May 18th 2016

Trump’s demand that Apple must make iPhones in the U.S. actually isn’t that crazy

Donald Trump has promised that “we’re gonna get Apple to start building their damn computers and things in this country, instead of in other countries.” He said this at a speech at Virginia’s Liberty University and several other events. It is very likely that he is not serious; Trump tends to say things he couldn’t possibly mean. But he did raise an intriguing question about whether Apple — and other American companies — could bring manufacturing back to the United States.

When American companies moved manufacturing to China, it was all about cost. China’s wages were amongst the lowest in the world and its government provided subsidies and turned a blind eye to labor abuse and environmental destruction. Things have changed. China’s labor, real estate, and energy costs have increased to the point that they are comparable to some parts of the United States. Subsidies are harder to get and Chinese labor is not tolerating the abuse that it once did. China is now a more expensive place to manufacture than Indonesia, Thailand, Mexico, and India according to Boston Consulting Group.

Add to this the efforts by the Chinese government to spur indigenous innovation — by forcing foreign companies to reveal their intellectual property and use local suppliers—and you have strong motivation to relocate manufacturing.

But Apple is by no means looking to exit from China, its second largest market. It just announced an investment of $1 billion in Uber’s rival Didi Chuxing. It clearly saw a large market opportunity and a way to appease the Chinese government.

Technology is, however, changing the labor-cost equation even more and China is becoming unpredictable because of its faltering economy. It may make sense for Apple to locate some of its manufacturing closer to other markets just to protect itself from this uncertainty.

What is changing the labor situation is robotics. Robots can now do the same manufacturing jobs as humans — for a fraction of the cost. A new generation, from companies such as Rethink Robotics of Boston, ABB of Switzerland, and Universal Robots of Denmark, are dexterous enough to thread a needle and nimble enough to work beside humans. They can do repetitive and boring circuit board assembly and pack boxes. These robots cost less than $40,000 to purchase and as little as a dollar per hour to operate. And unlike human workers, they will work 24-hour shifts without complaining.

The hurdle in relocating manufacturing for any company such as Apple is the tie to the chain of suppliers of its products’ electronics components. The key question therefore is: how dependent is Apple on its China supply chain?

In 2015, the supply chain for Apple’s products consisted of 198 global companies with 759 subsidiaries — so this is quite complex. Seamus Grimes of National University of Ireland and Yutao Sun of Dalian University of China studied each of these subsidiaries and interviewed executives of those located in China. The objective of their research was to advise China on how it could move further up the value chain and cause foreign companies to give it more of their intellectual property. The paper they published, however, provides another interesting insight: into how few of Apple’s technology suppliers are actually Chinese.

The authors researched each of the 759 subsidiaries and categorized the electronics components into core, non-core, and assembly-related, with the high-cost, intellectual-property dependent technologies being designated as core. They learned that 336, or 44.2 percent, of these subsidiaries were manufacturing in China; 115 were in Taiwan; and 84 in Europe or the United States.

When the researchers looked into the ownership of subsidiaries that were manufacturing in China, they found that only 3.95 percent were Chinese. And only 2.2 percent of the core component suppliers were Chinese. The largest proportion, 32.7 percent, were Japanese; 28.5 percent were American; 19.0 percent were Taiwanese; and 6.5 percent were European.

To put it simply, more than half of the components of Apple’s products are imported into China and practically none of the important, core, technologies are made by Chinese companies. Foreign companies do not trust China and nearly all of the intellectual property in Apple’s products originates from outside it.

This means that the value chains could be shifted over time. This begs the question: what it would cost to move manufacturing to the United States?

For this, it may be best to look at what Apple’s manufacturing partner Foxconn is doing in India. The Economic Times reports that Foxconn is finalizing negotiations to build a $10 billion facility to manufacture iPhones in India. The report anticipates it will take 18 months to get this operational.

India does have a labor cost advantage over the U.S. but robots could eliminate this. Similar manufacturing facilities could be set up in the United States, product by product.

Of course, this will not be easy and there are many risks. But it certainly is possible for Apple to bring manufacturing back to the United States. If Apple can do this, so can most other companies; their value chains are a lot less complex than Apple’s.

