New York Times on the Apple supply chain – fascinating and very scary

So the UK GDP figures were as bad as expected, maybe worse. A deal between Greece and its debtors  is still under debate, while the prospect of several countries paying off their debt seems as far away as ever.

On the other hand, there was a 30 minute wait for a table in an Indian restaurant in central London at 7pm last night – we didn’t wait but went to another which had a table but was packed.  A Wednesday night in January! (I suspect this just shows that central London's economy has very little to do with the rest of the UK or indeed most of Europe).

One of the political themes, certainly in the UK, is the desire to re-balance the economy towards manufacturing and away from Financial Services in particular. But how easy is it going to be to achieve that? On the one hand, automotive production in the UK has recently hit record levels, almost entirely through the success of foreign owned plants (Nissan, Toyota, Tata).

On the other, I see no evidence of a renaissance in manufacturing via start-ups or smaller enterprises expanding strongly. And if Western Europe is going to grow that sector, then surely it needs to see those new operations thriving, not merely rely on a few large companies growing existing business.

iPhone - prefer the HTC myself...

But if you want to understand the challenge we face, and why we’re unlikely to see major on-shoring of manufacturing from some of the largest firms in the world, do read this stunning (in both senses) article from the New York Times. It explains why Apple is unlikely to make the iPhone in the US (let alone Europe) in the near future, and gives some insight into the way the Apple supply chain works.

Just as a taste, here are a couple of snippets.

Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.  A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Foxconn, the biggest of the sub-contractors, can “hire 3,000 people overnight”.  And that is, quite literally, overnight.  And get them to live in on-site dorms, earning around $17 a day.

Here’s another example – when Apple decided it wanted to use glass for the phone screen, they needed an empty cutting plant just to work out how technically this could be made to work. One option was a US firm. But then a bid arrived from China.

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

That’s scary – we’ll build a factory just in case you give us the work.  That example might also take us into some interesting debate about the nature of “State Capitalism”, given the role the Chinese Government has played in supporting its own industries. I suspect over the next few years there will be some soul-searching here around whether capitalist democracy really is such a great model!

Anyway, that’s what we’re up against, and that’s why growing manufacturing in the UK, Italy, US even is going to be tough. But do read the article – very thought-provoking, even if a little depressing!

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Voices (5)

  1. Dan:

    I was watching a programme the other day about ‘overbearing’ parents and their children’s education. What did they want their children to be when they grew up? Respected professionals such as accountants and lawyers. Not one mention of engineers.

    These professions are fast being being seen as the pinnacle of academic achievement, rather than careers which actually produce something. I don’t have any figures, but i suspect the number of students studying law vastly outnumber those studdying a science or engineering. Until that culture changes, the economic structure of the country is not going to change either.

  2. Zimpler:

    The thing is, many of these jobs that apple and other companies are sending to China could be done in western countries. Apple however, is all about it’s profit margin. Samsung just announced their quarterly profits which are ~10% while apple had nearly 30% profit margin overall–amazingly high for a tech company. And Samsung brings jobs to cities like Austin, Texas where they built a massive chip manufacturing plant. Yep, Korea bringing more jobs to the west while apple sends them to poor countries to exploit labor, next to exploit Brazil–sad! Very sad!

    1. Rob:

      I see your point Zimpler.

      But let’s also remember Dyson. He had a very successful manufacturing plant in this country (UK), until competition (which copied his patents) and a fairly hopeless/helpess government (which offered few incentives to stay) compelled him to move everything to China, including R&D.

      You never know what you have until you lose it…

  3. Rob:

    Amazing article.

    Extraordinary stance taken by Apple: US socio-economics versus consumerism…

  4. Gary:

    Highly insightful. My take is that jobs like this won’t ever come, and perhaps they should not. It simply will not fit in the American model, where we try to educate our population, and give all rights that are not even thought of in China. Getting people or companies to work as quickly as this example, is not possible, as here we are “herding cats”. To get companies and people to move that quickly will take major social engineering and a cataclysmic economic event making people truly desparate. Neither of which seems to be on the horizon….

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