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Apple Hardware

How Apple Came To Control the Component Market 350

Posted by Unknown Lamer from the one-i-ring-to-rule-them-all dept.
An anonymous reader writes "Phillip Elmer-Dewitt draws on several sources to argue that 'Apple has become not a monopoly (a single seller), but a monopsony — the one buyer that can control an entire market.' According to Dewitt, Apple uses its $70 billion cash hoard to 'pay for the construction cost (or a significant fraction of it) of [tech factories] in exchange for exclusive rights to the output production of the factory for a set period of time...' This gives Apple 'access to new component technology months or years before its rivals and allows it to release groundbreaking products that are actually impossible to duplicate.'"
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How Apple Came To Control the Component Market More

How Apple Came To Control the Component Market

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  • Monopsony (Score:2, Funny)

    by Anonymous Coward

    It would make sense that a term with somewhat dubious connotations would contain the word "Sony."

  • Unique != groundbreaking (Score:5, Insightful)

    by damn_registrars ( 1103043 ) <damn.registrars@gmail.com> on Wednesday July 06, 2011 @09:26AM (#36671646) Homepage Journal

    allows it to release groundbreaking products that are actually impossible to duplicate

    Just because the design of an Apple product is distinctive doesn't mean that the product is automatically groundbreaking.

    • Re:Unique != groundbreaking (Score:5, Funny)

      by SniperJoe ( 1984152 ) on Wednesday July 06, 2011 @09:29AM (#36671688)
      Based on the article summary, if Apple is fronting the cash to BUILD factories in exchange for exclusive rights on the items the factory produces, I think it's fair to say that a lot of groundbreaking is going on.

      • Based on the article summary, if Apple is fronting the cash to BUILD factories in exchange for exclusive rights on the items the factory produces, I think it's fair to say that a lot of groundbreaking is going on.

        I guess an Apple-branded jackhammer or steamshovel would be pretty groundbreaking then, woudln't it?

        • I guess an Apple-branded jackhammer or steamshovel would be pretty groundbreaking then, woudln't it?

          About as much as a Microsoft-branded vacuum cleaner would suck.

      • Re: (Score:2)

        by swalve ( 1980968 )
        That is standard vertical integration, which is as old as the industrial revolution. The only difference is that they don't *own* the factories, they just invest in them and extract the usefulness out of them, and then leave someone else to clean it up when it is no longer useful.

    • Re: (Score:2, Troll)

      by the_humeister ( 922869 )

      Anything Apple touches is groundbreaking. How dare you sully their reputation in the year 56 ASJ*. There was nothing groundbreaking prior to the year 1 ASJ. In fact we hardly know anything that happened in those dark times.

      * ASJ = After Steve Jobs. BSJ = Before Steve Jobs, when the dark ages were upon us.

      • Actually, ASJ is "In the year of Steve Jobs" (Anno Steve Jobs). Sorry to be pedantic.
        • We PC folk (Politically Correct) prefer the terms BAE (Before Apple Era) and AE (Apple Era) in order to avoid the religious connotations surrounding Steve Jobs.
          • Oh please. What is with you hippies trying to call a thing what it isn't? Look, we all know the Steve was the son of a carpenter, and in fact Jobs was the Steve. Now, what's up for debate is whether or not Jobs actually had reality-warping powers enough to have risen from death not once, but twice; and, indeed, even if the concept of the Steve as given is a load of dingos' kidneys in the first place. But we all know that your "Apple Era" just means "yeah, we don't want to say that the world revolves aro

    • Re: (Score:2, Insightful)

      by johnlcallaway ( 165670 )
      Thank you. I have yet to see any Apple product that is groundbreaking. Pretty, yes. Groundbreaking ... no. Everything they have come out with had already been made by someone else, Apple just put a pretty face on it. Or bundled already available concepts together a little differently.

