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I think it’s naive to expect that American companies like Apple that outsource everything but design and software and reap enormous profits are going to be able

I think it’s naive to expect that American companies like Apple that outsource everything but design and software and reap enormous profits are going to be able to do this indefinitely. China is getting better fast at doing these things too and will have tremendous advantages when it owns the entire stack. If American companies want to stay competitive in the long run they’re going to have to break their addiction to the easy profits they’re enjoying now and do the hard work of bringing this manufacturing back on-shore.

zepto 6y ago
It’s going to be a while before China can own either the top (the OS) or the bottom (the silicon) of the stack, but ultimately you are right.
- pixelatedindex 6y ago
  Genuinely curious - why do you say that? It might not be something they can export to other countries, but that’s mostly because of the rap that they have for surveillance and data collection and not because of a lack of resources. For the domestic market I don’t see why they can’t make their own silicon or software. I’d love to hear thoughts on the matter.
  - zepto 6y ago
    It’s not that they can’t. I’m sure they will eventually. It’s that they are very complex iterative processes that take time to organize and are hard to get right. You can’t just quickly ‘own’ either one. Consider how long the iOS and Android of today took to build, or how long it took Apple to get from the A4 to the M1.
bryananderson 6y ago
Why wouldn't they just move production to another, cheaper country besides China? I think you are underestimating how much more expensive an iPhone would be if it was made entirely in the United States: https://fee.org/articles/a-made-in-america-iphone-would-cost-2-000-studies-show/ https://fee.org/articles/a-made-in-america-iphone-would-cost...
- Kranar 6y ago
  The article you linked argues why it wouldn't be possible to move to another country. In fact the article argues heavily that labor costs are not the biggest advantage that China has.
  - totalZero 6y ago
    The article argues why it would be more expensive in the short term. The argument I've seen for bringing production closer to home is that it's going to be painful either way so we ought to rip the bandaid off, because every year that we continue the status quo represents more money and market power amassed by other nations on the back of American demand. There's more to corporate or economic strategy than today's cost of doing business.
    - valuearb 6y ago
      That’s silly, we get as much benefit from free trade as every other country. Let China or India do assembly at wages that would be below minimum wage here, and take those savings to get a bigger piece of the market, sell more iPhones, do more software and hardware design and create more developer jobs.
      - totalZero 6y ago
        > we get as much benefit from free trade as every other country Considering that trade relationships are fundamentally asymmetrical (ie, you wouldn't have them if you were self-sufficient in the market segment being traded), I think this is a naive view of the wealth transfer and externalities associated with international trade.
        valuearb 6y ago
        First, the relationships are voluntary. Second, the relationships are mutually beneficial else one party would end them. Lastly, free trade doesn’t create a wealth transfer, it creates new wealth for both parties. Chinese assembling iPhones lifted a huge number of Chinese laborers out of rural poverty working in much more physically demanding and dangerous jobs at a fraction of the pay. A significant part of Apples market share, market cap, and tens of thousands of US iOS developer jobs are owed to cheaper iPhones enabled by Chinese labor. The only time “wealth transfer” occurs is when free trade breaks down a monopoly. Like if we ended sugar tariffs, the wealth would be transferred from certain politically connected families in Florida, to US consumers and foreign workers.
hyperpallium2 6y ago
Isn't this ordinary commoditization? Provided Apple keeps innovating, they'll keep ahead. They have a head start, and innovatiin is their corporate organizing principle, from hiring to advertizing. They leave commodity profits on the table. The danger is if China has a monopoly on know-how, i.e. if it's not a "commodity". But that doesn't seem to be the case. However, one day, the iphone will be "good enough", and customers won't pay extra for further innovations... and unless other product lines or new ones (glasses? cars? others?) catch fire, Apple will settle down to become like Sony.
- innagadadavida 6y ago
  It is also partly marketing. Apple has a lot of other pieces of the puzzle like privacy and racial equality and other socio-political issues well rounded up. Loyal Apple fans and customers really like to identify with these principles. Apple does this really well and most Chinese companies are transactional in nature and have been adversely affected by many political and humanitarian issues that are part of their ethos.
  - hackissimo123 6y ago
    I find it hard to believe that people are choosing Apple products over competitors because of anything to do with "racial equality". Especially since most of the components are manufactured in China, therefore by buying an Apple product (or basically any other piece of modern consumer electronics), you're helping to fund a racist ethnostate that's currently committing genocide. What has Apple done to promote racial equality beyond the same vague performative gestures as every other major Western corporation?
    - zpeti 6y ago
      Seems like to many people making nice statements about racial equality and donating money to black only initiatives is enough. Working with actual genocidal governments is fine though, I mean it's what you say that matters, not what you do.
    - 6y ago
jariel 6y ago
'Design and Software' ??? Brand, marketing, product strategy, product marketing, industrial design, ui design, millions of lines of code which is all part of design, massive retail distribution chains both direct and indirect, massive loyal userbase, millions of developers, massive supply chain - and the ope rationalizing of all of that. China is not competing very well in many of those things. China's advantages are starting to look like working capital , the factories, the labour, and the local supply chain - which is much more advantageous for lower end products but it's still a price advantage more than anything. I was in the drugstore - there were over 20 different kinds of electric toothbrushes. 20 kinds! I will buy 1 and maybe, maybe another some time in my life. That's a rough business, as is almost everything in hardware. The 'high end stuff' is not necessarily going to be China. It could, but not necessarily.
- cageface 6y ago
  Chinese smartphones are selling extremely well and are currently the top ranked camera phones. The reputation of other Chinese brands is getting better too. Here in Asia I see Chinese branded stuff everywhere. https://www.dxomark.com/rankings/ https://www.dxomark.com/rankings/ I remember back in the day "Made in Taiwan" or "Made in Japan" was considered a joke and mark of cheap products. That changed fast and to assume the same thing won't happen again with China is a mark of Western arrogance IMO.
  - valuearb 6y ago
    Chinese phones sell well because they are cheap. Apple has never had but a fraction of the market but has always made most of the revenues and profits because they dominate high end phones.
    - simonh 6y ago
      For a long time Apple made more than 100% of the profits in the mobile phone handset industry. That may appear to be impossible, but it's because so many of their competitors made losses and so had negative profits.
simonh 6y ago
How is moving manufacturing to the USA going to protect against China developing expertise in design and software? Also the whole made in China panic is overblown. Most of the value in the parts in an iPhone is sourced outside China. CPUs in Taiwan (used to be Texas), flash memory in Korea, Japan and the US, camera module in Japan, Gorilla Glass in Kentucky, Japan and Korea etc, etc. Final assembly is only worth a few bucks per phone. It's fighting over scraps. I just don't see how reversing the relationship - design and software in China, final assembly in the US, is going to benefit the US all that much.
- someperson 6y ago
  If Samsung can manufacture 80% of their smartphones in Vietnam on 300 million smartphones, I can see why Apple couldn't move all their manufacturing to Vietnam and India.
  - simonh 6y ago
    I agree, that makes a lot more sense. Not so sure about India though, that's just to avoid punitive Indian import taxes. It would make little sense for export.
- cageface 6y ago
  It doesn't prevent China from developing expertise. That's inevitable. It prevents the US from falling dramatically behind.
  - simonh 6y ago
    Falling behind on what? Low end assembly line work at the very bottom of the value chain just isn't worth fighting low skilled workers from rural China or Vietnam over. The chances are all of that will be done by robots soon anyway, which is a whole new ball game.
    - 10000truths 6y ago
      It’s “low end” right up until you have no access to it. When it comes to national security, you don’t want to be in a position where the majority of your manufacturing output is at the mercy of a foreign country’s blessing. Your R&D is worth nothing if you can’t actually build.

