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January 24th, 2012
Over the weekend, the New York Times ran a must-read story on why Apple products are not made in the U.S.
And, earlier this month, This American Life devoted an hour to a stunning look at work conditions inside Apple’s supplier factories in China.
Not long after TAL’s story ran, Apple released its annual progress report on suppliers in China. For the first time ever, the company issued a list of its suppliers and said it would allow an independent third party to audit its operations.
But there’s one claim in all this reporting that has particular relevance for the Midwest economy.
Early on in the New York Times story, reporters Charles Duhigg and Keith Bradsher (once the Times’ Detroit bureau chief) make the case for why Apple stopped making its devices in the U.S., and why that work is never coming back:
It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.
And, deeper in the story, we get this claim from an unnamed Apple executive:
“We shouldn’t be criticized for using Chinese workers,” a current Apple executive said. “The U.S. has stopped producing people with the skills we need.”
Is that true? Do American, and particularly Midwestern, workers really lack the “flexibility, diligence and industrial skills” that Apple needs?
Changing Gears has reported in the past that finding skilled workers is, in fact, a problem for manufacturers in the Midwest. But that same reporting revealed that many training programs are full across the region. The willingness to learn new skills is there. And, certainly, there are plenty of people looking for work.
To get a Midwest perspective on why Apple might be hesitant to try its luck with this labor pool, we called up Jeffrey Liker. He’s an expert on manufacturing in both the U.S. and Asia, and he’s the author of a number of books on the “Toyota Way” of manufacturing.
Liker doesn’t buy the claim that U.S. workers don’t have the skills or the flexibility to make Apple products. Any manufacturer opening a new plant has to do some training, he says.
Instead, Liker gave three main reasons why he believes Apple won’t build in America:
- Cheap labor Apple executives may not want to admit it, but Liker says one of the biggest advantages of going overseas is that workers there are much, much cheaper. This is really an obvious reason, and we all know it. But it’s worth remembering whenever someone tries to claim that the actual reason is because our workers don’t have the right skills. “Right now is the worst time to make that statement since the recession has put so many people out of work,” Liker says. “There are all kinds of skilled workers right now.”
- Taxes Liker says another big reason Apple and other manufacturers do work in Asia is because taxes are cheaper there. Usually, if a company makes profits from something built overseas, they have to pay American taxes when they “repatriate” those profits back to their headquarters here. But if a company spends money at lots of overseas factories, it just re-invests the profits over there, and it never pays the higher tax. Liker estimates this could make a 20-30 percent difference in profits for a company like Apple.
- They’re there because they’re there Once the decision to make products overseas has been made, it becomes incredibly difficult to reverse, Liker says. “Apple is not a manufacturing company,” he says. “They’re a design and marketing company.” All of Apple’s manufacturing plants in Asia are owned by suppliers, not by Apple. If Apple executives suddenly decided they wanted their products built in the U.S., they’d have to invest billions of dollars in new factories. In China, the infrastructure is already there. “They made that decision decades ago,” Liker says. “I don’t think they’re revisiting it.”
There’s another wrinkle to this discussion that Liker says is worth mentioning. Right now, he says China actually has a far greater shortage of skilled workers than the U.S. Demand for workers in China is so high that factories there have trouble holding on to people. Liker says turnover rates of 20-30 percent are common in Chinese factories. So, according to Liker, the truth is the exact opposite of what Apple claims.
The New York Times article generated lots of discussion online, and yesterday one of the reporters responded to readers questions. The Times says this is the first in series of articles about the “iEconomy.”