Apple's outsourcing strategy and manufacturing in China

Apple -- Outsourcing manufacturing operations

Apple Inc. is a very powerful American company that has been outsourcing its manufacturing in a very successful manner and for a very long time as, majority of its manufacturing takes place in China.

It has been since the 1970s that the concept of outsourcing is being used however; it is only in the recent years that it has become very popular as big companies such as Apple have started making use of it. Today more and more companies are opting to outsource a lot of their projects and departments whether on a national level or on an international level. This is being done by the companies in order to improve their efficiencies and reduce their production costs.

Advantages

There are a lot of advantages associated with outsourcing such as, low production costs, faster delivery, more products in less time, increased cash flow, quick and improved return on investment etc.

Disadvantages

However along with all these advantages mentioned above there are also some disadvantages associated with outsourcing such as the increased costs of shipping, warehousing, inventory, transportation and materials. Also, at times the companies focus so much on reducing the production costs that they ignore other tangible and intangible costs.

Conclusion

Outsourcing definitely does have its benefits and if it's used in a proper manner after conducting detailed research on manufacturing country and facility it can help the companies in not only reducing their production costs but also increasing their production, generating more revenue, increasing their cash flow, getting more and faster return on investments and improving their technology.

Paper Draft

Many consider outsourcing to be a new concept in the business world however; the truth is that it has been around since 1970s. Today more and more companies are going for outsourcing not only to increase their efficiency but to also reduce their costs. Today, it is very common for the companies to outsource their payroll, HR and accounts.

Apple Inc. is one of the most successful and powerful companies in the U.S. with its products being used all over the world. In the beginning Apple did manufacture its products in U.S. however; later on they shifted their manufacturing to China in order to reduce their production costs. Today, the concept of Apple products being manufactured outside of U.S. has become so widely known that its executives feel that the people might not be able to accept "Made in U.S." On the Apple products as readily (Corbett, 2004).

Given below are some of the reasons why Apple outsources its production:

Cheaper manufacturing costs

Faster production

Low probability of risks

Faster delivery to the market

Better cash flow

Better investment returns

There are a number of reasons why Apple chose China for outsourcing its products' manufacturing, some of them are:

China has a labor force that is twice as large as that of Japan, U.S. Or EU.

China doesn't have a lot of health and safety laws and regulations for its labor force and because of this the manufacturing costs are very low there

It is very easy to ignore the Labor laws in China such as the minimum wage, or regulations about over-time wages etc.

While some of the above mentioned reasons are unethical but there is no doubt that they play a huge part in the companies deciding to outsource their manufacturing to China.

However, there are also some disadvantages associated with outsourcing, such as:

There are no proper laws to protect ones intellectual property in China which makes it quite easy for anyone to misuse it.

Usually the company's focus so much of their attention on the reduced manufacturing costs that they ignore the other tangible and intangible costs.

At times outsourcing is only looked at as a means to reduce the cost of every item used in the production process which can make it very hard to calculate the overall cost of production.

Ocean and air shipping costs can also make the company incur a lot of costs as, there are many others things associated with the shipping such as; duty charges, warehouse costs, inventory costs, insurance, travelling costs when the products are being delivered to the customers etc.

Material costs are also often ignored by the companies as; mostly they are the same all over the world. However, there are some materials that might have to be exported as they aren't available in the offshore country such as the U.S. grade plastic etc.

Quality is another issue that needs to be monitored when production is being outsourced. In the long run this monitoring can prove to be very difficult as in the case of China where the number of available labor force is very large but a lot of this labor is unskilled and therefore, the quality of one unit can turn out to be very different from another. There is another problem with the offshore production that the production process can be changed by the supplier without letting the corporation know. This can greatly alter the end product and its quality. Hence, in case of offshore manufacturing it is very important to ensure that the production is being monitored by a company employee at all times.

Outsourcing

Definition and Discussions

One of the basic myths regarding outsourcing is that it is new, when in actuality it started back in the 1970s. Outsourcing basically started when the companies started to hire other firms to do some of their tasks in order to increase their efficiency. Today this trend has increased to such an extent that more and more companies are outsourcing their payroll, accounts and HR and it is being assumed that in the future more work will be done through out-sourcing than in-sourcing (Corbett, 2004).

Corbett (2004) further states that, "today outsourcing is taking place in the firms not just vertically but horizontally as well in the business process outsourcing or BPO. Today outsourcing isn't being done just to reduce costs but also to gain strategic edge, come up with new products faster etc."

Outsourcing to companies abroad was made possible due to technology but it was the media that made outsourcing a common word for the public. The competitors of outsourcing firms have often criticized the practice as; it moves the jobs abroad however, what they fail to mention is that customers can buy cheaper products and the benefits made by the stockholders as outsourcing increases the values of the companies (Corbett, 2004).

Apple

1.

Company description

Apple Inc. comes under few of the top most companies of U.S. Its products are being used by people all around the world.

2.

Apple outsourcing

It was revealed in a New York Times article that some of the manufacturing of Apple is outsourced. It was further mentioned that some time back Apple proudly told that all its products are made in U.S. But now this isn't the scene as almost all of its products are made abroad.

3.

Why Apple outsources (possible reasons)

Mentioned below are the reasons told by Meeker and Mortensen for Apple's outsourcing:

Lessen risk

Increase quality

Faster time to market

Get new ideas/thinking

Speedy development of capacity

Emphasis on core competencies

Development with less investment

Permeate the company with latest technology

Leverage the capabilities and assets of the company

Better return on investment

Improved cash flow

Lesser cost

4.

Why choose China (Things to consider in Outsourcing)

Factors mentioned below have to be kept in mind when thinking of outsourcing as told by Meeker and Mortensen.

Wages

The wages of the labor force in China is the most important factor that needs to be considered by the Western companies as; its labor force is twice as large as EU, Japan or U.S.

Working Conditions

The manufacturing costs in China are very low due to the low standards of health and safety regulation of the workers, the factors which usually increase the manufacturing costs.

Legal

The Industrial Espionage Laws in China give the authorities a lot of choice in deciding whom to blame for espionage. Therefore, violating these laws in quite possible if expert advice isn't taken and government isn't made an ally.

Compliance with Labor Laws

The Labor laws such as the minimum wage laws or the over-time pay laws are often ignored by the companies in China and the U.S. manufacturers can be legally blamed for this abuse of laws particularly in the supply chain.

Enforceability of Contracts

A lot of the parts of the U.S. contracts can't be enforced in China and it is very important to have the contracts written in Chinese as, it is the Chinese Contract that controls the relationship. However, translating these contracts into Chinese is difficult and even if it is written in a proper manner still the enforcement of these contracts can turn out to be an issue.

Protection of Intellectual Property

Intellectual property's protection is almost non-extent in Asia. Although the WTO has been joined by China and it has agreed to follow the legal world organizational rules still a lot of laws are violated and because of this the companies usually don't manufacture their products in Asian region.

5.

Ocean Shipping Cost

Other than the production cost one of the biggest expenses is the shipping to and from Asia. Some of the others costs associated with shipping are: duty, warehouse costs, cost of inventory during transit, travelling and distribution costs to the customers located in U.S. etc.

Air Shipping Cost

Products that are shipped by air cost more but the shipping time is less. However, the large packages can be very expensive to ship by air due to their size.

Material Costs

Generally the material costs aren't very different in various countries however, some materials have to be exported as they are not available in the offshore countries such as U.S. grades plastic and this can increase the cost of material being used.