apple i phones supply chains excellent

8/11/2019 Apple i Phones Supply Chains Excellent

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Supply chainsApple and the American economyJan 23rd 2012, 13:46 by R.A. !"#$"#

%&' macroeconomic discussions that Apple(s success prompts tend to be )ery curiousthin*s. &ere +e ha)e a company that(s been phenomenally successul, ma-in* productspeople lo)e and directly creatin* nearly 0,000 American /obs in doin* so, criticised ornot locatin* its manuacturin* operations in America, even asAmericans complain toApple about the +or-in* conditions o those doin* the manuacture abroad: lie indormitories, 12hour shits 6 days a +ee-, and lo+ pay. t isn(t enou*h or Apple to ha)echan*ed the +orld +ith its inno)ati)e consumer electronics. t must also rebuildAmerican manuacturin*, and not /ust any manuacturin*: the manuacturin* o decades

a*o +hen reasonable hours and hi*h +a*es +ere the norm.

%he utility o Apple, ho+e)er, is that it does pro)ide a rame+or- +ithin +hich +e candiscuss the si*niicant chan*es that ha)e occurred across the *lobal economy in recentdecades. ontributin* to that eort is a )ery nice and much tal-ed aboutpiecerom theNew York Times, +hich as-s simply +hy it is that Apple(s manuacturin* is located inAsia.

ou should read that piece or yoursel)es, but the story, in a nutshell, is this. Apple(sproducts are assembed in massi)e actory complees in hina, run by 5oconn, +hichalso handles the production o consumer electronics or many other lar*e players in the

industry:

%he acility has 230,000 employees, many +or-in* si days a +ee-, oten spendin* up to12 hours a day at the plant. ")er a uarter o 5oconn(s +or- orce li)es in companybarrac-s and many +or-ers earn less than 718 a day. 9hen one Apple eecuti)e arri)eddurin* a shit chan*e, his car +as stuc- in a ri)er o employees streamin* past. %he scaleis unima*inable,; he said.

5oconn employs nearly 300 *uards to direct oot traic so +or-ers are not crushed indoor+ay bottlenec-s. %he acility(s central -itchen coo-s an a)era*e o three tons o por-and 13 tons o rice a day. 9hile actories are spotless, the air inside nearby teahouses is

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%hey could hire 3,000 people o)erni*ht,; said Jennier Ri*oni, +ho +as Apple(s+orld+ide supply demand mana*er until 2010, but declined to discuss speciics o her+or-. 9hat @.S. plant can ind 3,000 people o)erni*ht and con)ince them to li)e indorms;

%he components that *o into the phone are uite oten assembled in hina, or else+herein Asia, as +ell:

=anuacturin* *lass or the i?hone re)i)ed a ornin* actory in Bentuc-y, and today,much o the *lass in i?hones is still made there. Ater the i?hone became a success,ornin* recei)ed a lood o orders rom other companies hopin* to imitate Apple(sdesi*ns. ts stren*thened *lass sales ha)e *ro+n to more than 7800 million a year, and ithas hired or continued employin* about 1,000 Americans to support the emer*in* mar-et.

>ut as that mar-et has epanded, the bul- o ornin*(s stren*thened *lass manuacturin*has occurred at plants in Japan and %ai+an.

"ur customers are in %ai+an, Borea, Japan and hina,; said James >. 5la+s, ornin*(s)ice chairman and chie inancial oicer. 9e could ma-e the *lass here, and then ship itby boat, but that ta-es 3 days. "r, +e could ship it by air, but that(s 10 times asepensi)e. So +e build our *lass actories net door to assembly actories, and those areo)erseas.;

All told, the physical production o Apple(s products accounts or hundreds o thousandso manuacturin* /obs. America, +hich inds itsel se)eral million /obs short o +here it+ould li-e to be, and particularly short o the middles-ill manuacturin* positions thatonce po+ered *ro+th in the middle class, seems to +ant some o those bac-. s that a

reasonable desire

&o+ did +e *et here A ne+ paperby Richard >ald+in helps lay out some o the story.9e can summarise it briely by notin* that specialisation is limited by the etent o themar-et. 9hen transport costs are )ery hi*h, the accessible mar-et is uite small, perhapsno more than a )illa*e, +hich +ill then ma-e nearly e)erythin* it needs or itsel. Astransport costs decline, economic acti)ities may be*in to unbundle. As o)erseas shippin*costs ell durin* the industrial re)olution, it became possible or massi)e industrial citiesto specialise in lar*escale production and ship their *oods to customers all o)er the+orld. %he concentration o industry in cities, ho+e)er, +as still lar*ely a product o theact that it +as costly to mo)e *oods o)er land. n a port city, you could brin* in inputs,

process them into outputs, and ship them bac- out. it had been necessary to mo)eintermediate *oods +ell inland or manuacture at any point, costs +ould ha)e soared,ma-in* proitable production impossible.

