David Barboza takes an in-depth look into the complexities of manufacturing in China for major companies such as Apple, and tries to figure out why manufacturing is in China and not in the United States.
Barboza begins by looking deep into the city of Zhengzhou, better known as ‘iPhone City’ by the locals. The city produces half of the world’s iPhones at a Foxconn facility.
Running at full tilt, the factory here, owned and operated by Apple’s manufacturing partner Foxconn, can produce 500,000 iPhones a day.
Aside from details we all know, Barboza explains how incentives and government play a significant role as to why some technology companies choose China to manufacturer its products.
Beijing, for decades, has encouraged such efforts at the national level, by developing special economic zones that offer tax breaks to multinationals and exempt them from costly and cumbersome rules.
However, the years of development and manufacturing expertise in China could make it nearly impossible to bring it back to the United States. Foxconn, Apple’s largest supplier, has plans on moving some of its manufacturing back to the United States, but not all of Apple’s supply chain is on board with the idea.
A 32-gigabyte iPhone 7 costs an estimated $400 to produce. It retails for roughly $649 in the United States, with Apple taking a piece of the difference as profit. The result: Apple manages to earn 90 percent of the profits in the smartphone industry worldwide, even though it accounts for only 12 percent of the sales, according to Strategy Analytics, a research firm.
While customers will likely only see the end result for products, it took several years for Apple to build relationships with China. For example, the iPod back in 2001 is where most of it began..
When Apple’s sales took off after the introduction of the iPod in 2001, Foxconn had the heft and expertise to meet the demand that accompanied each hit product. Foxconn’s factories could quickly produce prototypes, increase production and, during peak periods, hire hundreds of thousands of workers.
Foxconn’s founder, the Taiwanese billionaire Terry Gou, provided political clout. Over the years, he frequently visited China to meet local officials and members of the decision-making Politburo to lobby for subsidies, cheap land, workers and infrastructure for facilities that churned out iPods, iPads and iPhones.
“The reason Foxconn’s so big is Terry Gou,” said Tony Fadell, a former Apple executive who helped design the iPod. “He said he’d create the manufacturing, and the Chinese government would give him some of the money to do it. As Terry grew with the Apple business, no one else could compete.”
You can read the full piece here.