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By Catholic Online

1/23/2012 (3 years ago)

Catholic Online (www.catholic.org)

Apple executives explain why the US is losing ground in manufacturing.

In February of 2011, Barack Obama visited Silicon Valley for dinner with several movers and shakers of the electronics industry. Each visitor was asked to have a question prepared for the President. But the question that got the most attention was one fielded by the President himself to Mr. Steve Jobs, the iconic CEO of Apple.

This image shows the reason why the US cannot compete with China in manufacturing.

This image shows the reason why the US cannot compete with China in manufacturing.

Highlights

By Catholic Online

Catholic Online (www.catholic.org)

1/23/2012 (3 years ago)

Published in Technology

Keywords: Steve Jobs, President Obama, manufacturing, iPhone, iPad, factories, China, overseas, outsourcing, unemployment, business


LOS ANGELES, CA (Catholic Online) - President Obama asked, "What would it take to make iPhones in the United States? Why can't that work come home?"

According to another dinner guest, and Job's reply was blunt. "Those jobs aren't coming back."

At one time, United States was the world's industrial powerhouse. While the Industrial Revolution began in England, as early as the 17th century, the late 19th century saw the United States become the world leader in industry and manufacturing. The United States has wore that crown for more than a century. But now, intense competition from other countries, especially China, is causing America to lose its lead. The reason lies in the fundamental differences between the United States and Asia and how work is approached. 

Corporate executives have a fiduciary responsibility to maximize shareholder profits. This means finding the most profitable solutions for complex business problems. Manufacturing a product such as the iPad or the iPhone is a complex affair. A single iPhone will contain parts from almost every continent on the globe. The components are manufactured around the world, and ultimately assembled at factories in China.

After assembly, those products are sold around the globe.

Apple's success as a corporation can be measured in its profit per employee earnings. Apple earned over $400,000 in profit per employee last year. This exceeds the profits earned by other firms such as Google, Exxon Mobil, or even Goldman Sachs. Because of this success, more and more companies are looking to imitate Apple's business model.

Less than a decade ago, most of Apple's manufacturing was based in the United States. However, there were two problems. First, American workers demand higher pay, benefits, and shorter hours. They expect a high standard of working conditions and all these demands make them very expensive. Add minimum wage requirements, benefit requirements, and other government regulations and it's unsurprising as to why so much of America's manufacturing is sent overseas.

In addition to cost, business experts say that the United States is no longer producing the types of workers that are needed to produce sophisticated products such as iPhones. Education is lacking.

Meanwhile, in China entire cities are built around manufacturing centers. Multiple factories, each complementing the other, are built by the government and these large industrial complexes have become cities onto themselves. Workers do not have homes, but rather are housed in dormitories. Every need but the worker could have is met by the factory. Food, shelter, medical attention, everything is provided.

Workers live in dormitories, and can be roused at a moment's notice to go to work. Workers do 12 hour shifts, six days a week -- outperforming by far their US counterparts. They also work faster and produce far more per employee than workers in the West.

If factories need a component, it is very easy for them to get it nearby. If a new component must be made from scratch--even that can be done within a few hours or days at most. 

In fact, one anecdote shared by an Apple executive who asked to remain anonymous, explained that in 2007 Steve Jobs took a prototype iPhone out of his pocket to show a team of executives the scratches on the screen. He demanded a glass screen instead of plastic, one that would not scratch. As the executives left the meeting one booked an immediate flight to China and found a factory that could deliver.

Apple's executives knew that producing glass screens for the iPhone in the United States would be a time-consuming and expensive process. An entire factory would have to be tooled for the purpose, the glass would then have to be engineered and cut to precise specifications, and the company would need almost a year to hire the engineers and train the workers to do the job. Once that was done, it would cost millions to operate the factory and produce the new screens.

But in China, the engineers could be found within 15 days. The factory was already under construction with the equipment necessary to create the screens. In fact, Chinese executives already had free samples of the glass available to share with Apple. For Apple, it was a no-brainer. The contract was awarded and the factory went to work.

In another case, an executive described how a Chinese factory successfully revamped the iPhone on the fly with only a moment's notice from the company. Despite being the middle of the night, the company received the new plans, roused more than 8,000 workers from their dormitories, giving each worker a cup of tea and a biscuit, and immediately set to work on the new design. Within 96 hours, the factory was producing over 10,000 iPhones per day.

There are no factories in the US that can respond so quickly to those kinds of changes in production.

While many Americans will be quick to criticize business executives for creating jobs overseas rather than in the United States, the standard reply they give is that creating jobs in America is not their job. Business executives have a responsibility to make profits, not jobs. Outsourcing labor overseas where it is cheaper, fits perfectly with that responsibility.

At the same time, the executives retort that the importation of cheap goods from overseas does in fact create thousands of jobs in the US. Apple points to its chain of retail stores as well as its call centers which are all based in the US. Additionally, much of the programming for the iPhone is still done in the US -- jobs that might not exist if Apple were not so successful.

The heart of this matter is simply that the United States heavily regulates its manufacturing industry. But American workers demand much from their employers, and there is very little incentive for corporations to hire them. Globalization has opened up overseas labor markets to American firms. This is good for investors, and consumers. However, it's bad news for low skilled and unskilled workers who are making up the bulk of the unemployed in America.

Steve Jobs made clear to the President that he wasn't worried about the future of America. Mr. Jobs told Obama, "I'm not worried about the country's long-term future. This country is insanely great. What I'm worried about is that we don't talk enough about solutions."

Mr. Jobs is right. Much has been made of America's problems, but it appears that nobody is talking about solutions. And without that conversation, it is unlikely that much will change anytime soon.

. 

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