i-Device Manufacturing Unprofitable To China 320
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.'"
China gets the know-how, USA gets the dependency (Score:5, Interesting)
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).
thoughts (Score:5, Interesting)
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).
Re:Earth is getting saturated (Score:4, Interesting)
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.
Doesn't work anymore (Score:4, Interesting)
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 [youtube.com] for a good explanation.
Re:Earth is getting saturated (Score:4, Interesting)
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 [google.com], 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.
Re:Apple basically is the tablet market. (Score:5, Interesting)
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 [wikipedia.org] 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.
Comment removed (Score:3, Interesting)
Profit as a Ratio, and as an Absolute value (Score:5, Interesting)
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 [forbes.com]: "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."
How does this help us get more jobs? (Score:4, Interesting)
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.
Re:That's supposed to make us feel good? (Score:5, Interesting)
Several reasons:
1) The aforementioned industries took decades to wind down. These days a manufacturer can up an leave in a matter of months, leaving the workforce no time to retrain, and which can decimate entire towns which for decades had been relying on that one manufacturer. And all because that manufacturer can produce their device for a dollar less.
2) The aforementioned industries didn't take a degree costing tens if not hundreds of thousands of dollars to get. Typically it was on the job training, for which you got paid.
The nature of capitalism requires a pyramid of people - the highest earners at the top, the lower wages at the bottom. If you ship all the lower wage jobs overs seas your system collapses.