Question

The political environment in China and how does it effect Apple.Inc

The economic environment in China. Does the company pricing structure fit economic conditions for Apple.Inc?

Answer 1

Apple along with other manufacturing companies has taken manufacturing overseas to reduce costs and improve efficiencies.
Many of the upstream components and subassemblies are also manufactured in China and Southeast Asia, so to do final assembly in the United States would create huge logistical challenges.

Labor is starting to become an issue during peak seasons, usually over the summer due to the large number of manufacturing companies looking for labor. During an iPhone launch, contract manufacturers need to hire or re-allocate around 250,000 people to work on the final assembly of the new iPhone.

Apple now pays a premium on top of the minimum wage to its contract manufacturers to ensure that they receive the labor needed to not delay production. Apple is currently heavily weighted in China for final assembly manufacturing, but if there were any changes in government regulations or tariff rates as stated by President Trump, it could put Apple at a significant disadvantage to getting the product to customers promptly and take an enormous hit to margins.

Apple has done a lot for the United States economy and unemployment rate other than moving jobs overseas. In the short term, Apple has created a lot of jobs within the United States outside of manufacturing its hardware products.

Apple has many other areas of business where it has created jobs within Apple and the rest coming from suppliers and developers.
Apple has created over two million jobs within the United States and has spent over $50 billion with US suppliers In the midterm, Apple has started to look at other countries to do their final assembly production.

Apple is looking to produce in other countries, not just to reduce costs but to also increase revenues. India is a strong candidate because the labor wages are approximately 25% the cost of labor in China, they have the experience and skill to quickly learn the manufacturing process for iPhones, and they can keep up with labor demands during peak seasons.

President Donald Trump and Apple CEO Tim Cook met to discuss Apple's future of manufacturing overseas. Apple continues to explore its options of where to manufacture based on costs, complexity, potential, and capability.

Producing in the United States poses other risks such as speed to market, increased costs, and manufacturing flexibility. The Apple management team should make a bigger effort to explain the benefits of manufacturing overseas other than costs.

Apple should also promote the number of foreign workers they have sponsored to work in the United States to add to the country's diversity and accomplished population. Apple needs to ban together with other manufacturing companies such as Microsoft, Alphabet, and Amazon to contest the current President's goals of bringing all manufacturing back to the United States and "Making America great again".

To bring that much manufacturing back to the United States would be a drastic change that would cause the companies to invest a significant amount and money and resources toward the move back and the country may not be able to keep up with the high demands of skills and labor needed to produce all hardware products.

With the rising labor costs in China and the competition for labor should Apple consider moving back to the United States or another country. so that the United States can handle bringing back all manufacturing jobs in the medium term.