      I would classify Apple more as innovative. For instance, they control their Apple computer market through egregious licenses. Today's Apple is no more than a PC, yet where are the clones?? Apple simply created a license

    • Re: (Score:2)

      by inKubus ( 199753 )

      Yeah, I think they overused the breathless adjectives there--far more than to my taste. This isn't news. Apple doesn't control the parts market by any means--they just don't ship that many units.

      However, they could have said something like "Apple vertically integrates its part suppliers while trying to predict hardware trends by going all-in on the manufacturing side. This means when they guess right, they have an advantage over the rest of the market because they have already reserved capacity. When th

      • This is like saying Ford controls the car components market because they have factories exclusively supplying them with parts. Just because you own a factory the produces certain things, doesn't mean that somebody else can't create their own factory creating the exact same things. It would actually make sense for Apple to have control of a few factories to ensure supply, rather than relying on factories that also supplied other companies, meaning they could have shortages if some other company had an incr

    • Re:Unique != groundbreaking (Score:5, Insightful)

      by gstoddart ( 321705 ) on Wednesday July 06, 2011 @10:41AM (#36672046) Homepage

      Just because the design of an Apple product is distinctive doesn't mean that the product is automatically groundbreaking.

      If they're based on components that nobody else has access to and won't for some time because only Apple is in the supply chain.

      If nobody else had access to capacitive touchscreen, like they say in the article, nobody could come up with a product that does the exact same thing.

      The article reads like it can actually give Apple several years of lead time to bring products to market using new, and ground breaking, technologies that rivals can't access because Apple paid for the initial manufacturing capacity.

      Design here doesn't mean the external things that users see, but the actual design and manufacturing of the device ...

      One extraordinary example of this is the aluminum machining technology used to make Apple's laptops - this remains a trade secret that Apple continues to have exclusive access to and allows them to make laptops with (for now) unsurpassed strength and lightness.

      doesn't mean that Apple is making the prettiest laptop cases, it means that nobody else can make a laptop case using the same techniques as Apple does. Which implies there's more behind the scenes than people realize.

      As I read this, Apple is innovating new techniques, and paying to have them brought to market exclusively by them by actually building the manufacturing capacity for the technology in the first place.

      If that's not groundbreaking and innovation ... I'm not sure what qualifies.

      • If they're based on components that nobody else has access to and won't for some time

        If nobody else had access to capacitive touchscreen

        And if you can find them... maybe you can hire the A(pple) Team...

  • Interesting... (Score:2, Interesting)

    by Millennium ( 2451 )

    So with this, the argument is that monopsonies are as bad for free markets as monopolies are. Who'da thunk it?

    • The example the author gives is not an example of a monopsony. Yes, Apple is a 600 pound gorilla, but they are nowhere near a monopsony when it comes to manufacturing components. Just because Foxcom builds factory A for Apple does not mean they [or anybody else for that matter] can’t build another factory.

      Labor Unions are [or were] the classic example of a monopsony. If you wanted to buy labor you had to hire Union workers – they were the only supplier.

      I suppose that an argument could be made fo

      • Re: (Score:3)

        by dzfoo ( 772245 )

        The article talks about innovation in components and manufacturing processes, not commodity devices. When Foxconn builds factory A and Apple has negotiated an exclusive contract for a component which is so expensive to manufacture that the competition cannot or will not produce it equally or cost-effectively, then that makes Apple the single buyer of that component.

        Apple has taken the initiative may times to buy out the full output capacity of these factories, and at times, actually paying for the construc

    • The part I don't get is why, if they paid for the factory to be built, is it such a problem that the factory only builds things for them? And what's stopping other billion-dollar companies from building their own factories?
      • Exactly. So far the only thing that puts Apple ahead is their willingness to gamble on technologies by using that huge cash stockpile and that they are usually first to do so. Nothing prevents their competitors from doing the exact same thing. From what I read one of the reasons that so few of the early Android tablets were 10" was that Apple pretty much bought out the supply of 10" screens a year before anyone else. Of course, Apple could have been wrong and consumers may have wanted smaller screens bu

  • I knew it! (Score:3)

    by gubers33 ( 1302099 ) on Wednesday July 06, 2011 @09:27AM (#36671666)
    That's why Apple's stuff looks so futuristic, they buy it before it exists.

