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Why Manufacturing Jobs Move Overseas (An Apple Case Study)

Why Manufacturing Jobs Move Overseas (An Apple Case Study) →

This was a very interesting read. If you haven't already read it, you should. Most commenters that I've seen have focused in on the wage differential (and the hours that the Chinese employees work) between U.S. and Chinese workers. That wasn't, primarily, what caught my eye. Instead, it was the overwhelming difference in flexibility.

One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. … Within 96 hours, the plant was producing over 10,000 iPhones a day.

Can you imagine a union dominated, U.S. manufacturing plant turning around assembly line processes anywhere near that quickly?

Though components differ between versions, all iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

Simply put, China is a lot closer to the raw materials than America is. In many cases, it makes a lot of sense to keep the manufacturing plant close to the supply chain.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

How about quickly, nearly instantaneously, finding new employees to ramp up production?

“[Foxconn] could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

… Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days.

… In particular, companies say they need engineers with more than high school, but not necessarily a bachelor’s degree. Americans at that skill level are hard to find, executives contend. “They’re good jobs, but the country doesn’t have enough to feed the demand,” Mr. Schmidt said.

There are many, many reasons why manufacturing jobs are being created in China and not in the U.S. It's nowhere near as simple as just calling it "greed" and condemning U.S. employers. In a highly dynamic, constantly changing world, is the U.S. producing skilled employees (at all skill levels!) who are willing to quickly change what they do and how they do it?

Manufacturing Crisis

So, has America been throwing our future away the past several decades? Have we been exporting all of our manufacturing capability? Are we at the mercy of China, Japan, South Korea, and Indonesia?


U.S. manufacturing output reached its all time high in 2006. U.S. manufacturing revenue reached its all time high in 2006. U.S. manufacturing profits reached their all time high in 2006. Average annual compensation for U.S. manufacturing jobs is over $66,000. The U.S. manufactures 2.5 times more goods than China does. Finally, the U.S. produces the largest share of total world manufacturing, not China.

So, who's economy has been all hollowed out and is on the verge of collapse? Not ours.

Dangerous Toys, Redux

Toy manufacturers want to regulate toys coming into the United States, looking for dangerous materials like lead paint. But what's the real cause of dangerous toys?

Design flaws, not Chinese manufacturing problems, are the cause of the vast majority of American toy recalls over the last two decades, according to a new study by two Canadian professors.

The study, which looked at toy-recall data going back to 1988, showed that some 76 percent of the recalls in that period involved design flaws that could result in hazards like choking or swallowing small parts, while 10 percent were caused by manufacturing flaws, like excessive levels of lead paint.

The study, written by Hari Bapuji, a professor at the Asper School of Business at the University of Manitoba and Paul W. Beamish, from the Ivey School of Business at the University of Western Ontario, suggests that while China's manufacturing troubles were a serious problem, toy companies needed to take more responsibility for the growing number of recalls.

"I'm not saying there is no problem with Chinese manufacturing," Professor Bapuji said in a telephone interview yesterday. "I'm just saying there is a bigger problem with designs."

Sounds like regulation wouldn't help nearly as much as the big companies want you to think it would. But it would still hurt their competitors plenty.

Needless to say, I'm still opposed to the idea.

How to Legally Hurt the Competition

Mattel, Hasbro, and Lego have figured out how to use the government to hurt their competitors. They'll ask for more government regulation.

Acknowledging a growing crisis of public confidence caused by a series of recent recalls, the nation's largest toy makers have taken the unusual step of asking the federal government to impose mandatory safety-testing standards for all toys sold in the United States.

The toy manufacturers, of course, claim that they're only doing this in the interests of public safety and in reassuring the public before the Christmas shopping season. Of course, they're might be another reason.

Instead, companies would be required to hire independent laboratories to check a certain portion of their toys, whether made in the United States or overseas. Leading toy companies already do such testing, but industry officials acknowledge that it has not been enough.

