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i-Device Manufacturing Unprofitable To China
N!NJA writes "One of my favorite facts of this past year was the proof that China makes almost nothing out of assembling Apple's iPads and iPhones. From the article: 'If you want lots of jobs and lots of high paying jobs then you’re not going to find them in manufacturing. They’re where the money is, in the design, the software and the retailing of the products, not the physical making of them. Manufacturing is just so, you know, 20th century.'"
As you can see the two largest inputs are materials and Apple’s own profit margin. Despite the machine being assembled in China it’s still true that the value of that labour is trivial: 2% or so of the cost of the machine.
So what? It's not like iPads and iPhones are the only devices they're making. In fact, China, Taiwan, Japan, Thailand and other Asian countries are making almost all of electronics in the whole world. They might only profit 2% of every device, but the sheer scale of the whole manufacturing industry more than makes up for that.
Besides, Apple's devices are notoriously known for having huge profit margin going to Apple, without actual technical or manufacturing reasons for that. It is, however, only true for Apple as every other manufacturer is actually also working on really thin profit margins. When taking into account every electronics company and not just Apple, this makes the Chinese manufacturers share comparatively much larger. Comparing it to Apple tells absolutely nothing.
We go from "solid jobs have gone to China" to "there are no jobs, enjoy irrelevance." Yay?
I feel better about my Chinese assembled devices purchases.
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They are not making these things out of the goodness of their hearts.
Palm trees and 8
Earth is getting saturated. Soon only India will be left as cheap labor. Soon after that, with markets like China, EU and the US, the Indians will be in the same position the Chinese are in now.
Will there ever be an expanding economy when there is no cheap labor left?
One of my favorite facts of this past year was the proof that China makes almost nothing out of assembling Apple's iPads and iPhones. From the article: 'If you want lots of jobs and lots of high paying jobs then youâ(TM)re not going to find them in manufacturing. Theyâ(TM)re where the money is, in the design, the software and the retailing of the products, not the physical making of them.
Sounds like someone that justifies few jobs versus the large amount of jobless.
The things that person fails to account for would be currency manipulation, government ownership of business, lack of freedom for those who do that manufacturing work, and less-than-honest accounting that is prevalent in China. Correct for those, then one can cut through the author's
If you want lots of high-paying jobs in the US and EU, kill every single guest worker program (fraud-ridden at any level), get rid of the ability to use length of unemployment (or employment) as a direct or indirect means of discriminating against the unemployed, and get rid of the tax and benefit dodges with second-class forms of labor (e.g. contractors, consultants). Finally, make it harder to not hire US citizens, within the US by making any tax cut follow the worker and is dependent on the length of time.
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the workers are paid like crap? You can't make a lot of money when you're paying a few cents to a dollar /hr. Raise their wages, add $50 bucks to the cost of iCrap and suddenly China's probably not doing so bad.
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Post summary:
I don't like Apple products and personally have no need for a tablet, therefore anyone who does is an inferior human.
The carriers make more. The study showed that the #1 profit share goes to iPhone telcom carriers (AT&T) over a 2 year contract. Which is why the carrier subsidizes the phone, paying Apple directly.
My main takeaway from the article was that carriers must be forced to unbundle phones from network access, to stop oppressing the consumer. Carriers should continue to subsidize upfront HW costs under a longterm payoff contract, but it must not be mandatory (or prohibitively expensive to avoid) for anyone who wants their own phone to buy access to any mobile network, at the same cost rate as a bundled phone does. Just like desktop Internet and voice service. Forcing the unbundling would do for competition, pricing and innovation what the forced unbundling of AT&T (still the one!) did starting in the 1980s, and what the inhibitions of bundling PCs with an ISP did for the Internet.
--
make install -not war
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In Asia it is common practice to do things cheap or below cost until you wipe out the competition, then raise prices.
Wrong.
