Apple: Manufacturing in the US? By Ruizhao Chen

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Apple: Manufacturing in the US?

Apple released its brand new Mac Pro desktop about half a year before: its round bucket-like shape grabs most attention. Another thing attracts people’s eyes is that Apple announced it will bring the manufacture line of Mac Pro back to the US, which involves an 100 million investment and 200 job position, according to Philip Elmer-DeWitt’s view from CNN[1].

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Picture: Apple’s New Mac Pro

Apple’s behavior makes people wondering about China’s role in manufacturing industry. Growing labor wages and concerning about labor welfare keeps consuming China’s advantage on labor cost in the past five years. Hon Hai Precision Industry, also known as Foxcnn, is an example of thousands of Chinese manufacturing factories who are facing labor problems. First issue is wages: Foxcnn has been forced to raise its wage several times since it cannot get enough workers after each Chinese New Year. Plenty of migrate workers just went back home and never come back. In January 22, over a thousand workers even raised a strike, requiring a high wage[2]. Second, as the main manufacturer of Apple product, Foxcnn has been blamed several times for its responsibility on its employees’ psychological and physical health problem. Foxcnn claims it has provided full protection to its employee against poisonous chemicals, but social media still keeps posting news on how workers’ daily lives are affected by work-related injuries: some of them are confirmed as fake or inaccurate news, however this also shows that Chinese public are putting more and more attention on defending their right as workers and employees. What made everything worse was that there are over a dozen workers chose to jump from building a less than a year in 2010. It is said the repetitive work is the major reason for workers psychological instability. Together with social media’s wide reporting, both Foxcnn and Apple are facing heavy social and economic pressure.

Will labor intensive industries move out of China? From my point of view, it’s hard to provide a clear answer. Electronic assembling industry is a labor-intensive industry in China which has taken huge advantage from Chinese massive labor supply, but will it also be labor-intensive in other countries? For countries like Vietnam and Indonesia, the answer maybe yes. However for the US, it won’t be. I think for the part of this industry that has been moved back to the US is no longer considered as labor intensive but capital of technology intensive. In the other word, labor, capital and technology in this industry is to some degree substitutable to each other where a company can choose which kind of industry for it to be depends on which factor is cheaper. Apple has claimed that the new factory in the US will manufacture “1 million Mac Pro per year” with 200 workers[3], which equals 1.37 Mac per worker per day. As a comparison, Foxcnn owns a streamline with 300 thousand works on it producing 500 thousand iPhone 5s per day in November, 2013[4], which equals 1.66 iPhone per worker per day. However, consider that Mac Pro is priced at $2999 and iPhone 5s is $649 (16GB), the productivity between the US workers and Chinese workers is obvious. I think this is because American workers have more capital and technology per person than their Chinese colleagues. Such difference is quite visual actually: in the video about the new Mac Pro, we can hardly see a worker but plenty of robots doing all kinds of jobs[5]. However in a Chinese Foxcnn factory, what we can only see are workers assembling products with their hands[6]. So whether labor-intensive manufacturing industry is abandoning China is to some degree not an appropriate proposition. Some part of this industry does abandon China like what Apple just did, but its labor-intensive features have been transformed into other features such as capital intensive of technology intensive.

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Picture: Foxcnn’s labor-intensive streamline manufacturing

This case provides us a different perspective to view industrial specialization. As labor, capital and technology can be substitutable to each other in some industries, a Multinational corporation shall no longer consider labor or capital cost between different countries only, but also the possibility of substitute labor with capital or the reverse. If the benefit of doing so can compensate the cost of transformation, then the company should move its production globally to the country with lowest cost totally. Take Apple’s new Mac Pro for example: to manufacture it in the US, higher capital input in process automation will be required while the benefit is less labor and lower labor cost. The input will be high, but the benefit of cost-saving is also significant: American workers’ average is $34 per hour, which is 17 times higher than Chinese workers’. I think this idea would challenge the basic assumptions of what we usually learn in class, since they usually treat a certain industry with fixed labor and capital input proportion.

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