zepto 6y ago

It’s going to be a while before China can own either the top (the OS) or the bottom (the silicon) of the stack, but ultimately you are right.

pixelatedindex 6y ago
Genuinely curious - why do you say that? It might not be something they can export to other countries, but that’s mostly because of the rap that they have for surveillance and data collection and not because of a lack of resources. For the domestic market I don’t see why they can’t make their own silicon or software. I’d love to hear thoughts on the matter.
- zepto 6y ago
  It’s not that they can’t. I’m sure they will eventually. It’s that they are very complex iterative processes that take time to organize and are hard to get right. You can’t just quickly ‘own’ either one. Consider how long the iOS and Android of today took to build, or how long it took Apple to get from the A4 to the M1.

bryananderson 6y ago

Why wouldn't they just move production to another, cheaper country besides China? I think you are underestimating how much more expensive an iPhone would be if it was made entirely in the United States: https://fee.org/articles/a-made-in-america-iphone-would-cost-2-000-studies-show/ https://fee.org/articles/a-made-in-america-iphone-would-cost...

Kranar 6y ago
The article you linked argues why it wouldn't be possible to move to another country. In fact the article argues heavily that labor costs are not the biggest advantage that China has.
- totalZero 6y ago
  The article argues why it would be more expensive in the short term. The argument I've seen for bringing production closer to home is that it's going to be painful either way so we ought to rip the bandaid off, because every year that we continue the status quo represents more money and market power amassed by other nations on the back of American demand. There's more to corporate or economic strategy than today's cost of doing business.
  - valuearb 6y ago
    That’s silly, we get as much benefit from free trade as every other country. Let China or India do assembly at wages that would be below minimum wage here, and take those savings to get a bigger piece of the market, sell more iPhones, do more software and hardware design and create more developer jobs.
    - totalZero 6y ago
      > we get as much benefit from free trade as every other country Considering that trade relationships are fundamentally asymmetrical (ie, you wouldn't have them if you were self-sufficient in the market segment being traded), I think this is a naive view of the wealth transfer and externalities associated with international trade.
      - valuearb 6y ago
        First, the relationships are voluntary. Second, the relationships are mutually beneficial else one party would end them. Lastly, free trade doesn’t create a wealth transfer, it creates new wealth for both parties. Chinese assembling iPhones lifted a huge number of Chinese laborers out of rural poverty working in much more physically demanding and dangerous jobs at a fraction of the pay. A significant part of Apples market share, market cap, and tens of thousands of US iOS developer jobs are owed to cheaper iPhones enabled by Chinese labor. The only time “wealth transfer” occurs is when free trade breaks down a monopoly. Like if we ended sugar tariffs, the wealth would be transferred from certain politically connected families in Florida, to US consumers and foreign workers.