>ut transport costs continued allin*. Shippin* became much cheaper and more eicient.Air rei*ht became an economic possibility. And impro)ements in truc-in* and rei*htrail led to stunnin* drops in the cost o mo)in* *oods o)er land. And so +here onceproducers had cro+ded on top o each other in cities to ta-e ad)anta*e o specialisation
http://www.nber.org/public_html/confer/2011/MECf11/Baldwin.pdfhttp://www.nber.org/public_html/confer/2011/MECf11/Baldwin.pdfhttp://www.nber.org/public_html/confer/2011/MECf11/Baldwin.pdf


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+ithout blo+in* their bud*et on transport costs, they no+ be*an to spread out: irst intothe suburbs, then into cheaper re*ions o the same economy, and then, inally, into )astlycheaper economies abroad. %his process acilitated the rapid industrialisation o Asian*iants li-e Japan and Borea, +hile also speedin* alon* the process o deindustrialisationin epensi)e mar-ets in America and 'urope.

At this point, many seemed to conclude that distance +as i not dead then dyin*, and thatcontinued racturin* o supply chains +as li-ely to continue. 9hat actually seems to ha)eoccurred is a bit more interestin*. Supply chains ha)e indeed continued racturin*, butdistance has reasserted itsel in t+o important +ays. 5irst, in the ad)anced +orld,a**lomerations o the talented indi)iduals +ho desi*n these products ha)e becomeincreasin*ly important. And secondly, inormation technolo*y, +hich allo+s or bettercoordination o production processes, has once a*ain made proimity a rele)ant concernin manuacturin*. t(s possible to coordinate a supply chain that(s draped across anarchipela*o o Asian economies. %o maimise the return to this chain, ho+e)er, it(s stillnecessary to -eep plants reasonably close to*ether. A plant located in America is too

distant rom Asia to ma-e much economic senseC transit time to the rest o the supplychain in Asia is suiciently lon*, in most cases, as to erode the *ains to /ustintimeproduction, or unepected chan*es in desi*ns or orders. han*in* transportation andcommunication technolo*ies acilitated a shit in manuacturin* to Asia, then reinorcedits presence there.

t(s not necessary to tal- about this as an entirely or*anic process. @nuestionably, Asian*o)ernments a**ressi)ely pursued manuacturin* and subsidised it hea)ily, both directlyand throu*h ad)anta*eous echan*e rates. As the story points out, Asia has capitalised onother ad)anta*es, as +ell. heap labour is one. =ore leible landuse, labour, anden)ironmental rules are anotherC hina can erect a massi)e operation in no time at all,

staed +ith compliant labour and +ith little concern about the impact o the actory on+atersheds, air uality, and traic. S-ill supply seems to matter as +ell. hina ischurnin* out en*ineers +ith basic technical competence Dbut less, it appears, than abachelor(s de*reeE by the hundreds o thousands. t +ould be incorrect to point to any oneo these characteristics as the dri)in* orce behind the *lobal shit. Rather, these are selreinorcin* actors +ithin a *lobal economy that has multiple stable euilibria. Atersome le)el o Asian de)elopment and inte*ration, it became more attracti)e ormanuacturers to locate there as more manuacturers located there.

9hat does this mean or the American economy %he Timespiece uotes Ste)e Jobs astellin* ?resident "bama that those /obs aren(t comin* bac-, and they probably aren(t.Attractin* irms bac- to America +ouldn(t simply be a matter o helpin* reduceproduction costs in America. ou(d ha)e to replicate the con)enience o the entire supplychain, +hich +ould li-ely be an enormously costly enterprise. Fi)en the uality o the/obs characteristic o these production chains, one should as- +hether it mi*ht not be abetter idea to in)est that money else+here.

