Designed in California, Manufactured/Assembled in U.S.A.? – Technology and Operations Management

Since several years ago, almost all the Apple products sold were manufactured overseas, for example, iPhone, which says “designed by Apple in California, assembled in China” on the back of the product. However, maybe soon, iPhone will be manufactured and assembled in the U.S.

1. Concern

Apple buys components from more than 200 suppliers around the world and then sells them to one of its contract manufacturers based in China, Foxconn. [1] Foxconn, known as the largest Chinese supplier and assembling factory for Apple, manufactures computer components, display screens, and consumer electronics. Chinese government offered large incentive packages worth billions of dollars to Foxconn, to support Foxconn’s factory in Zhengzhou, China, which is central to the production of Apple’s best-selling and most profitable product, iPhone. The local government provided resources to help Foxconn build factory and nearby housing for employees. It also helped to build the infrastructure near the factory such as paving the roads and building power plants. The government even pays a bonus to Foxconn for meeting its target for exports. Foxconn enjoys tax benefit and many other compensations. [2] With the rise of isolationism and protectionism, and President Trump’s promise of bring manufacturing jobs back to the U.S., Foxconn is opening its U.S. factory in Wisconsin. Foxconn will invest $10 billion to create up to 13,000 jobs at the plant, that will be up and running by 2020, in exchange for the $3 billion incentive package. [3] However, failing to provide the minimum required number of jobs and wages will result in significant financial penalty for Foxconn and its parent company, Hon Hai Precision Industry Co. and Chairman Mr. Gou’s private company. [4] Put aside the government incentives, the problem for Foxconn is that can production level in the U.S. match the levels in China? Can Foxconn deliver its customer promise as efficiently as it does in its factories in China?

2. Management’s action

Foxconn is still in trend of globalization. It is keep expanding its global strategic footprint and building “a global supply chain through cross-border strategic investments in the past years.” [5] The company’s goal is to “move closer to our customers and help them achieve faster time to market to create a win-win scenario.” [6] For Foxconn, setting up a factory in the U.S. is helping the company to stay close to some of the customers. The Wisconsin factory will be used to build liquid-crystal display technology, or LCD screens. However, it is likely that the other consumer electronic components such as metal casing for the new iPhone model will continue to be manufactured in China. There is also rising demand for consumer electronics in emerging markets in Asia, which will continue to be served by Foxconn’s factories in Asia in the short term and medium term. Even if Foxconn is now close to customers, can production level and yield match the levels in China?

3. Recommendation

In the past, “Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight. A foreman immediately roused 8,000 workers inside the company’s dormitories…Within 96 hours, the plant was producing over 10,000 iPhones a day. ’The speed and flexibility is breathtaking,’ the [Apple] executive said. ‘There’s no American plant that can match that.’” [7] Will the Wisconsin facility be able to deliver similar level of speed and flexibility? I have some doubt about that. Meanwhile, I would suggest that that workforce in Wisconsin to not be unionized.

Foxconn is trapped in this contract with the U.S. government. It has to manufacture LCD screens in the Wisconsin facility. Foxconn likely has three options in its future supply chain management. First is to continue manufacture other components in China and shipped them to the U.S. to be assembled together, then shipped the final products to customers worldwide. Second is to ship the LCD screens back to China to be assembled with other components then ship to customers worldwide. In both of these two scenarios, Foxconn will incur large costs from shipping back and forth. I prefer the third option, which is to bring other manufacture jobs to the Wisconsin factory. However, I’d need to do more analysis on the cost of labor and cost of shipping for Foxconn’s products in the long term. Foxconn can also try to negotiate better terms with customers (very unlikely to happen with Apple) and hope that there will be better margin for the products produced in the U.S. if the production yield is well-controlled and product mix is favorable.

4. Questions

Will the Wisconsin factory be sustainable? Will it continue to provide job opportunities for American people? Are there ways other than isolationism that President Trump can do to create more jobs for American people?

(751 words)

[1] David Barboza, “An iPhone’s Journey, From the Factory Floor to the Retail Store,” Technology, The New York Times, December 29, 2016, https://www.nytimes.com/2016/12/29/technology/iphone-china-apple-stores.html, accessed November 2017.

[2] David Barboza, “How China built ‘iPhone city’ with billions in perks for Apple’s Partner,” Technology, The New York Times, December 29, 2016, https://nyti.ms/2iHpVtX, accessed November 2017.

[3] Julia Horowitz, “Foxconn’s Deal to Create 13,000 Jobs in Wisconsin: Where It Stands.” CNNMoney, Cable News Network, 21 Aug. 2017, money.cnn.com/2017/08/21/news/foxconn-wisconsin-deal-updates/index.html, accessed November 2017.

[4] Jason Stein, “Foxconn and chairman Terry Gou guarantee up to $500M for job creation at Wisconsin plant,” Journal Sentinel, November 8 2017, https://jsonl.in/2Am8fNh, accessed November 2017.

[5] Hon Hai Precision Industry 2016 annual report, p. 1, http://www.foxconn.com/Files/annual_rpt_e/2016_annual_rpt_e.pdf, accessed November 2017.

[6] Hon Hai Precision Industry 2016 annual report, p. 1, http://www.foxconn.com/Files/annual_rpt_e/2016_annual_rpt_e.pdf, accessed November 2017.

[7] Charles Duhigg and Keith Bradsher, “How the U.S. Lost Out on iPhone Work,” Business Day, The New York Times, January 21, 2012, https://nyti.ms/yGdOk7, accessed November 2017