The claim that we should abandon manufacturing and concentrate on "high value" jobs, like design and engineering is nonsense. The reason manufacturing is important is because it creates additional jobs beyond just those involved in a particular product. For example, the Samsung plant in Texas which created "only" 1100 jobs. What about all the machinery in that plant? It didn't magically appear out of nowhere. Someone had to design and build it. That's more jobs. Other companies supplied the steel, plastic and electronics that went into creating that machinery. That's more jobs. Other companies supplied those steel, plastic and electronics companies with various raw materials and equipment. That's more jobs.
The past couple decades have involved China trading a lot of cheap labor in exchange for Western technical know-how. China knows most of what there is to know by now about making gadgets. Eventually China could just create money for its own economy (by credit or printing it) and it could sell to internal markets and raise its material standard of living a lot. Export driven economies only have big value if you need imports. Although it is true that China does import stuff, so it will need to replace some of that with internal import replacing approaches, like Jane Jacobs wrote about (like solar energy instead of oil, or composites instead of metals) -- but aside from US food products, much raw materials come from other than the USA (like Australia or soon Africa). Although there remains a strategic military advantage for China in having Chinese products everywhere in the USA, so they may still do some of that. For example, most ascorbic acid (Vitamin C) in the USA comes from China. How much of it is really inspected? When is the last time you had something with extra vitamin C? That makes the USA's health very dependent on Chinese good will, as just one of many, many examples. Eastern minds typically grow up playing "Go", which teaches a very different way of "winning" (by encirclement) than Western Chess. Granted, the cost of this is that the average Chinese citizen has suffered a lower material standard of living for this sort of foreign policy (a cost that does not show up as "military" spending).
A 21st century issue: the irony of technologies of abundance in the hands of those still thinking in terms of scarcity.
Works fine for groceries and many other companies. its all about volume. Sounds like capitalism is really starting to take root over there, at least the 'greed' component of it.
---- Booth was a patriot ----
Yet another geek, who has little to no understanding about consumer demand. If the tablet trend was purely due to 'Apple Fanatics', then those fanatics would have bought their tablets and that would have been the end of it, yet almost every PC manufacturer on the planet is struggling to produce their own tablet. There is obviously a huge market and demand for devices like these. Simply claiming there is no logical reason for demand for these tablets because YOU don't see a need doesn't mean these don't meet a need in those consumers that buy them. Even sadder that you trolled out the treasured 'Apple Fanatics' and 'status symbol' buzzwords and of course were rewarded with an Insightful for it.
PC's have been trending towards simple email/web/media devices for years. The 'need' consumers see in a simple device that meets all of those wants, and is portable, has a small footprint, and easy to use, and you seriously don't see why people want tablets? I have to assume the disconnect between geeks and the regular 'joe user' is the fact that geeks are typically always power users and tablets simply don't fit the bill for that type of user, but for the vast majority of today's computing users, a tablet fits their needs perfectly for casual browsing, email, listening to music, and playing the occasional game.
Claiming the only reason for Apple's success is due to it's 'gullible' users may also get you an insightful mod, but it falls far from the truth. Apple and Linux users are shown to be far less gullible than Windows users, better educated, and tech savvy. There's a reason Apple has been number one in consumer satisfaction for something like the last decade. Their shit works, it's good quality, and people don't have to fuck with it all the time. Those are powerful draws to a casual user who browses the web, checks email, listens to music, and plays the occasional time-waster game while waiting for a doctors appointment or whatnot.
That's exactly how it works in rest of the world. Apart from U.S., of course.
Every industrialized country has gone through this phase where subsistence farmers abandon their farms for difficult factory jobs. They don't like the factory jobs, but they like it better than subsistence farming.
They save a little bit of money, and produce children who wind up becoming educated and form the middle class.
To say that China's not profiting from these assembly plants is taking a very short-term view.
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
I'm not an economist, but the matter of "who's paying whom" seems significant when it comes to manufacturing jobs. Usually the money is flowing in from the outside. On the aggregate, then, that would seem to enrich the country doing the manufacturing. Obviously if you could train your entire populace to do something more lucrative (say, design) and then have your trading partners outsource that work to your country then you'd rake in even more money. However, one wonders whether that's feasible given the inherent variance in human ability. There will almost always be some portion of the population which, for whatever reason (lack of inherent ability, lack of education, poor choices, etc.) are unable to do much beyond manufacturing or other unskilled labor. For this group to be actively engaged in manufacturing seems like a "win" compared to, say, having them all be unemployed or performing some unskilled task (other than manufacturing) where the compensation comes from domestic sources (e.g. working as a maid).
