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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?
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.
Twitter supports and protects racists - by smearing their critics with the "Hate Speech" label.
Yes. We had an expanding economy between WWII and 1975 and people were actually getting paid to do the work.
Your comment fails because...
It calls for the use of common sense.
Please try again.
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
In Asia it is common practice to do things cheap or below cost until you wipe out the competition, then raise prices.
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).
Soon only India will be left as cheap labor.
I can verify that some machine tool parts I have recent received were stamped as made in India. No punchline, none of that. For real.
Quality, fit, finish, were all about the same as Chinese, in other words, technically meets the bare minimum, but not much more.
Specifically some brazed carbide metal lathe cutting tools, and I believe a quick change toolpost for a lathe. I've heard they're starting to import Indian endmills (the thing that looks like a drill bit used in a milling machine).
Indian manufacturing is apparently coming soon to a walmart near you? They do have the advantage of at least theoretically knowing English, and China is beginning its first real industrial slowdown/crisis, so it'll be interesting to see if India ascends.
I remember, heck, I have stuff in my basement, from when imported machine tool components mean Polish as in Poland. Just after the berlin wall fell era, early 90s you couldn't buy an imported endmill that wasn't from Poland, or so it seemed at the time. Eastern Europe may yet rise again, possibly.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
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.
Jobs. China still has on the order of 600 million subsistence-level peasants. Leaving those people in that state while a smaller number get comparatively richer working in the cities at manufacturing, construction, and related jobs is highly unstable. The government doesn't care about profits; it cares about creating enough jobs to continually employ more peasants.
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.
The question is whether or not it will contract back to where it would have been had it not been for pumping up the economy for loans first. Just today I read an article about the wages offered in Spain and Italy now (source, in Norwegian so via Google Translate) and you practically can't get permanent employment anymore. They're being forced into intern or temp contracts which make minimum wage or less with little to no benefits.
A salary of 1,000 euros a month is about to become an unattainable dream.
That's $1300/mo or $15-16k/year, I think a minimum wage job in the US is around $10-14k/year. He was offered a 1-year contract for half that, $7-8k/year working 10 hour days. Another woman with a master degree says she makes 300 euro = less than $400 a month and yet:
Among the 30 in our class, I am among those who make the best career.
They can pretend what they want with the GNP figures but Europe is experiencing a really bad crunch now for those that haven't already got a permanent position - those are quite well protected, unlike in the US but the rest is going to hell. Same with the US, a lot of people aren't in the unemployment records simply because they're either trying to study their way through the crisis, have given up or don't get more benefits so they don't count in the statistics. And in a really bad crunch where the government should be trying to fire up the economy they're almost broke - in case of Greece, Portugal and Ireland really broke - and have to hit the brakes hard for a double crunch. I don't think we're at the bottom yet, it will get worse before it gets better.
Live today, because you never know what tomorrow brings
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
Well - I'd somewhat agree with this - but you've missed a bit out.
The above wages part is true - for china.
In the 'west' - we are at the moment living off the investment our grandfathers and great-grandfathers put in.
We have good sewers, good infrastructure, and the tip of the pyramid of an economy.
Most of the rest of the pyramid - the 'boring low-paid' jobs have been outsourced to china.
When chinas middle class gets going in a big way - and becomes a sizeable chunk of the population, suddenly exporting to the 'west' becomes a whole lot less important.
At this point we have major, major problems.
Chinese demand for resources goes up, as everyone wants a nice car and fridge and house.
We have little to export to china, as we have little manufacturing, and their firms are upskilling, and improving in quality.
Commodity prices go way up globally.
The lack of competitive exports means that foreign trade earnings goes way down, especially as fake-manufacturing companies like Apple get overtaken in the market by cheaper, shinier devices sold, designed, and with all the profit remaining in china.
Expect to see the price of Chinese goods _vastly_ shooting up, along with a weakening dollar/pound/euro, horrible fuel price inflation (which is one reason we should be decarbonising now!), and the west attempting to rebuild a manufacturing industry with almost no existing base.
Expect all social promises to be broken.
You (or if you're lucky, your children) are not getting the pension they thought they were, or if they do, it'll buy a bare fraction of what it did.
India? No, they are at the same state as China. China did it with GE, Walmart, Apple, Cisco, etc. India did it with Microsoft, Google, IBM, Accenture, Capgemini, etc.
India is probably a bit ahead of China in progress. China is facing a major shift in its people's behavior, makeup, wealth, demands, and political orientation. India has basically passed or doesn't have the same issues. Don't misunderstand me, they both still have a long way to go, just that India is ahead.
You want the next cheap labor? Look to where China is looking to meet their people's changing demand ... Africa. Even though the US provides more aid to Africa than any other country, African nations respect and look toward China more cause they feel their future is with them. It's a changing world.
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?
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."
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.
A third of the world subsists on less than a dollar a day. Our grandchildren will be long dead before there's "no cheap labor left". India isn't particularly cheap, by the way. Most of the manufacturing leaving China is going to places like Indonesia, Vietnam, the Philippines, and Guatemala. And then there's Africa, in which a whole lot of places are untouched by anything resembling economic development.
Anyway, you proceed from a false assumption, which is that cheap labor drives an expanding economy. If that were true the world economy would have stalled with the end of slavery, which was ubiquitous well into the 19th century. Expensive labor means consumers with money to spend on cars and flat-screen televisions, as well as savings to invest in new ventures.
Not a joke, but presumably zero American peasants, as the hand assembly parts of the job are mind-numbingly boring and would soon be automated or designed out for QC reasons. For former Chinese peasants, the job is still mind-numbing, but then, so is setting out rice seedlings, with the added benefit that you get to work on the iPhone while sitting inside, rather than standing outside, up past your ankles in mud, bent over, all day. Of course, Foxconn (largest electronics assembly firm in the world) has announced that it intends to replace a half-million Chinese workers with robots, so within a few years the answer is also zero Chinese peasants.