hyperpallium2 6y ago

Isn't this ordinary commoditization? Provided Apple keeps innovating, they'll keep ahead. They have a head start, and innovatiin is their corporate organizing principle, from hiring to advertizing. They leave commodity profits on the table. The danger is if China has a monopoly on know-how, i.e. if it's not a "commodity". But that doesn't seem to be the case. However, one day, the iphone will be "good enough", and customers won't pay extra for further innovations... and unless other product lines or new ones (glasses? cars? others?) catch fire, Apple will settle down to become like Sony.

innagadadavida 6y ago
It is also partly marketing. Apple has a lot of other pieces of the puzzle like privacy and racial equality and other socio-political issues well rounded up. Loyal Apple fans and customers really like to identify with these principles. Apple does this really well and most Chinese companies are transactional in nature and have been adversely affected by many political and humanitarian issues that are part of their ethos.
- hackissimo123 6y ago
  I find it hard to believe that people are choosing Apple products over competitors because of anything to do with "racial equality". Especially since most of the components are manufactured in China, therefore by buying an Apple product (or basically any other piece of modern consumer electronics), you're helping to fund a racist ethnostate that's currently committing genocide. What has Apple done to promote racial equality beyond the same vague performative gestures as every other major Western corporation?
  - zpeti 6y ago
    Seems like to many people making nice statements about racial equality and donating money to black only initiatives is enough. Working with actual genocidal governments is fine though, I mean it's what you say that matters, not what you do.
  - 6y ago

jariel 6y ago

'Design and Software' ??? Brand, marketing, product strategy, product marketing, industrial design, ui design, millions of lines of code which is all part of design, massive retail distribution chains both direct and indirect, massive loyal userbase, millions of developers, massive supply chain - and the ope rationalizing of all of that. China is not competing very well in many of those things. China's advantages are starting to look like working capital , the factories, the labour, and the local supply chain - which is much more advantageous for lower end products but it's still a price advantage more than anything. I was in the drugstore - there were over 20 different kinds of electric toothbrushes. 20 kinds! I will buy 1 and maybe, maybe another some time in my life. That's a rough business, as is almost everything in hardware. The 'high end stuff' is not necessarily going to be China. It could, but not necessarily.

cageface 6y ago
Chinese smartphones are selling extremely well and are currently the top ranked camera phones. The reputation of other Chinese brands is getting better too. Here in Asia I see Chinese branded stuff everywhere. https://www.dxomark.com/rankings/ https://www.dxomark.com/rankings/ I remember back in the day "Made in Taiwan" or "Made in Japan" was considered a joke and mark of cheap products. That changed fast and to assume the same thing won't happen again with China is a mark of Western arrogance IMO.
- valuearb 6y ago
  Chinese phones sell well because they are cheap. Apple has never had but a fraction of the market but has always made most of the revenues and profits because they dominate high end phones.
  - simonh 6y ago
    For a long time Apple made more than 100% of the profits in the mobile phone handset industry. That may appear to be impossible, but it's because so many of their competitors made losses and so had negative profits.

simonh 6y ago

How is moving manufacturing to the USA going to protect against China developing expertise in design and software? Also the whole made in China panic is overblown. Most of the value in the parts in an iPhone is sourced outside China. CPUs in Taiwan (used to be Texas), flash memory in Korea, Japan and the US, camera module in Japan, Gorilla Glass in Kentucky, Japan and Korea etc, etc. Final assembly is only worth a few bucks per phone. It's fighting over scraps. I just don't see how reversing the relationship - design and software in China, final assembly in the US, is going to benefit the US all that much.

someperson 6y ago
If Samsung can manufacture 80% of their smartphones in Vietnam on 300 million smartphones, I can see why Apple couldn't move all their manufacturing to Vietnam and India.
- simonh 6y ago
  I agree, that makes a lot more sense. Not so sure about India though, that's just to avoid punitive Indian import taxes. It would make little sense for export.
cageface 6y ago
It doesn't prevent China from developing expertise. That's inevitable. It prevents the US from falling dramatically behind.
- simonh 6y ago
  Falling behind on what? Low end assembly line work at the very bottom of the value chain just isn't worth fighting low skilled workers from rural China or Vietnam over. The chances are all of that will be done by robots soon anyway, which is a whole new ball game.
  - 10000truths 6y ago
    It’s “low end” right up until you have no access to it. When it comes to national security, you don’t want to be in a position where the majority of your manufacturing output is at the mercy of a foreign country’s blessing. Your R&D is worth nothing if you can’t actually build.