  • I wonder... (Score:5, Interesting)

    by fafaforza ( 248976 ) on Wednesday July 06, 2011 @09:30AM (#36671714)

    how much other manufacturers are really being stopped from using said components. My inclination from past experience is that most non-Apple companies would choose to use lesser quality components to keep prices down. LCD displays for example, have for the most part been a lot worse on laptops, music players, etc.

    • All those other companies have to do is build their own private-output factories and hope their factory comes up with the components before the Apple factory.

      Somehow I think Apple would probably still sue and say "Our factories came up with it first!" while their factories secretly steal/produce whatever they are contesting. They have become the evil giant. They are no longer innovative, but are now just blanket-grabbing anything in the tech field to try to profit from patent whoring.

      All-in-all one of the w

      • So you're turning down an offer based purely on speculation and gossip?

        I know Apple hating is becoming the new trend, but seriously, almost all your claims are baseless with publicly available information -- or do you know something we (or I) don't know about?

  • Who did the R&D work? (Score:5, Interesting)

    by RogueWarrior65 ( 678876 ) on Wednesday July 06, 2011 @09:34AM (#36671748)

    Lots of people are crying anti-trust but the question I have is who did the R&D for the components in question? Did Apple do the development and contract with the fabricator or did the component company have something cool and Apple said "Okay, we'll back you in exchange for the first production runs."? If Apple did the development work, I see no grounds for anti-trust. Even if it's the latter, so what? It's not like other companies can't do the same thing with other fabricators.

    • Re:Who did the R&D work? (Score:5, Insightful)

      by Relayman ( 1068986 ) on Wednesday July 06, 2011 @09:49AM (#36671942)
      And Apple allows the fabricator to sell to anyone after the exclusive period (six months, a year?) is over. So Apple is benefiting but also doing the whole industry a favor. Just because Apple wins doesn't mean everyone else loses. Android isn't losing much, is it?

    • Due to the modern-day patent nonsense we all must tolerate, they CAN'T just do the same thing with other fabricators. Then Apple whines and sues.

    • Re: (Score:2)

      by makomk ( 752139 )

      Generally a combination of the component companies with perhaps the odd contribution from academia rather than Apple, I think, though pretty much anything related to Apple is so shrouded in secrecy and NDAs it's impossible to be sure. Apple have been doing more or less this for a while - the reason the first iPod was so compact for its capacity was because they spotted Hitachi were producing a very small hard disk they could use and bought up the entire production run. The only real news here is that they'v

    • or did the component company have something cool and Apple said "Okay, we'll back you in exchange for the first production runs."?

      And that is 100% legal to do, there is nothing monopolistic about it. Doing that very thing is in fact one of the reasons the patent system was established.

      Apple didn't say 'give us exclusive access or will run you into the ground' they said 'want us to bankroll your massive new factory? We get exclusive access to those component designs for 5 years in exchange for the loan then'.

      Those are two entirely different things, one is evil, one is doing business. One prevents expansion and innovation, one actua

  • Is that is why it is begging Samsung for Amoled? (Score:5, Insightful)

    by SmallFurryCreature ( 593017 ) on Wednesday July 06, 2011 @09:39AM (#36671832) Journal

    This is well known, the reason the iPod got so big is because Apple dared to buy in such huge amounts they not only got the output of entire factories, they managed to drive the unit price they payed down so that nobody else could compete. This is why you there is no such thing as a 64GB mp3 player from Cowon and why Archos tends to go to HD, they just can't buy flash at the price that allows them to compete with apple and its 64gb offerings.