Apple, it(s +orth pointin* out, continues to capture most o the )alue addedin itsproducts. %he most )aluable aspects o an i?hone, or instance, are its initial desi*n and
http://people.ischool.berkeley.edu/~hal/people/hal/NYTimes/2007-06-28.htmlhttp://people.ischool.berkeley.edu/~hal/people/hal/NYTimes/2007-06-28.html


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en*ineerin*, +hich are done in America. #o+, one problem +ith this dynamic is that asone scales up production o Apple products, there are )astly dierent employment needsacross the supply chain. So, it doesn(t ta-e lots more desi*ners and pro*rammers to sell0m i?hones than it does to sell 10m. ou ha)e rou*hly the same number o brainsin)ol)ed, and much more proit per brain. "n the manuacturin* side, by contrast,

employment soars as scale *ro+s. So as the i?hone becomes more popular, you *et hu*ereturns to the ideas produced in upertino, and small returns but hundreds o thousandso /obs in hina.

%his discrepancy maniests itsel in America as risin* income ineuality, +hich ma-esApple(s choices some+hat politically rau*ht. At the same time, it(s +orth as-in* ho+ theAmerican *o)ernment mi*ht alter its policies so as to ma-e lie better or middle andlo+s-ill +or-ers in America at reasonable cost. "erin* hea)y subsidies to Apple to *etit to relocate production +ould reduce ineuality in AmericaC you(d increase the taburden +hich +ould mostly aect richer households and you(d create lo++a*e /obs,+hich +ould mostly beneit underemployed, lo+s-ill +or-ers. #o+, perhaps ater +e

add up e)erythin* Americans +ill decide that this -ind o massi)e inter)ention in theeconomy and associated eiciency cost is +orth it, in order to pro)ide the di*nity oemployment, such as it is, to millions o +or-ers. t(s +orth as-in*, ho+e)er, +hetherthere mi*ht not be a dierent and better +ay or+ard.

5or one thin*, it(s ar rom ob)ious that the embrace o this system by Asian economies isa *ood thin* or them o)er the lon* run. n the short term, as =r >ald+in points out inhis paper, industrialisation )ia bitin* o bits o *lobal supply chains is in many +ays amore supericial orm o de)elopment than +as achie)ed in earlier periods by 'urope,America, Japan, and Borea, all o +hich de)eloped an entire production capacity romthe *round up. %here is ar less technolo*y transer in the ne+er, supplychain model, or

instance, and so it is less clear that hinese manuacturin* centres +ill de)elop theinno)ati)e hubs and headuarters that did emer*e in America and Japan. 5urthermore,technolo*y can chan*e uite rapidly. t is stunnin* ho+ uic-ly the present systememer*ed. t mi*ht +ell *o a+ay /ust as uic-ly, either throu*h mass automation orchan*es in input costs or shits in the cost o mo)in* *oods and ideas. 9ho -no+s, rapidimpro)ements in 3d printin* could ta-e the +orld economy bac- to the days ohyperlocalisation in manuacturin*.

America has also done )ery +ell in the past by loo-in* or+ard to+ard the unseenopportunities ahead rather than the ob)ious opportunities currently bein* eploited. %hin-or a moment about the +orld Apple has created: one in +hich a )ery lar*e share o thepopulation is connected to each other and to all sorts o data resources )ia remar-able andpo+erul little handheld computers. %he potential to de)elop ne+ business models orthe production and deli)ery o *oods and ser)ices is almost unima*inable, and it(s sae tosay +e()e only be*un to scratch the surace. "ne can(t say in ad)ance +hat the impact osuch businesses +ill be on employment and earnin*s, but it mi*ht +ell chan*e thedemand or s-ills +ithin America in unepected +ays. %o the etent that hina(s*o)ernment is encoura*in* resources to lo+ to+ard manuacturin* and assembly, it is


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reducin* its ability to eperiment +ith and de)elop these ne+ technolo*ies andbusinesses.

Jobs matter. %hey certainly matter to the +ellbein*, material and psycholo*ical, o those+ho stru**le to ind one. 9hether they matter enou*hGand speciically +hether these

lo+s-ill manuacturin* /obs matter enou*hGto underta-e ma/or and costly *o)ernmentinter)entions in the economy, in the process potentially harmin* the eecti)eness oAmerica(s inno)ati)e businesses, is the uestion +ith +hich American +or-ers andleaders are no+ +restlin*. %he ans+er seems clear enou*h to me, thou*h my perspecti)eis ob)iously dierent rom those else+here in the economy. @ntil there is a meanin*ulimpro)ement in American labour mar-ets, ho+e)er, especially or those +ithout acolle*e de*ree, recapturin* those assembly /obs rom hina +ill continue to lin*er as apolicy temptation.

apple i phones supply chains excellent

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