the 80s, but that quickly got watered down when more people learned MS Word and to touch type.
I think you are ignoring the precedent effect. If China indeed does something nasty with Apple it is not Apple that is going to leave China but almost every vendor out there might start doing risk analysis. India's pro-market government is already trying to woo American manufacturers (but don't seem to succeeding yet).
Not to mention the governments of USA/EU etc. might do the same to Chinese companies.
Unfortunately, the Chinese government has only gotten bolder since the U.S. government has publicly become an enemy of encryption itself. The damage would be far greater if the U.S. actually passed a law mandating backdoors, but even just talking about it and making a "scandal" out of it, has probably encouraged Chinese government to be more aggressive about it in its own country.
Remember when the U.S. government at least pretended to care about things like privacy and human rights internationally. Now it seems to be more like "Wait, China did it? Why can't we do it then?!". Case in point, in a recent encryption hearing, law enforcement argued that if Apple showed its source code to the Chinese government (it didn't), then it should also show it to the US gov!
Nobody else has anywhere near the capacity. Foxconn are the third largest tech company in the world, not a tinpot little outsourcing shop. Apple already use other EMS companies for reasons of cost and capacity, but they are all Chinese companies or rely on predominantly Chinese labour. Foxconn's nearest foreign competitor (Flextronics) is just a fifth of the size of Foxconn and sources most of its labour from China.
China has tremendous technical expertise and vast amounts of relatively cheap labour, which is a formidable combination. Singapore, Japan and Chinese Taipei have the expertise, but they don't have enough cheap labour. Thailand and Indonesia have plenty of cheap labour, but they don't have the expertise. China also has superb logistics, which reduces cost and improves lead times.
For the foreseeable future, China is simply unavoidable. Within just a few years, their position as the dominant manufacturing nation will be secondary to their position as the dominant consumer market.
China's cheap labor is not everything it used to be. Nearly 7x more expensive over the past two decades and expertise is everywhere. Sure it would be painful, but it isn't like China doesn't stand to also lose here as well.
Manufacturing is slowly moving to be "on demand". That is, a consumer purchases something, then it is built and shipped to them. It doesn't make sense any more for a company to predict market volume and then produce goods to match the prediction, especially since technology turns over so fast.
With that in mind, I could see Apple having simple components being produced in a number of different countries, then shipped out to wherever their products are in demand. Then the components are assembled by robots locally and the final product is picked up or shipped down the street to the consumer. I remember reading that this is where the auto industry is heading. They want to produce interchangeable car parts which get assembled at the dealership when a person purchases the car.
So to your point, China is already done. Instead of huge factories producing consumer ready goods, Apple just needs a handful of smaller factories making much simpler intermediary components. It's much easier to setup and move these smaller factories around, rather than these huge factory cities managing a massive production line.
I predict that technology is not going to move that fast as it used to (moore's law etc). Instead we will go back to the age of "durable" / "longer lasting goods". A good software will make a difference between scoring a sale or not. Same with services.
Besides most of the companies are trying to move the manufacturing to Vietnam, Indonesia, India, Africa etc or automatizing as much as possible.
> Instead we will go back to the age of "durable" / "longer lasting goods".
I think it's more likely that, goods will become more flimsy, cheaply made, and disposable. If true progress no longer provides motivation to buy new things, manufacturers will invent new ones.
factories could be distributed around the world. you'd have to weigh the increased costs of sourcing resources, but would benefit from lack of worker unionization or mobility.
I dunno. Cook recently said in an interview their manufacturing is in China not due to cost but because the supply chain is simply stronger there, and they can do things there that they can't elsewhere. Of course they could make a bold move like make a big outlay to get their supply chain operating in another country/region, that strikes me as something they could do. But it would be a really big deal.
>Of course they could make a bold move like make a big outlay to get their supply chain operating in another country/region, that strikes me as something they could do. But it would be a really big deal.
The supply chain is made up of thousands of companies who in turn rely on thousands of others. You can't recreate this top down, it has to be through organic growth.
