Apple shareholders may not be thrilled, but Apple's decision to make some Mac computers in the U.S. will bring more jobs, training to domestic workers.
"One of the absurdities of Apple's model in the past is that it uses extraordinary control over its supply chain and input costs to generate piles of cash which just sit idly on its balance sheet," he said. "It isn't used to hire U.S. workers, nor is it distributed to shareholders as dividends. If Apple sits on less cash and employs more U.S. workers, then that has to be better for the U.S. economy. Are the shareholders interested in that? Probably not, because theirs is a fairly instrumental relation to the firm. But even Apple's shareholders should see the reputational damage related to its Chinese sub-assemblers, and so might look favorably on a strategy to move some assembly back to the U.S. as a means of allaying these fears and adding value to the product. This might also pressure other competitors to follow suit, which would again mark Apple out as a leader not a follower."
Janice Hammond, Jesse Philips professor of manufacturing at Harvard Business School, said in a phone interview that while it's not clear how much manufacturing volume will return to the U.S. in a single Mac product line, what excites her about Apple's decision is that there seems to be a growing understanding of how to make decisions about what do and not do offshore.
For a long time, she said, companies have been primarily focused on taking advantage of lower labor costs offshore, with a few also considering the benefits of work rule differences in other countries. "One of the very interesting things about people bringing manufacturing back into this country is the speed to market and flexibility they will have compared to importing goods from some distant place like China," she said.
"I don't think the U.S. can compete with China on labor costs and I don't think the U.S. wants to compete with China on labor costs," Hammond said. "Then the question becomes, 'What is the competitive advantage of sourcing domestically?' ... The advantage of manufacturing domestically is that as demand swings, one can quickly adapt."
Hammond pointed to the series of market disrupting events over the past few years, such as the 2011 tsunami and earthquake in Japan and Hurricane Sandy in 2012. "The further your manufacturing is from your market, the more those disruptions will cost you," she said.
It's also advantageous to have your manufacturing close to your research and development facilities, Hammond said.
Hammond stressed that the ability to react quickly to market changes is particularly important for goods that are fashion-oriented, which she argues electronics have become, in the sense that consumer electronics are produced with short lead times and demand prediction is difficult.
Domestic manufacturing also has benefits in terms of intellectual property protection, transportation lead times and tariffs, Hammond observed. And she noted that the "news coming out of Foxconn for the last few years has been problematic" for Apple's image. So domestic manufacturing may help Apple from a marketing perspective, as well as logistically.
Hammond said she recently visited New Balance's manufacturing facility in the U.S., noting that 25% of the shoes that the privately held company sells in the U.S. are made here. The company's U.S. workers are several times more productive than the company's workers overseas, she said, and they've developed some very flexible manufacturing processes to allow them to meet demand for specific sizes.
"You can be very agile if you have domestic manufacturing and if you structure and manage it correctly," she said.
Hammond said that while it may be welcomed when companies act altruistically, public companies can't be expected to accept lower profits to create domestic jobs. "What I would like to do is get companies to really think about the advantages of domestic manufacturing," she said. "So it's not simply altruism but it makes good business sense."
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