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How China Built ‘iPhone City’ With Billions in Perks for Apple’s Partner
David Barboza of NYT describes the hidden subsidies China gives to Foxconn for its plant in Zhengzhou, in a poor region of China. The factory there makes about half a million iPhones a day. These subsidies include incentive packages, infrastructure building, local government help of about $1.5 billion. As a result Apple has high margins. For a 32 gigabyte iPhone 7 that costs $400 to make, the retail price is about $649 in the U.S.
The hidden subsidies is why Apple can maintain dominance as profits are reinvested. And the result is that with only 12% of the smartphone market Apple can take in 90% of the profit, according to Strategy Analytics. Barboza looks back at Apple before co-founder Steve Jobs left in 1985 as focussing on manufacturing at plants in Colorado and California. By 2001 with iPod sales soaring the move to China under Cook, who previously worked for Compaq, was underway. With the introduction of the iPhone in 2007, the move to China for manufacturing accelerated. The reason: only China offered the kind of subsidies, the speed of approval and building of infrastructure facilities, the local government support, the hundreds of thousands of workers, and the best tooling engineers, to produce in huge volumes with speed, and maintaining quality levels. Earlier plants including one in Colorado Springs that this Lyrarc editor was invited to visit just prior to Jobs rejoining Apple had many quality problems, so much so that Apple had a large part of the manufactured personal computers set aside for rework. The quality levels were dismal, defects were unbelievably high. This is the Apple manufacturing process and plant that Jobs must have seen when he returned, and which he hired Cook to fix. Not only were costs higher in the U.S., (subsidies in China came later) when Jobs looked at the manufacturing quality and the inability to get the quality he needed from American workers and engineers at that time in the 1990's, only then did he turn to China- and the more he saw what was possible to accomplish there he sensed an unusual opportunity to finally put the ghosts of memories from competition with Microsoft at rest, and to surpass everything that had been done in Silicon Valley. The result one of the most ingenious and large manufacturing networks in the world, huge profits for an American company, except for one thing- it would not do much for American workers.
Apple iPhone manufacturing in China, and the U.S. trade deficit
07/01/2010
How much of the iPhone is manufactured in China? 3.6% by China's Hon Hai, but this does not account for South Korean and Japanese suppliers using manufacturing bases in China. German suppliers also have Chinese factories. Production costs at Hon Hai itself are rock bottom, as a result the other parts would be too expensive if not manufactured in China. Reliable statistics would include the value of all suppliers who build i-phone parts in China and take into account the impact on the US of manufacturing jobs that would otherwise be available in the US.
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Foxconn
06/03/2010
Chinese company making electronics and computer products for companies in the USA like Apple and HP.
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Barboza's profile of Yuan Yandong, a worker at a Foxconn factory in China- changing working conditions and aspirations of China's young migrant workers in 2010-2014
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Andy Grove and the scaling up at home that American companies need to do.
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Andy Grove brushes off talk of sending technologies and jobs much needed at home to China, with the talk he hears of "a China strategy." He doesn't see how an America with high paying jobs and mass of unemployed could work. He says American companies have failed to scale up, the way Intel did in the seventies. For every Apple employee there are 10 employees in China working on Mac's, Iphones, and Ipads. The idea of manufacturing as not important is misguided and he would like to see America rebuild its industrial base.
Grouped Articles
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Apple iPhone in China
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Apple and working conditions at factories of suppliers in China 2010-2014
01/15/2009
Conditions at Foxconn factories in China. Foxconn is a key supplier for Apple products.
Grouped Articles
China Factories Try Karaoke, Speed Dating to Keep Workers
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Apparel Retailers Confront Tough Options
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The Rise of a Chinese Worker's Movement
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Terry Gou, CEO of Foxconn- his role in the acquisition of Sharp Corp.
03/31/2016
Grouped Articles
Tracking Foxconn Chief’s Rise From ‘Dirt City’ to iPhone King
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Sharp Gets a Management Shakeup Ahead of Foxconn Takeover
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The New York Times 12/29/2016
Foxconn strategies
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Foxconn (Hon Hai) and labor unrest- 2011-2013
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Hon Hai's labor force
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This research in the Economist on the world economy shows the effects of technology are benefitting fewer people, leaving less skilled workers poorer than before, and creating large income gaps, more inequality. How to address these problems are a challenge for just and effective governance. Technology even at Hon Hai in China is shifting work to robots, and the question is how the millions of people in India can find jobs when technology can enable manufacturing with fewer people.
Grouped Articles
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Bad Stock-Market Timing Fueled Wealth Disparity
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Hon Hai strategies
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Grouped Articles
Hon Hai Broaches Raising Prices
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Hon Hai to Boost China Work Force to One Million This Year
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iPhone Maker Hon Hai Shows Slower Earnings Growth
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Hon Hai to Add Robotics in China
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New York Times 01/12/2012
The San Francisco region and the destruction of Jobs in America
12/09/2020
As far back as 2008 Intel's Andy Grove a patriotic founder of technology business in northern California saw the danger in the San Francisco region based Silicon Valley taking a disproportionate amount of America's resources in capital and technology and in return not creating jobs for the American people.
Linked Articles
How China Built ‘iPhone City’ With Billions in Perks for Apple’s Partner
The New York Times 12/29/2016
Andy Grove: How America Can Create Jobs
BusinessWeek 07/01/2010
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