    BUT Apple ain't got it all their way, they misjudged Amoled and for now it seems they can't just buy their way in. Samsung needs all the displays it can produce for itself. Small players like Cowon can get their displays but if Apple wants to use them, it better make some friends. Why should Samsung help Apple with the iPad3? They got their own tablets to sell.

    Is amoled that hot? Well, I compared a nexus S with a iPhone and the nexus can easily be read in broad daylight, the iPhone not so much. As for all angle viewing, I can't always hold the screen steady or at an optimal angle. Enegery usage is claimed to be lower as well (can't verify this myself), they are thinner and lighter and resolutions might be higher for a lower cost.

    So, Apple gets flash nobody else can afford at the same price but they don't get it all. It has always been the tradeoff for a company relying on parts from others. You can buy what you want, but will always be depended on others for what you can buy. The cutting edge will always be held ultimately by those who develop in house but at the huge risk that you bet on the wrong horse and end up with something nobody wants. Remember minitiature HD's? Not the ones that were in the first iPod's, even smaller ones, destined for the smartphones of the future... I seen them in some MP3 players but the risk those companies took didn't pay off, the world turned to flash instead.

    And for all its market power, where is the real innovation with the iPod? What did it, does it do, nobody else did before them AND does it better?

    In many ways the iPod is the wallmart player, it shows the power of bulk purchasing and putting it in a saleable package but little else.

    Or maybe I am just defending my order for a Cowon d3.

    • Re: (Score:3)

      by mevets ( 322601 )

      | Why should Samsung help Apple with the iPad3? They got their own tablets to sell.

      Maybe to recoup the losses they accumulate attempting to sell their own tablets?

      • Re: (Score:2)

        by Wovel ( 964431 )

        Samsung would make a lot more money helping Apple then they ever would selling their own. I don't think Samsung is equipped to mk 50 million+ Amoled iPad displays anyway.

        I am also not sure they are that desirable. Not sure on the daylight thing, but the iPhone 4 screen looks a lot better than the s2. The S2 oes look a little better then my 3GS though.

        Display on e iPad is nice, I love mine. The viewing angle is about 180 degrees, not sure how Amoled would help there.

    • Re:Is that is why it is begging Samsung for Amoled (Score:5, Insightful)

      by pherthyl ( 445706 ) on Wednesday July 06, 2011 @10:53AM (#36672134)

      >> In many ways the iPod is the wallmart player, it shows the power of bulk purchasing and putting it in a saleable package but little else.

      Usability. It's the feature that tech people don't think is a feature.

      • Usability lowers your geek/techie cred.

        For example, what does a 10 hr battery life mean? The CPU and GPU are too feeble, it needs bigger numbers to have any g/t cred.

      • Whatever GP said completely flew over your head, didn't it? He was basically explaining why Apple iPads are as good as they are today. It's not because the engineers there are geniuses, but because their operations division is has made extremely bold and risky decisions that paid off.

      • Re: (Score:3)

        by buback ( 144189 )

        Apple products aren't magically intuitive. For example, i can't seem to grok my girlfriends ipod. I don't think the wheel is a good way to navigate a linear list, at least not in the way they've presented it. Apple obviously doesn't either, since they haven't emulated this same interface into the iphone/ipad.

        So just because you've learned to use apple products doesn't make then intuitive, it just means that you've learned their paradigms, and therefore perceive them as more intuitive.

    • In the world of High Definition, please abbreviate Hard Drive properly as HDD.

      I was wondering what the hell you were talking about "Mini High Definitions"...

    • Re: (Score:2)

      by buback ( 144189 )

      The problem with the flash argument is that you just need more chips. If you can only buy 32 gig chips, then use 2. And if 32 gig chips are made in vastly larger quantities than the 64 gig chips that only one OEM uses, then the prices for 2 32 gig chips approach 1 64 gig chip.