When it comes to the U.S., I've always felt like it should endeavor to compete at all levels of the labor spectrum. Currently it is not competitive in sectors like manufacturing because the cost of unskilled labor is simply too high relative to countries like China. That's something that could potentially be addressed via government intervention (possibly in the form of wage subsidies). As it stands, the U.S. has basically "punted" on manufacturing. It seeks to employ its labor solely in white collar pursuits and servicing its own (very high) domestic consumption. Instead of assembling electronics, the unskilled in the United States flip burgers, work in retail, clean houses, work as nannies, etc. Basically they meet the demand of a highly consumer-driven economy. When that consumption dips, however, such as happened during the recent recession, you see massive job losses (and these concentrated among those with lower incomes).
Let's look at the issue from the other end: top down. If it's true that China doesn't make net revenue manufacturing stuff for the US, then the overall trade balance between the US and China would be neutral. But it's not, to the tune of $2e11 per year.
Verdict: argument is false.
A properly designed assembly line uses humans as supervisors and QA persons, not machines
I've worked on the old kind, where I actually manhandled truck rims, and it was an insanely expensive way to make them. The same time, Honda opened its assembly line for the old 305 twin engine: no humans did work! They made sure the machines worked properly.
If course, you needed to locate those lines where there were good (if expensive) machine designers, engineers and repairmen. For Honda, that meant the home islands. For certain other companies, it now means the USA and Canada.
--dave
davecb@spamcop.net
The big question is: by whom where they paid?
Simple answer: by the employers they work for. That means that those employers had the money (by making a tidy profit) to actually pay their employees. How did they get that money? By selling loads of stuff. To whom? To consumers that got a lot of money by working...
The big drive behind all this was the rampant growth of the population in those periods.
Compare that to the current situation: population growth is stagnant (we're talking about people with money to spend, of course), which means a declining amount of purchases. Less money to be made by companies, so also less money to spend on employees. Which leads to even less spending.
The whole problem about our economic situation is that our economy is based on (rapid, maybe even exponential) growth. Once that stops, you can expect severe cutbacks. The housing bubble is not the reason for the recession, it helped to postpone it for a couple of years.
Watch this: The most important video you'll ever see for a good explanation.
We know that selling things at or below their cost is an aggressive and even offensive tactic. We counter these tactics locally by making them illegal. We counter these tactics internationally through the use of tariffs and import banning. It's interesting that for the moment, these methods only apply to finished and unfinished goods.
Costs of labor are subjective and relative at the very least and impossible to prove at the worst. Some people might say "this is a self-correcting" thing where eventually, the expenses will require increasing prices for labor. But I don't think that's the case in places like China and surrounding areas. In any case, the purpose of this "dumping" is to make it so attractive to outsource labor that local labor facilities and locations are abandoned. Once the buyers are hooked and have no other alternatives, they are then free to charge any price they wish after the competition is starved.
There is no substitute for ForeFlight on an iPad. I'm not carrying a laptop in the cockpit to view charts, and it saves me hundreds of dollars a year compared to paper charts. You go fly a plane with a smart phone and a netbook in your lap and tell me that it's better.
Post summary: I don't like Apple products and personally have no need for a tablet, therefore anyone who does is an inferior human.
I'd also add that it is an excellent example of false consensus effect whereby a person tends to overestimate how much other people agree with him or her. I don't have a use for X therefor no one could possibly have a use for X. Which is probably more accurately, "I don't think I have a use for X.." because the poster appears to have never used a tablet in a business setting.
At my prior employer all employees at tablets. They are the perfect device to bring to a meeting, especially if you are trying to go paperless. Notebooks and netbooks are bulky and not as good at some task (such as checking your calendar to set up a follow-up meeting.. while standing). I tended to go to all meetings or people's desks when chatting (work related) with my tablet and log book in hand (both the same size). That way I had all references I needed. I never had to head back to my desk to check something, or lay down a computer on their desk, open it, hunch over the desk or find a chair... a tablet is just better for some things. Now that I'm a consultant I use it to track my work and pretty much use it exclusively on planes (my 13" computer fits on my lap, but is nearly impossible to both type on and see the screen at the same time).
