Question

Read the Who makes the Apple iPhone? case study and answer the question which follows. In answering the question, relate your discussion to the facts presented within the case.

Who makes the Apple iPhone?

In its early days, US-Based Apple usually didn’t look beyond its own backyard to manufacture its devices. By 2004, however, Apple had largely turned to foreign manufacturing. The shift to offshore manufacturing reached its peak with the iconic iPhone, which Apple first introduced in 2007. All iPhones contain hundreds of parts, an estimated 90 per cent of which are manufactured abroad. Advanced semiconductors come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chip sets from Europe, and rare metals from Africa and Asia. Apple’s major subcontractor, the Taiwanese multinational firm, Foxconn, performs final assembly in China.

Apple still employs some 43 000 people in the United States, and it has kept important activities at home, including product design, software engineering and marketing. Furthermore, Apple claims that its business supports another 254 000 jobs in the United States in engineering, manufacturing and transport. For example, the glass for the iPhone is manufactured at Corning’s US plants in Kentucky and New York. But an additional 700 000 people are involved in the engineering, building and final assembly of its products outside the United States, and most of them work at subcontractors like Foxconn.

When explaining its decisions to assemble the iPhone in China, Apple cites a number of factors. While it is true that labour costs are much lower in China, Apple executives point out that labour costs only account for a very small proportion of the total value of its products and are not the main driver of location decisions. Far more important, according to Apple, is the ability of its Chinese subcontractors to respond very quickly to requests from Apple to scale production up and down. In a famous illustration of this capability, in 2007 Steve Jobs demanded that a glass screen replace the plastic screen on his prototype iPhone. Jobs didn’t like the look and feel of plastic screens, which at the time were standard in the industry, nor did he like the way they scratched easily. This last-minute change in the design of the iPhone put Apple’s market introduction date at risk. Apple had selected Corning to manufacture large panes of strengthened glass, but finding a manufacturer that could cut those panes into millions of iPhone screens wasn’t easy. Then a bid arrived from a Chinese factory. When the Apple team visited the factory, they found that the plant’s owners were already constructing a new wing to cut the glass and installing equipment. ‘This is in case you give us the contract,’ the manager said. The plant also had a warehouse full of glass samples for Apple, and a team of engineers available to work with Apple. They had built onsite dormitories so that the factory could run three shifts seven days a week in order to meet Apple’s demanding production schedule. The Chinese company got the bid.

Another critical advantage of China for Apple was that it was much easier to hire engineers there. Apple calculated that about 8700 industrial engineers were needed to oversee and guide the 200 000 assembly-line workers involved in manufacturing the iPhone. The company had estimated that it would take as long as nine months to find that many engineers in the United States. In China it took 15 days. Also important is the clustering together of factories in China. Many of the factories providing components for the iPhone are located close to Foxconn’s assembly plant. As one executive noted, ‘The entire supply chain is in China. 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 a screw made a little bit different? That will take three hours.’

All this being said, there are drawbacks to outsourcing to China. Several of Apple’s subcontractors have been targeted for their poor working conditions. Criticisms include low pay of line workers, long hours, mandatory overtime for little or no additional pay and poor safety records. Some former Apple executives say that there is an unresolved tension within the company; executives want to improve working conditions within the factories of subcontractors such as Foxconn, but that dedication falters when it conflicts with crucial supplier relationships or the fast delivery of new products.

Source: Hill, C.W., Hult, T.M., Wickramasekera, R., Liesch, P.W. & Mackenzie, K.S. (2017), Global Business Today: Asia Pacific Edition (4th edition) McGraw-Hill Irwin, Sydney.

In recent decades, China has become an important location for high-tech companies like Apple to source vital manufacturing inputs. Relating to the attributes highlighted in Porter’s Diamond of Competitive Advantage, analyse and discuss China’s competitive advantage in its high-tech components manufacturing industry.

Answer 1

The given case talks about the Apple i-phone and its manufacturing process and the extension it has undergone in the years. It has been said that at first the i-phone manufacturing and all the activities were limited to America alone. With progress of time, almost 90% of the components began to be from abroad and America is now somewhat limited to its product design and software engineering. It also speaks about why America has now a focus on the Chinese market for manufacturing of i-phones

                       Porter’s Diamond of Competitive advantage is a concept that was developed to identify the competitive advantage possessed by certain nations due to many factors that are available for the nations. It also gives an analysis on how well the nation could improve with the given factors in a globally competitive economic environment and thus clearly defines the source of the advantage and the path to extend the advantage.

Thus, with the help of Porter’s Diamond of competitive advantage, the following could be attributed as reasons for the competitive advantage of China in the high-tech components manufacturing industry

· The labour cost is lower in china which could mean that the production costs would be comparatively lower in the international market.

· The Chinese sub-contractors are very quick in responding to any requests from the foreign company who owns a manufacturing firm in China. This would help in attracting many such investments in the future.

· For example, when there was a requirement for the Apple company itself for introducing glass screens instead of plastic screens in the i-phone, the launch itself was in the verge of delay due to non-availability of such glass screens across the globe. It was the Chinese firm that took the contract and ensured that the launch could be done at the right time

· The Chinese market has a better environment for working for the engineers which could mean that the production efficiency would be higher.

· Skilled labour and innovative technologies always make the production costs lower in China

· The supporting industries are also efficient which would mean that the market demand for such goods could always be met which increases the reliability of such goods and thus plays a major role in the edge for Chinese market

· The factor conditions like economic growth, strength and capital availability are also favourable in the Chinese market

Thus, with factors like low labour costs, technological innovations and supporting systems, Chinese market always have an edge over most of the markets across the globe in the field of high-tech components manufacturing sector.