      Another problem is that 64 gig in a portable device is unnecessary. Sure, you can carry around a lifetimes worth of music, but you'll never listen to it all before the end-of-life of the device. That's why most other OEMs add a micro S

  • Because Apple will sue the crap out of you if you create anything that looks remotely like their product. (Ex:http://www.usatoday.com/tech/news/2011-04-18-apple-samsung-suit.htm). They tried to sue Samsung because they too created a touchscreen tablet. They try to patent every and anything. I mean Jobs has a patent on the staircase of the Apple Store in Union Square, the iPod Nano box(yes, the box it comes in), and their power adapters.

  • Economies of scale? (Score:4)

    by vlm ( 69642 ) on Wednesday July 06, 2011 @09:41AM (#36671858)

    This gives Apple 'access to new component technology months or years before its rivals and allows it to release groundbreaking products that are actually impossible to duplicate

    B.S. Due to economies of scale, Apples competitors could always produce the components for cheaper than Apple, assuming they know what they're doing, which apparently they do not.

    Given equal quality of management, etc, Apple will always get a lower rate of return on their cash that their competitors or a 3rd party would get.

    The only reason for Apple to finance their own stuff, is because they have an extremely specific set of requirement for their individual device... Nothing stops Nokia or whoever from doing the same thing.

    • >> B.S. Due to economies of scale, Apples competitors could always produce the components for cheaper than Apple, assuming they know what they're doing, which apparently they do not.

      Uhh.. What? Name one phone, music player, or tablet, that is produced in greater numbers than the iPhone/iPod/iPad. Economies of scale work in Apple's favour here.

    • B.S. Apple produces most of its shiny plastic crap in China, where intellectual property means absolutely zero. Their designs will be leaked and copied by other manufacturers they don't control before Apple even knows they've come up with it.

    • Re: (Score:2)

      by elrous0 ( 869638 ) *

      Not when Apple patents EVERYTHING. They've even just patented the touchscreen [pcworld.com]. The fact they were able to pull that off shows just how broken the U.S. patent system really is, but Apple is happy to ride that broken system into more cash.

    • Re: (Score:3)

      by Ibag ( 101144 )

      The competitors can only get better economies of scale if they were all using the same components from the same manufacturers, and even then, only if they use group purchasing: individually, they don't have the sales to justify the quantities required to get cheap manufacturing, and even if the manufacturer can afford to sell cheaper, it won't sell much below its other competitors unless the tech manufacturers can negotiate a collective deal. Even if they did all standardize on the components they were usi

  • The interesting question is how did they get this virtuous cycle started and how could another company do something similar?
    • Produce a great product.

      Seriously, just produce a great product. Take a risk, kill your cash cow which is holding you back, and go ahead and make something great, something that's better than what's available now, makes tradeoffs in the right places, is super easy to use and it'll sell.

      Unfortunately, not many people know how to execute the above.
  • This writer needs to join the rest of the world for a little while. Samsung just sold 3 million Galaxy S2 devices in 55 days (without a US launch http://www.engadget.com/2011/07/03/samsungs-galaxy-s-ii-becomes-companys-quickest-selling-phone/ [slashdot.org]">Link ). Get your head out of Steve's ass and have a look around. This type of forward buying might actually limit Apple's abilities and agility.

  • Whats so special about it? (Score:5, Insightful)

    by drolli ( 522659 ) on Wednesday July 06, 2011 @09:44AM (#36671890) Journal

    Its just another: "We build the factory, you operate it" agreement. Things like this exist in Mining, Oil refining, basically all kinds of manufacturing processes where some big company decides they need more resources of a certain type and sees the possibility to use some of their cash to invest in something where they know it will make revenue.

    I hope for Apple that they don't exaggerate it to the level that the ties created by this investment will hinder their design. If some competitor produces something better, switching has an added cost.

    • Let me fix that for you...

      "Things like this exist in Mining, Oil refining, basically all kinds of corrupt politically-influenced manufacturing processes, where some big company decides they need more resources and pay off the man in charge to give it to them with taxpayer money or under the table."

