Kindle’s LCD and PSP Vita’s charger are being assembled in the Philippines. Apple’s Iphone and Ipad are being assembled in China. And you may wonder why?
The manufacturing processes of Apple and other electronics companies have come into sharp focus of late, with the revelation of more details about what life is like for the Chinese workers who make the world’s gadgets.
When one reads about these working conditions — 12-16 hour shifts, pay of ~$1 per hour or less, dormitories with 15 beds in 12×12 rooms — the obvious assumption is that it’s all about money.
Manufacturing an iPhone in the United States would cost about $65 more than manufacturing it in China, where it costs an estimated $8. This additional $65 would dent the profit Apple makes on each iPhone, but it wouldn’t eliminate it. (The iPhone average selling price is about $600, and Apple’s average gross margin is about 40%. So Apple’s gross profit on each iPhone is probably in the neighborhood of $250.)
The real reasons Apple makes iPhones in China, therefore, are as follows:
- Most of the components of iPhones and iPads — the supply chain — are now manufactured in China, so assembling the phones half-a-world away would create huge logistical challenges. It would also reduce flexibility — the ability to switch easily from one component supplier or manufacturer to another.
- China’s factories are now far bigger and more nimble than those in the United States. They can hire (and fire) tens of thousands of workers practically overnight. Because so many of the workers live on-site, they can also press them into service at a moment’s notice. And they can change production practices and speeds extremely rapidly.
- China now has a far bigger supply of appropriately-qualified engineers than the U.S. does — folks with the technical skills necessary to build complex gadgets but not so credentialed that they cost too much.
- And, lastly, China’s workforce is much hungrier and more frugal than many of their counterparts in the United States.