Apple Could Take a Bigger Bite Soon

Those ubiquitous smart devices made by Apple, Inc. are already wildly expensive compared to the competition’s offerings.  For those who aren’t satisfied unless they acquire the latest version of the iPhone or the iPad on the first day of release better prepare to dig deeper into their funds.

The New York Times reported Thursday afternoon that Taiwan-based Foxconn, a leading Asian company that makes electronic products for Apple, Dell, Amazon and others, has responded to negative reports about their factories by promising to cut back dramatically on the number of hours they require their 1.2 million workers and to increase all wages significantly.           New York Times Photo

At the request of Apple, a monitoring group, the Fair Labor Association, recently surveyed more than 35,000 Foxconn workers.  They also inspected three of the large factories where Apple products are manufactured.  The inspectors found numerous examples of the company violating” Chinese law and industry codes of conduct by having employees work more than 60 hours a week, sometimes for 11 or more days in a row.”  Those surveyed also reported the wages to be at sub-subsistence levels.

Apple joined the Fair Labor Association recently and asked them to look into the facilities that manufacture their popular electronic products because of recent flak about working conditions in off-shore manufacturing sites.  Pressure in the form of petitions and protests from labor rights organizations has caused Apple to release a list of 156 of its suppliers – something they had declined to do previously.

Foxconn, if it wants to continue to supply products to technology giants in the United States, is going to have to hire a lot more employees at the same time as they are raising their wages.  That monumental cost will undoubtedly be passed on to their customers, who will undoubtedly pass it to consumers –unless somewhere along the chain a company is willing to cut their profit margins.  Yeah, right.

I love my iPhone 3GS, mostly because I waited until the 4G version was launched and got it for $19.99 when I signed up with AT&T Mobility.  I can envision no circumstance in my future that will find me paying $830 for the latest and greatest iPad or $400 for the iPhone 4S, so anything more than a nominal increase in Apple’s prices will likely send me back to the competition.

Why not just bring all that manufacturing back to the U.S.?

As a matter of fact, President Barack Obama asked the late Steve Jobs that same question in February 2011 at a dinner for top luminaries in Silicon Valley.  Jobs’ answer? “Those jobs aren’t coming back.”

A January 21, 2012 New York Times article by  Charles Duhigg and Keith Bradsher goes into great detail about how Apple went from a company bragging about having a totally-made-in-the-USA product to having all its iPhones and iPads assembled by 20,000 people in China.  The bottom line was clear:

1)  America is not producing enough industrial engineers who have more than high school training, but less than a full bachelor’s degree to fill Apple’s needs. An Apple analyst once forecast it would take as long as 9 months to recruit 8,700 engineers; China did it in 15 days.

Donald Chan/Reuters
 
2)  China and other Asian countries have are capable of marshaling vast numbers of employees with the requisite skills, virtually overnight.  They have also designed their facility campuses with the supply chain in mind, usually locating individual suppliers within miles of one another.  They also built on-site dormitories for their employees, where as many as 25 percent of their workers sleep, making it possible for bosses to awaken their captive work force for emergency re-tooling and other turn-on-a-dime adjustments.

3) Foxconn workers, on average, earn about $17 a day and usually work 12-hour shifts, six days a week.

4) One facility, formerly known as Foxconn City, has 230,000!  Foxconn employs nearly 300 guards just to direct foot traffic in order to avoid stampedes at quitting time.

The chances of restoring the middle-class in America to its former prosperity by reclaiming manufacturing in a global economy appear to me to be zero to none.  To succeed, other companies must follow Apple’s example and go where the economies of scale can keep pace with the kind of global growth they must have to stay competitive.