So it may turn out that for once, Donald Trump’s rant isn’t so crazy.



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Vivek Wadhwa is a Fellow at Arthur & Toni Rembe Rock Center for Corporate Governance, Stanford University; Director of Research at the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering,  Duke University; and Distinguished Fellow at Singularity University. He is author of  “The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent”—which was named by The Economist as a Book of the Year of 2012, and ” Innovating Women: The Changing Face of Technology”—which documents the struggles and triumphs of women.  In 2012, the U.S. Government awarded Wadhwa distinguished recognition as an  “Outstanding American by Choice”— for his “commitment to this country and to the common civic values that unite us as Americans”. He was also named by Foreign Policy Magazine as Top 100 Global Thinker in 2012. In 2013, TIME Magazine listed him as one of The 40 Most Influential Minds in Tech.

Wadhwa oversees research at Singularity University, which educates a select group of leaders about the exponentially advancing technologies that are soon going to change our world.  These advances—in fields such as robotics, A.I., computing, synthetic biology, 3D printing, medicine, and nanomaterials—are making it possible for small teams to do what was once possible only for governments and large corporations to do: solve the grand challenges in education, water, food, shelter, health, and security.

In his roles at Stanford and  Duke, Wadhwa lectures in class on subjects such as entrepreneurship and public policy, helps prepare students for the real world, and leads groundbreaking research projects.  He is an advisor to several governments; mentors entrepreneurs; and is a regular columnist for The Washington Post, Wall Street Journal Accelerators, LinkedIn Influencers blog, Forbes, and the American Society of Engineering Education’s Prism magazine.  Prior to joining academia in 2005, Wadhwa founded two software companies.





  

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Dec 19th 2019
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Dec 14th 2019
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Dec 12th 2019
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Nov 27th 2019
EXTRACT: "Jay Willis at GQ reports that Secretary of Energy Rick Perry said on Fox and Friends that Trump is God’s Chosen One. He said he told Trump, “If you’re a believing Christian, you understand God’s plan for the people who rule and judge over us on this planet and our government.” Perry also said that he had written a memo for Trump about how God uses imperfect people, comparing Trump to biblical figures such as Solomon, Saul and David, who were also flawed. This evangelical discourse that a providential God controls political power goes back to old West Semitic Religion"
Nov 7th 2019
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Nov 5th 2019
Extract: "Ken Loach’s film, Sorry We Missed You, tells the harrowing tale of Ricky, Abby and their family’s attempts to get by in a precarious world of low paid jobs and the so-called “gig economy”. But how realistic is it? Can Loach’s film be accused of undue pessimism?"
Nov 3rd 2019
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Nov 3rd 2019
EXTRACTS: "Genetic clustering has existed in all past societies. People have typically been relatively genetically similar to others nearby. But most of this was because of limited mobility."........."But in the 19th and 20th centuries, people started to move about more. Societies opened up geographically, and socially. This new mobility has created a new kind of clustering – what the American author Thomas Friedman called a “great sorting out”.".........".....this is now visible at the genetic level too."
Oct 9th 2019
EXTRACT: "The idea that we are living in an entrepreneurial age, experiencing rapid disruptive technological innovation on a scale amounting to a new “industrial revolution” is a pervasive modern myth. Scholars have written academic papers extolling the coming of the “entrepreneurial economy”. Policymakers and investors have pumped massive amounts of funding into start-up ecosystems and innovation. Business schools, universities and schools have moved entrepreneurship into their core curricula. The only problem is that the West’s golden entrepreneurial and innovation age is behind it. Since the 1980s entrepreneurship, innovation and, more generally, business dynamics, have been steadily declining – particularly so in the US. "
Aug 28th 2019
EXTRACT: ". But today, the impulse to gain attention on social media has produced a discourse of extreme defamation and scorched-earth tactics aimed at destroying one’s opponents. We desperately need a broad-based movement to stand up against this type of political discourse. American history is replete with examples of people who worked together to solve – or at least defuse – serious problems, often against great odds and at significant personal risk. But the gradual demise of fact-based history in schools seems to have deprived many Americans of the common ground and optimism needed to work through challenges in the same way they once did."
Aug 8th 2019
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