There is an interesting interview with a Harvard guy named Umair Haque in Business Week, in which he carries on about the "sweatshops" in which iPods are made. He has done some rough math, learned that the Chinese manufacturer (Foxconn I presume) takes 2.7 labor hours to make one at about $1.50 an hour for a total Chinese value add of $4 per iPod. He then multiplies that same 2.7 hours by an American labor cost of $23 an hour for a total, theoretical American value add of $62 per iPod. With these two numbers he waxes about how Apple and their customers should make them here and pay the extra $58 per iPod to get out of the "sweatshops".
I'm not going to get into the whole sweatshop issue – most people who describe places like the Foxconn plant in Longhua as a "sweatshop" have never actually been there, nor have they seen any other Chinese factories. By their standards, every manufacturing plant in China would be classified as a sweatshop. China is a poor place and the people there view a hundred bucks a week as a great deal – and they line up for jobs at Foxconn. That's just the way it is. And his notion that either Apple or their customers would or should lay out an extra $58 for an iPod in order to pay what he terms as the "real human cost" ridiculous.
My focus is on the 2.7 hours and the $58 dollar premium he calculates for the final assembly. This is based on data dug up by three Cal Irvine guys. You can tell the study was performed by an academic gang, rather than people who actually work in manufacturing. The 2.7 hours to make an iPod in an American factory is so far off the common sense chart as to be laughable. I don't know what goes into an iPod, but I have a pretty good idea. If an American factory could not produce 100,000 iPods in a week with 600 people I would be shocked – and that includes everyone from production people to the guy who sweeps the floor at night. That is not 2.7 hours per iPod – that is more like .25 hours per iPod.
Chinese manufacturing is built around and thrives on cheap labor, and the 2.7 hours does not surprise me in the least. With workers so cheap, there is not much premium placed on efficiency and methods, and automation is much tougher to justify. In the USA and Western Europe a completely different dynamic is at work. A productivity differential of a factor of 10 between those places and China is not a stretch – it is typical.
So the $58 premium for American labor is really less than $2 (2.7 hours X $1.50 per hour in China versus .25 hours X $23 per hour in the USA). Then factor in the costs of logistics and the ongoing battle to maintain decent quality from China and making iPods in China, rather than in a lean American factory makes no sense at all.
I have no idea how Apple arrived at the decision to make iPods where they do, and I imagine some of the data cited by the Cal Irvine guys is off (not by much, though), but I do know that any economy they think they are getting from buying into the notion that everything has to come from China or it won't be competitive is just plain wrong. Kevin invented the term "outsourcing lemmings" long ago to describe this sort of follow-the crowd decision making. As innovative as Apple may be with their products, they are dyed in the wool lemmings on the manufacturing side. I can only imagine how lean and effective they could be if they applied some of their incredible creative energy that goes into designing their products to making them