Apple Shows The Positives For The USA Job Market with Offshoring Jobs. Barrons.

[ 2 ] March 27, 2011 |

Manufacturing Jobs
By THOMAS G. DONLAN
Apple is a model for creating jobs by offshoring.

The year was 1984. George Orwell supplied the symbolism. Steve Jobs supplied the vision. Apple made the famous ad, aired just once—on the Super Bowl, no less—in which a young rebel overcame the faceless forces of mass production. It was supposed to symbolize Apple’s unlocking of our creativity, in contrast to IBM, a giant, faceless corporation.

Few viewers understood then how much it was Steve Jobs of Apple who resembled Big Brother. He wanted everyone to have exactly the same computer, mass produced in his custom factory in Fremont, Calif.

Jobs told Fortune Magazine that he was as proud of the factory as he was of the new Macintosh computer. John Sculley, Apple’s president, told InfoWorld Magazine: “We’ve decided to be a major player in manufacturing technology. In three years, we want to be as good as the Japanese.”

It was the personal-computer industry’s first heavily automated plant, costing more than $20 million. Apple Macs could roll off the assembly line every 27 seconds, compared with the six-minute assembly time for the Apple IIe. After all, Apple expected to sell a million Macs a year, at $2,450 and up.

Unfortunately for Apple’s investment, it took more than three years to sell a million Macs. First Sculley fired Jobs, then the board fired Sculley. Apple eventually closed the plant in 1992. The company thereafter verged on bankruptcy, although its manufacturing strategy wasn’t the main problem.

In Jobs’ second coming, far more successful for the company and its shareholders, Jobs outsourced manufacturing to concentrate on software, product design and retailing. The company’s new computers were mostly assembled in Taiwan, from parts made all over Asia. That worked.

So from iMacs to iPods to iPhones to iPads, the next generation of Apple products was manufactured to Apple specifications by companies that specialized in manufacturing.

Apple uses at least 190 facilities operated by contractors located in China, the Czech Republic, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and the U.S.

Hon Hai Precision, based in Taiwan and operating in many countries, is a large contract manufacturer. It reportedly has 300,000 workers devoted to Apple products. The linkage is tight enough that Apple received a downgrade from some analysts last week because Hon Hai reported slower growth.

While Apple’s conversion from dedicated manufacturer to devoted outsourcer is a bit more spectacular than most, it is a story repeated throughout U.S. manufacturing. The Commerce Department’s Bureau of Economic Analysis says that in 1998, there were 17.6 million full-time and part-time jobs in manufacturing. The number has declined every year since then.

In 2009, 11.8 million Americans were employed in manufacturing—a drop of one-third from 1998. Employment in all 19 subcategories also shrank. Most of the manufacturing jobs lost were lost before the rest of the country knew there was a recession.

The easy conclusion is that “Nobody makes anything in America anymore.” It’s repeated in every blog, every letters-to-the-editor column, every TV and radio call-in show.

Obviously the complainers don’t know what those 11.8 million Americans are doing. And they don’t know how well the manufacturers are doing it.

The same Bureau of Economic Analysis also keeps statistics on value added in the economy. In 1998, manufacturing produced $1.32 trillion worth of stuff; in 2009, manufacturing production was worth $1.58 trillion. Eliminating the effect of inflation doesn’t change the story: In 1998, manufacturing added $1.24 trillion of value; in 2009 the value was $1.46 trillion.

Like Apple, many American companies are outsourcing manufacturing—not just to survive, but to create the best possible products at the lowest possible cost. That’s what keeps Apple stores, and Wal-Mart stores, for that matter, full of products to sell, full of Americans to sell them, and full of American customers. Those 300,000 Hon Hai workers didn’t take American jobs; they made other American jobs possible.

American manufacturing isn’t dead; it isn’t even dying. It’s performing the trick that every business must do to progress: It’s making more with less. Having fewer workers in manufacturing is bad for the 5.8 million people who lost their jobs, but it may be a sign of strength for America in the world economy.

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Category: Markets and Trading, Technology