> there isn't anything specifically _stopping_ Apple or other American tech companies from moving manufacturing out of China.
But it's about as credible as the Saudi's dumping all of their US treasuries. Apple enjoys a very high margin at a very high price point. Any move would be margin-killing, not price-raising. They're not manufacturing in China to be charitable.
And Apple has one of the best chances to make real change here because they can afford to spend a hell of a lot of money without their short-term business being hurt.
They could, for instance, speculatively set up entire facilities in new areas, hire staff, and experiment with parallel development of the same products to measure how well the new bring-up is going.
Why will they do it? Corporate entities like Apple exist to make profits. Change is not on the agenda. It's not healthy to be that hopeful when you're setting yourself up for disappointment.
Profits don’t just show up one day and stay fixed. There is always risk, and always opportunity.
This type of move could address both.
One risk is that the company’s ability to manufacture may be seriously affected by the actions of a single government. If their current factories were suddenly impacted by a policy decision, future profits would definitely be hurt. By spending money now (that, incidentally, their competitors might not be able to), Apple can lower that risk; and, they would also be acting on their own terms instead of having to react to someone else.
There is also the investment side. By spending money now, they could end up with even more capacity that will enable them to develop more products for more people and increase overall profit in the future. If they don’t spend that kind of money, their competitors could catch up. The time to invest is before you have a problem.
I agree that this sounds like something they'd get their gold plated behinds up off the ground for. But let's point that out loud & clear and then when it happens discuss the change it wrought: just a suggestion.
You make it sound like Apple can easily move out of China. Think again. Apple's profits are largely due to the cheap labor market (just like many other companies)
Their point is that chinese costs are rising fast. OTOH they're probably underestimating the difficulty of moving outside China, not because of the supply chain.
> Apple's profits are largely due to the cheap labor market (just like many other companies)
Foxconn is replacing millions of workers in China with robotics. Couldn't Apple acquire these same robotics, perform their own manufacturing in the US (remember, substantial tax breaks in the US for equipment purchases!), and then lease out any spare capacity.
Seems its all coming back to US shores. As a US citizen, I don't mind.
I believe Apple, unlike most companies that contract manufacturing to places like Foxconn, actually owns most, if not all, of the equipment inside the Foxconn facilities. If what I've read is correct, Apple is completely responsible for setting up the actual assembly lines as well. Foxconn essentially just provides the factory space and the labor.
I've also heard that Apple is the largest purchaser of CNC machining equipment in the entire world.
I'm curious to know how many years away we are from robotics being able to complete the final assembly of small electronics at the same speeds and low prices as humans and what affect this will have on countries like China that rely heavily on low cost factory labor.
Terry Gou, CEO of Foxxcon, predicted back in 2015, that in 3 years they would be able to complete 70% of it's assembly line work by robots.
I wonder what the remaining 30% is. It seems to me that the most delicate work is the stuff you want to automate the most to lower defects. The less delicate work can be done by humans. But the less delicate work should also be the most easily automated?
From my understanding the final assembly of components into the finished product is still the most delicate/demanding and is still primarily performed by humans.
What you say makes perfect sense that this is in many ways the part of the assembly process that would gain the most benefit from automation but is probably the most difficult to automate.
I'm really curious to see how fully automating this process would change the globalized manufacturing industry. Would Apple move more manufacturing stateside or would there be a new rush to move manufacturing to countries with the lowest energy costs and tax burden. And are these countries typically the same as those offering cheap labor right now.
Does anyone know how China stacks up in terms of costs once you remove the labor component? Are energy and taxes low as well? I imagine environmental/regulatory costs are quite low.
None of the complicated components are made in Red China. The CPUs are made in Korea, the cameras in Japan, the batteries in Japan, and the power control circuits in Free China, The CNC machines, and glass cutting instruments are made in Germany and the USA. The software is American as motherhood and apple pie.
Red Chinese fingers do the final assembly and Red Chinese tax laws provide loopholes but iPhones are not a Red Chinese product.
