There have been speculations recently on the possibility of moving production of the iPhone to the U.S. The Nikkei Asian Review did a report on how Apple is considering making the switch to U.S.-based production, according to reliable sources. This move is triggered by President-elect Trump's campaign promise to have U.S companies manufacture their goods in the country. Over a span of several decades, the U.S.A. fell from its throne of one of the biggest manufacturers as Asian countries dramatically took over and Trump seeks to fix that. In a NY Times interview, the president-elect said that he had a phone conversation with Tim Cook, Apple's CEO, about making this big move. One way he intends to convince Apple is by offering incentives like relaxing the corporate income tax. Another campaign promise he made was to impose heavy taxes on American companies importing parts from China, which may make it difficult for manufacturers to produce goods without drastically incresing their prices.
The Lure of Offshore Manufacturing
Apple is among the many U.S. enterprises that outsource their manufacturing to countries like China, Japan, and India. Foxconn and Pegatron are two of the entities responsible for the assembly of over 200 million iPhones every year. One of their biggest justifications for having these operations outside the U.S. is the availability of labor. China and India have 35% of the world's population, and that means a lot of power when it comes to offering manual labor. Factories in these countries can afford to have hundreds of thousands of workers on standby and ready to work at a moment's notice.
There is also the large consumer market that such a populous offers to one of the world's most famous phone manufacturers. Having relations with countries like China means that Apple enjoys a few economic advantages when it comes to sales. Even though China has improved in the production of quality smartphones, the iPhone still holds a significant market share.
Implications of Moving Production
In an unprecedented move where Apple decides to manufacture its signature smartphone in the U.S., it will encounter several problems. Labor issues are undoubtedly going to impede the manufacturing processes considerably. Many experts contend that the United States does not possess the human power required to meet the production of millions of iPhones yearly. If so, Apple is bound to run into shortages now and then, which could mean a halt in production or constant delays. In a market where manufacturers are always releasing a new, perhaps more, products every year, such inconveniences would cost Apple a substantial profit.
Then there are the first world employment challenges that the company would encounter. For one, the minimum wage in the U.S. is significantly higher than in Asian markets. Employing either skilled or unskilled workers would mean more spending for Apple. Additionally, the manufacturer would have to factor in the cost of benefits that regulations demand. Labor rules would also pose many issues for Apple, not to forget environmental and safety standards.
Another harsh consequence that the company would face is in supply logistics. It takes very many parts to assemble an iPhone and the supply of these components is spread all over Asia and other regions. Sharp and Japan Display, for example, produce the display. Japan's Toshiba and SK Hynix from South Korea handle the memory modules of iPhone handsets while Taiwan Semiconductor provides the chips. Deciding to use U.S. components means that Apple would have to coordinate the logistics of all its suppliers, which would take a while, and not without difficulties.
The concept of manufacturing with domestic components is very complex and is a major challenge that would have to be overcome. America simply does not have the raw materials it takes to build an iPhone. Over 75 elements are used in the production process with aluminum being a major one. This subspace requires bauxite to make, which the U.S. does not have.
Impact on Price
Experts predict that the cost of a 32 GB iPhone will increase by about 40 dollars if production was to move to the U.S. If the company imported parts for manufacturing, then it would mean a hike in the cost of production. Currently, it costs Apple up to $225 for each smartphone made. This figure would be $300 or more if there were an increase in the ad valorem tax.
Taking an economics viewpoint, moving iPhone production away from the Asian region could be problematic for the company. Even though Apple has successfully transferred the manufacturing of the iMac to the country, the smartphone holds a different market share and a big one at that. Only time will present a winner between the logic of economics and politics.