Supply Chain for iPhone Highlights Costs in China
It is important to understand how supply chain management can be costly for the best known companies worldwide. I picked an article from New York Time Journal published July 5, 2010 which on one hand, discuss how supply chain for iPhone highlights costs in China. On the other hand, the article shows up the Apple’s strategy to keep costs lower while Chinese wages increase by 20 to 30% in most parts of the country.
Manufacturing in China tend to be more expensive than usual. Worker wages and shortage start rising as well as Chinese currency, which makes exports more expensive and so does making devices like iPhone assembly in China.
Furthermore, Apple plans to move a big part of Chinese worker to other part of China where wages are still lower. Other electronic companies try to figure out how to reduce cost as well. But Apple generate more profit than its most important competitors like Dell and LG. because Apple has a 60% profit margins plus the high price of its products.
In my opinion, the change in supply chain of the iPhone 4 in China has a direct relation to the Apple global market strategy. Apple was designed in the United States and supported by high-tech components manufactured and shipped from others countries, assembled in China and shipped back to the United States.
The biggest part of value and profit is generated at the beginning and the end of supply chain process. According to the article and other public sources, Apple orders two of its major iPhone components from Singapore which are: the video processing and base-band communication. The most important source of Apple components comes from Taiwan where they manufacture six major part of the new iPhone 4. Some of these parts itemized as: Digital Camera, Connectors, Bluetooth Chipest, and Printed Circuit Boards. Only two components are made in the United States which are: Touch Screen Controllers and the Wi-Fi Technology. The previous information provided in this paper could help us to understand why Apple makes a $600 iPhone as a final price to sell.
From this point, I can argue that Apple is trying to reduce costs by sourcing majority of parts from only one country which is Taiwan because it keeps the supply chain to be more efficient and less costs adopted. It also had an important risk if The United States has political trouble with Taiwan it will block the bilateral trade and so does the supply chain which will causes of adding more additional costs. More often, Apple may lose its comparative advantage if a minor change occurs in the global market.
To sum up, I think that China tend to be more protective when it comes to its labor force by raising wages and building a more human economy. Basically, China will not be able to support the whole world economy by been a workshop place for the most knows companies like Apple, because it has a low profit value and as discussed in this article, the big part of the profit is included in the supply chain the beginning and the end of the process. I am also in the position of arguing that as wages rise overseas it become more significant for U.S. companies to keep some of its manufacturing in the U.S.
Written by: Redouane Boufous – [White paper]