  • Apple marketing = groundbreaking (Score:3)

    by metalmaster ( 1005171 ) on Wednesday July 06, 2011 @10:00AM (#36671998)
    Case in point
    Shortly after its release, iPod became synonymous with mp3 player. Sure, there were other mp3 players out there. However, Joe and Jane Public knew them as iPods or even worse "iPod knockoff." If im not mistake, Blackberry introduced the consumer market to the smartphone with the Curve. However, the market exploded with the release of the iPhone. In today's tablet market the iPad is king. I hate Apple products, because of their dependency on iTunes(ya, there are shitty alternatives) but im simply stating the facts.

    Why are these products a staple within their respect markets? Its because they are advertised as such. People might like the fact that they are shiny. The fact that the UI remains consistent across product lines is nice too. The fact remains, if iProduct wasnt marketed so well it would be just another plain box on the retail shelf.
    • Agreed!
      Marketing is extreme, but I wouldn't call it groundbreaking either. They just do what every large brand does.

      The main point is however, that linear extrapolating development, making stuff smaller, faster and embedding it more and more is just how development has been done the last 30 years. It is not groundbreaking.

      The vaccuum tube was groundbreaking.
      The transistor was groundbreaking.
      The silicone chip was groundbreaking.
      The ipod/ipad/iphone was a knockoff on the iPaq or to be nice, a linear

      • Apple designs appliances for the consumer masses--with well executed industrial design and software to go along with excellent hardware; instead of designing gadgets which non-technical people have trouble using.

        The unwavering focus on the typical user experience is truley groundbreaking and that's why they are printing money.

        It's okay that you don't get this, neither does HP, Dell, Google, Microsoft, Samsung, etc.

    • Why are these products a staple within their respect markets? Its because they are advertised as such. People might like the fact that they are shiny. The fact that the UI remains consistent across product lines is nice too. The fact remains, if iProduct wasnt marketed so well it would be just another plain box on the retail shelf.

      That's simply not true. There's very little iPhone/iPad advertising here in Belgium, certainly much less than from their competitors, and yet they sell like hotcakes. This was even true with the original iPhone which wasn't advertised at all here because it wasn't sold here officially, yet people were importing (and jailbreaking/unlocking) them in droves creating a whole internet grey market. You could show your iPhone in person to people who had no clue who Apple even are and they all immediately wanted on

  • Duh? (Score:3)

    by Jartan ( 219704 ) on Wednesday July 06, 2011 @10:03AM (#36672004)

    I hate apple and despise them for their lockdowns. Whining about this is just bullshit though. Basically all Apple has done is shown it's not stupid to keep cash on hand.

    Other companies are free to continue their blatantly retarded path of buying up shitty companies for far more than they are worth. That's apparently the "proper" use of extra cash.

  • This shows patents are not needed. (Score:3)

    by trout007 ( 975317 ) on Wednesday July 06, 2011 @10:40AM (#36672044)

    This is a great example of how a natural monopoly works. Patents were intended to give their owner a monopoly for a limited time to make back the R&D cost. This shows what I have always said. There are natural monopolies that exist when you do new things. First there is a time to see if the product will be successful in the market place and then more time to ramp up production to copy it. The beauty of a natural monopoly is that the time of the monopoly is proportional to the advancement of the idea. If it is something simple it gets copied quickly and easily. If it is radical it make take years. This is far better than our patent system which awards the same term to all patent classifications.

    • Re:This shows patents are not needed. (Score:4, Interesting)

      by delinear ( 991444 ) on Wednesday July 06, 2011 @11:05AM (#36672248)
      Much as I think the current patent system is screwed, if we didn't have anything, all that would happen is the little guy would get walked over. Not many inventors creating products in their shed could afford to bankroll factories to produce the goods ahead of the competitors, and the second they showed it to a big company with a view to investment without some kind of protection, they'd have their idea stolen. In my view each additional patent you secure should increase the cost to secure more exponentially. That would allow the little guy to secure a handful of patents while effectively preventing global corporations from patenting hundreds or thousands of ideas (they'd have to cherry pick what was worth protecting and what could go to the open market).