... Small companies that currently do little or no testing would be required to pay for testing as well.

So, the large companies already do testing. Recent events have proven that testing isn't always enough to catch dangerous toys. No matter. They'll use the cover of recent events to force their smaller competitors to pay for testing as well. This won't necessarily do anything to improve the safety of toys, but it will do a lot to raise the manufacturing costs (and retail prices) of toys from their competitors.

How clever.

You know, if Mattel, Hasbro, and Lego believe in stronger testing, they could start doing it all by themselves, without the force of the federal government behind them. They could then run an intensive ad campaign talking about their new testing system and what they're doing to make their toys safe for children. This would accomplish their stated goals, they wouldn't have to wait for the government to act, and they could probably increase sales as well.

But it wouldn't hurt their smaller competitors like government regulation would. So, they won't do it. Government regulation -- it's just another way to say "legal mugging".

Manufacturing in Decline?

United States Steel, Alcoa, Goodyear and the United Steelworkers want to convince you that American manufacturing is in serious decline and that if serious action isn't taken soon our manufacturing sector will disappear entirely.

"The hemorrhaging of manufacturing jobs is hurting America down to the local level," said Terrence D. Straub, United States Steel's senior vice president for public policy and government affairs. "Until and unless there is a political understanding of that -- and political attention paid to that -- our fear is much won't change and in 10 years the American manufacturing base could be gone."

"The image of manufacturing has taken a beating "” quite unfairly "” especially with the younger generation that views information technology and services as being hip and cool," said Scott Paul, the alliance's executive director, who used to work in the A.F.L.-C.I.O.'s industrial department. He said the group wants to "reconnect the American people with the importance of manufacturing and what it means in their lives and what it has meant in terms of creating good, middle-class jobs."

"The fundamental reason we've formed this is we've lost three million manufacturing jobs, and there doesn't appear to be a strong pro-American manufacturing voice out there," said Mr. Gerard, whose union represents 800,000 steel, aluminum, rubber, paper and chemical workers. "The so-called manufacturers' organizations that exist are part of the problem. The National Association of Manufacturers promotes the loss of manufacturing. The N.A.M. has become the voice of multinationals giving away our jobs, of setting up operations overseas."

Oh, baloney. The American manufacturing sector has never been stronger. This is just another example of the shoddy facts and logic that Warren Myer attacked in his analysis of Manufacturing Jobs Myths. For one thing, we manufacture far more today than we ever did before:

Considering total goods production (including things like mining and agriculture in addition to manufacturing), real goods production as a share of real (inflation-adjusted) Gross Domestic Product (GDP) is close to its all-time high.

  • In the second quarter of 2003, real goods production was 39.2 percent of real GDP; the highest annual figure ever recorded was 40 percent in 2000.
  • By contrast, in the "good old days" of the 1940s, 1950s and 1960s, the United States actually produced far fewer goods as a share of total output, reaching 35.5 percent in the midst of World War II.

For another thing, not all "manufacturing jobs" are created equal:

Let's take an automobile assembly plant circa 1955. Typically, a large manufacturing plant would have a staff to do everything the factory needed. They had people on staff to clean the bathrooms, to paint the walls, and to perform equipment maintenance. The people who did these jobs were all classified as manufacturing workers, because they worked in a manufacturing plant. Since 1955, this plant has likely changed the way it staffs these type jobs. It still cleans the bathrooms, but it has a contract with an outside janitorial firm who comes in each night to do so. It still paints the walls, but has a contract with a painting contractor to do so. And it still needs the equipment to be maintained, but probably has contracts with many of the equipment suppliers to do the maintenance.

Keep in mind that the United Steelworkers exists to further the aims of steelworkers who like cushy jobs. The union doesn't exist to further the interests of all Americans. Keep that in mind as you view this graph, depicting the amount of goods manufactured, as a share of GDP.

This entry was tagged. Manufacturing Unions