Tablets work for me, they worked for my coworker but they won't necessarily work for everyone. It's hard to accurately decide if they will work in a business situation without mass adoption though.
"If you are going through hell, keep going." - Winston Churchill
China's cheap labor advantage is only sustainable as long as their factory assembly workers are still more dextrous, faster, and cheaper than the prevailing robotics technology of the day.
That is still the case, but for how much longer?
Where are we going and why are we in a handbasket?
It's true, if I have 500 dollars to throw away on a tablet I'd rather have an iPad. If, however, someone made something just as good for maybe 2 or 3 hundred dollars I'd opt for that instead. Unfortunately, all the tablets I see for 2 or 3 hundred are sadly lacking. The next best thing I've seen is the smaller Nook tablet from B&N and I may actually get one of those. The screen is very good and for the money it's hard to beat. If I had to have a 10" tablet though I don't see anything in the same league with the iPad without spending nearly the same money. If I'm to pay about the same anyway then why not get the best? It's only common sense. Not having 500 dollars to waste though I'll have to pass.
So what? It's not like iPads and iPhones are the only devices they're making. In fact, China, Taiwan, Japan, Thailand and other Asian countries are making almost all of electronics in the whole world. They might only profit 2% of every device, but the sheer scale of the whole manufacturing industry more than makes up for that.
There's an appropriate quote by TSMC Chairman Morris Chang: "You Americans measure profitability by a ratio. There’s a problem with that. No banks accept deposits denominated in ratios. The way we measure profitability is in 'tons of money'. You use the return on assets ratio if cash is scarce. But if there is actually a lot of cash, then that is causing you to economize on something that is abundant."
The decline of the USA is in no small part due to them having outsourced so much manufacturing elsewhere. It creates dependencies of various kinds and is more of a brain-drain than the financial idiots realise. Seriously, these are the "finance gurus" who have brought us the economic crisis - do we really listen to them for wisdom?
Design and innovation does not require much manpower. It provides jobs for thousands, but not for millions. Manufacturing feeds many more families, and supports many more people with technical know-how. Every company that has outsourced essential parts of its production chain has learnt painful lessons. Not necessarily so painful that it was all a bad idea - outsourcing can be profitable and the right approach. But like all the business "wisdoms" of the past 50 years, its advantages have been over-hyped and its shortcomings understated.
And, most importantly, business economics and macro economics are not the same thing and don't follow the same rules, and what is good in one context is not necessarily good in the other.
Assorted stuff I do sometimes: Lemuria.org
Let us assume the article is correct? So how does this help any industrialized nation?
The US has 300,000,000 people.
Apple employes 60,000 people... many of whom work in retail. Apple is perhaps the most successful innovative company right now.
I personally have great frustration with those who simply tout this 'high-end' job. The 'creative class' and all that crap. Okay great, there are these good jobs in innovation. I work in the field. I get it. But there's not enough to sustain 300,000,000 Americans.
There's only room so many innovative companies doing smartphones or consoles or operating systems or solar panels ... or whatever. Do you know what is special about design jobs? They only need a relatively small number of people do the design.
As other nations become prosperous, you'll have billions of reasonably educated people competing for these design jobs.
Right now, one might argue Silicon Valley is the epicenter of innovation. Great. And that operates in a state with about 35 000 000 people and an 11% unemployment rate.
Even assuming we had a super amazing education system in California that generated brilliant people capable of doing work... silicon valley is not hiring 3 500 000 people. Heck, I'm pretty sure we saw layoffs at many firms in the news. Some companies are hiring of course... in the thousands perhaps.
My point... innovation is great. It generates a few jobs. It makes some people rich. But it doesn't do crap for the 95% of the population. As a result, we shouldn't be so concerned with the innovation economy or any of that.
