Apple’s US manufacturing bet

Apple’s CEO Tim Cook has revealed that one product line in the company’s Mac range will be manufactured in the US next year, a blip in the decades-long trend that has seen such activity move to Asia (and in particular, China).

On the surface it may seem like another fine piece of PR from the Californian company (and that’s because it is), but the reasoning behind the decision is far more nuanced than that.

While likely to remain relatively low-cost for some time, manufacturing in China is beginning to get more expensive. The middle class is growing and workers are beginning to unionise, which will ultimately lead to demand for higher wages there.

Coupled with this is a rise in distribution costs, which means that getting the finished products out of China and to consumers – more often than not in the US – is gobbling up more of Apple’s (very handsome) profit margin.

Apple’s decision to begin manufacturing a small amount of its products in the US is most definitely a toe-in-the-water tactic, but it is also a defensive manoeuvre that will give the company a head-start if (or indeed when) Chinese manufacturing loses its edge.

Doing it before anyone else does is the icing on the PR department’s cake.

Of course those optics of it are not to be sniffed at either – Apple will now be championed for creating jobs in the US and can soon vaguely state that it has “begun” manufacturing in the country. This is despite the fact that it will be one line in a product category that accounted for just 14% of the company’s revenue in Q3 2012.

Perhaps a more important political consequence, for a cold-eyed businessman like Tim Cook at least, will be the opportunity to sell products to the US Government (which requires that they are manufactured in the US-of-A).

Finally, having a manufacturing base in the US plays into the Apple desire for control.

Having a factory down the road means higher up-front costs but it also means product quality can be more easily monitored, which could reduce faults and – by proxy – returns costs.

It also allows the company to keep a closer eye on factory conditions, thus reducing the chance of Foxxcon-like scandals which are damaging to its coveted brand.

China will remain a manufacturing powerhouse for the foreseeable future, of course. However Apple’s decision is sure to make some people sit up and take notice.

Coincidently, when I interviewed PCH International’s Liam Casey (known as ‘Mr China’ for his work in helping companies get products mass produced in the country) at the 2012 Dublin Web Summit, the topic of rising costs in China came up.

He sees the demographics changing but said the country will ultimately remain the place to manufacture because the expertise, speed and scale to do so is there.

Despite today’s revelation it can be assumed that even Tim Cook agrees with this, at least as long as the iPhone, iPad – and the majority of Macs – are getting churned out from Chinese production lines.