North South University

School of business and economics, department of MIB

International Business

Topic: Case Study (Apple)

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70
million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured
overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner
guest.

In its early days, Apple usually didn’t look beyond its own backyard for manufacturing solutions. A few
years after Apple began building the Macintosh in 1983, for instance, Mr. Jobs bragged that it was “a
machine that is made in America.” In 1990, while Mr. Jobs was running NeXT, which was eventually
bought by Apple, the executive told a reporter that “I’m as proud of the factory as I am of the computer.”
As late as 2002, top Apple executives occasionally drove two hours northeast of their headquarters to visit
the company’s iMac plant in Elk Grove, Calif. But by 2004, Apple had largely turned to foreign
manufacturing.

Still some parts of the iPhone are uniquely American. The device’s software, for instance, and its
innovative marketing campaigns were largely created in the United States. Apple recently built a $500
million data center in North Carolina. Crucial semiconductors inside the iPhone 4 and 4S are
manufactured in an Austin, Tex., factory by Samsung, of South Korea. However, these facilities are not
enormous sources of jobs. Apple’s North Carolina center, for instance, has only 100 full-time employees.
The Samsung plant has an estimated 2,400 workers.

Hence, the president’s question touched upon a central conviction at Apple. It isn’t just that workers are
cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the
flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts
that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Apple executives say that going overseas, at this point, is their only option. One former executive
described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks
before the device was due on shelves. 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, according to the executive. Each
employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a
12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over
10,000 iPhones a day.“The speed and flexibility is breathtaking,” the executive said. “There’s no
American plant that can match that.”

‘I Want a Glass Screen’

In 2007, a little over a month before the iPhone was scheduled to appear in stores, Mr. Jobs beckoned a
handful of lieutenants into an office. For weeks, he had been carrying a prototype of the device in his
pocket. Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches
marring its plastic screen, according to someone who attended the meeting. He then pulled his keys from
his jeans. People will carry this phone in their pocket, he said. People also carry their keys in their pocket.
“I won’t sell a product that gets scratched,” he said tensely. The only solution was using unscratchable
glass instead. “I want a glass screen, and I want it perfect in six weeks.”

For years, cellphone makers had avoided using glass because it required precision in cutting and grinding
that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc.,
to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of
iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments
and an army of mid level engineers. It would cost a fortune simply to prepare.

Then a bid for the work arrived from a Chinese factory.When an Apple team visited, the Chinese plant’s
owners were already constructing a new wing. “This is in case you give us the contract,” the manager
said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for
numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a
warehouse filled with glass samples available to Apple, free of charge. The owners made engineers
available at almost no cost. They had built on-site dormitories so employees would be available 24 hours
a day. The Chinese plant got the job.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need
a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a
block away. You need that screw made a little bit different? It will take three hours.”

Another critical advantage for Apple was that China provided engineers at a scale the United States could
not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee
and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The
company’s analysts had forecast it would take as long as nine months to find that many qualified
engineers in the United States.” In China, it took 15 days.

All this being said, there are drawbacks to outsourcing to China. Several Apple subcontractors have been
targeted for their poor working condition. Some former apple executives say that there is an unresolved
tension within the company.
But at the end before Mr. Obama and Mr. Jobs said goodbye, the Apple executive pulled an iPhone from
his pocket to show off a new application — a driving game — with incredibly detailed graphics. The
device reflected the soft glow of the room’s lights. The other executives, whose combined worth
exceeded $69 billion, jostled for position to glance over his shoulder. The game, everyone agreed, was
wonderful.

There wasn’t even a tiny scratch on the screen.

Questions:

What are the benefits to Apple of outsourcing the assembly of the iPhone to foreign countries, and
particularly china? Explain with an example....................................100 words (5marks)

Ans: First advantage of manufacturing in china is cheap labor. In 2010 when apple was about to launch,
iPhone 4 the minimum wage per hour was 7.25$ in the USA which was higher than the wage in china.
Secondly china offered large quantity of man force, Apple estimated that they can gather 8700 industrial
engineers in nine months, where china could do that in 15 days. Another thing is that China has a strong
supply chain system, suppose a production needs another material there’s a factory block away which
does that. Government given subsides made Chinese factories able to take more risks and do works before
any orders were given.

What are the potential cost and risk to Apple?...................................50 words (5marks)

Ans: Though Apple was doing good minimizing the cost by shifting its majority of the production in
China. But there were some drawbacks too. Some of Apples subcontractors have been marked for their
poor working condition. Well there’s poor wage rates, long working hours with mandatory overtime with
little or no pay, poor safety standards. Low payouts may create demotivation among the workers and
which may lead to inefficiency. Low safety standards may hamper the image of apple. Another problem
is producing products in china may cause leak of information which can give advantage to Apples
competitor.

In this whole scenario who are the potential losers?...................................50 words (5marks)

Ans: Although Apple tuned to foreign manufacturing for more profit, but in the end of the day they are
the potential losers in the long run because not only they are losing control over the manufacturing for the
whole supply chain being in China but also their technologies regarding their products are not secured
within their territory anymore. Along with them, the ultimate sufferer will be the people of America by
losing a huge job sector and capitalism will prevail.
 Name ID Sec Roll

Ishtiaq Ahmed 1521283630 20 2

Umme Habiba Nitol 1912698630 20 29