Small countries with a few million people like Singapore or Sweden can try and sustain their economies off of innovation, but any large nation... be it the US or China or India will never be able to.
The private sector of these countries will be composed of manufacturing, farming, call-centers, service workers... If you can't design an economic system to work for them, it won't.
Stop living in your little bubble in academia or silicon valley with this religious belief in growth and innovation...
and start looking at the numbers.
It is about getting control of all of the rest of that. Look carefully at how many cheap knock-offs of iphone there are. In fact, look at all of the totally ripped-off clones of western goods are coming from China. The issue is that China is building up loads of engineering, design, etc companies because they have access to the cheap manufacturing. And the time is coming, soon, that China gov. owned companies will destroy Apple, HP, Dell, IBM, GE, Westinghouse, Sony, Samsung, etc.
Combine that with the fact that China is massively building up their military AND showing that they are ALL TOO HAPPY to use them, well, China's cold war with the west is in full swing while the fools around the west buy the BS.
I prefer the "u" in honour as it seems to be missing these days.
With modern production methods, as well as trends like environmentalism, here is a need for less and less jobs overall as productivity goes up and demand grows more slowly than productivity.
While thing were different in hunter-gatherer times, the rise of agriculture and industrialism led to a lot of work (because there was less land to support each person and expectations also rose). But then productivity continues to improve exponentially.
Here are some examples. Five year old kids used to have to work in mines 200 years ago. Now they are sent to "school" often until their mid twenties or even longer. Work weeks used to be 80+ hours per week. Now work weeks are 35-40 hours plus paid vacations. People used to work until they died. Now in Europe many retire in their mid-fifties and live and eat and play for another three decades. People in their mid-twenties used to be the backbone of the economy. Now many educated 20-somethings in Europe have no jobs (and are rioting over that regularly like in Greece).
Agriculture has gone from 90% of the workforce to 2% or so over the last two hundred years in the USA. US manufacturing went from around 35% to 16% over the past fifty years, while still making the same or more amount of stuff and at higher quality. That number continues downward.
With computers and robotics (especially vision systems), more and more service jobs will come user the same pressures. We need to rethink our economics to account for this. For ideas on that, see writings by Marshall Brain, Martin Ford, or stuff on my website (essentially, a basic income of social security and medicare for all, an improved gift economy like Wikipeida and the blogosphere and GNU/Linux and Freecycle, improved subsistence like with 3D printers and agricultural robots, and better democratic resource-based planning).
A 21st century issue: the irony of technologies of abundance in the hands of those still thinking in terms of scarcity.
They might only profit 2% of every device, but the sheer scale of the whole manufacturing industry more than makes up for that.
That 2% figure is somewhat distorted. Here's something from a researcher at the same university as the other authors. Basically the 2% doesn't reflect currency manipulation that artificially deflates the numbers by 40%, it doesn't reflect externalized costs like pollution, it doesn't reflect governments supports like *free* factories, etc.
http://www.americanthinker.com/2011/09/china_trade_policy_and_the_fallacy_of_idea-land.html
30-45 seconds and 5 seconds are not instant. The ipad really is instant, its connected to wifi and ready to go when you open it, its amazingly fast to check something in college with it. You can argue whether such a time difference really matters, but it feels very impressive. The little things can make all the difference in interaction. The tablet is one of the best devices ive purchased, they were made for college, have all my notes, books on there one tiny device, and its vastly nicer to read on than a laptop.
"The space elevator will be built about 50 years after everyone stops laughing." - Arthur C. Clarke ~1980
If that were the appeal, don't you think the vastly more powerful Android devices, that support Flash, have more appropriate screens for multimedia, have better storage, and much more powerful CPUs, and are lower cost to boot, would be kicking the iPad's ass?
And please don't give me the "But... Android is teh succks!" crap. I've used both. Android's more than good enough outside of a few low end $150 devices. The sum total of a decent Honeycomb tablet is considerably more than an iPad, and yet the latter are selling?
Why? Because with very few exceptions, most people who get tablets do so because they look slick. And those tablets end up going into a drawer after a few weeks and that's it.
You are not alone. This is not normal. None of this is normal.