  • i don't see a problem (Score:3)

    by DynamoJoe ( 879038 ) on Wednesday July 06, 2011 @10:42AM (#36672056)
    It's nothing that their competitors couldn't do. Investing in production to get a discount and/or exclusive supply is simply good business. The notable differences are that Apple seems to be doing it pretty often and that every time Apple tries it it's a home run (aluminum machining process = macbook air, capacitive touchscreen = iphone/ipad, etc.). But just because a competitor can't duplicate a product or component on their own and can't purchase from Apple's supplier doesn't make it anti-competitive. Also, it's not like they're doing this to cripple supply for other competitors. They're not buying all that DRAM in order to sit on it and starve the market. They're shoveling it into products and selling them. ( a notable exception might be LiquidMetal but we haven't seen any products using it yet except for the SIM eject tool in iPhones. LiquidMetal is protected by patents so competition couldn't make it if they could).
    These products do get commoditized eventually. Does that happen faster or slower due to Apple's intervention? If it's slower then maybe competition isn't as serious as it should be. If it's faster then what's the problem?
    Hate on Apple all you want, but if Dell, HP, or Acer wanted to invest in custom gear for a factory in order to get exclusive output, there's nothing preventing them. I'd be surprised if they haven't already, and it's just flying under the radar. The only reason this is news is because it's Apple.
    • This happens all the time. A fast food company like Subway, McDonalds, KFC, etc. will loan farmers money to expand their operations to produce more food for them exclusively.

  • I've heard for years that Apple stuff isn't worth the premium price because "it's made out of the same components everyone else uses".

    So, some of Apple's hardware is literally made from unobtanium?

  • companies used to make their own parts (Score:3)

    by joeaguy ( 884004 ) on Wednesday July 06, 2011 @10:57AM (#36672166)

    Remember back when companies actually owned their own factories, made their own parts, and assembled them? Computer companies too, had all sorts of factories making tons of their own components. That set up exactly the same situation but worse, because to make an equivalent part you would have to build it elsewhere, as no one was going to sell to their competitor.

    This outsourcing of all production is a new thing which was brought on by globalization and the availability of cheap labor in places like China and South Korea. So Apple invests in building a factory, and gets a big amount of its output, but in the end it is not Apple's factory, and they can make contracts with others once their deal with Apple expires.

    Not that I like Apple doing this, but they have really figured out how to get the best of both worlds. They get the cheap prices of globalization, and the competitive edge of controlling their own production.

    • Those unaware of history... (Score:5, Interesting)

      by DerekLyons ( 302214 ) <fairwater.gmail@com> on Wednesday July 06, 2011 @11:55AM (#36672666) Homepage

      Those unaware of history are doomed to make stupid statements...
       

      Remember back when companies actually owned their own factories, made their own parts, and assembled them?

      This outsourcing of all production is a new thing which was brought on by globalization and the availability of cheap labor in places like China and South Korea.

      I remember when some did. Contrary to popular belief, it's never been universal.
       
      Nor is outsourcing as new as you think. Across the 20th century and right down to today production in the US was 'outsourced' to places like the West and the South because land and labor there was cheaper than in the East (especially the Northeast). (That's one of the reasons there are so many abandoned textile and lumber mills from the late 19th and early 20th centuries scattered across the Northeast.) Another key that most people miss is cheap bulk transportation - railroads through the 20th century to now, and container ships from the late 20th century. (Arguably, without containers, the whole 'globalization' things falls apart due to the high labor costs of handling individual boxes multiple times as they switch transportation modes.)
       

      Not that I like Apple doing this, but they have really figured out how to get the best of both worlds. They get the cheap prices of globalization, and the competitive edge of controlling their own production.

      Sears & Roebuck was doing the same thing with production 'outsourced' to the (American) Midwest and the South as early as the 1920's.
       
      There really is nothing new under the sun.

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