With the launch of the “new” iPad, read “3rd generation,” just hours away, there has been renewed interest recently in the costs, labor forces, and ethical issues surrounding the production of Apple’s devices. In fact, there is a movement organizing at Change.org that will protest the launch of the iPad at many Apple locations tomorrow, citing ethics. This just a day after Apple’s stock price hit $600 for the first time, just a month after hitting $500, and Apple’s explosive growth continues.
Many of these groups are insisting on an “ethical” iPad (or iPhone), manufactured under a much different labor environment, perhaps even “Made in the USA.”
But what would such an iPhone or iPad, made in the USA, cost us? And would we even want that?
It’s a hard question to answer, because it involves so many details and secrets that no one but Apple has. But there have been many analyses of what some believe it currently costs Apple to make an iPhone. Most recently Horace Dediu, a former Nokia executive and current Apple and mobile analyst, speculated at the costs associated with labor and manufacturing an iPhone, deducing more from details gleaned from a news special aired on Nightline a few weeks ago about Apple and their Chinese suppliers.
Horace figures that the cost of labor in manufacturing an iPhone falls somewhere between $12.50 and $30 per device. That’s somewhere between 7 and 17 hours of Chinese hand labor, divided between 141 operations of construction.
If it takes between 7-17 hours of hand labor to put together an iPhone, then we could figure that similar labor in the USA, under minimum wage of $7.25/hour, would run between $50.75 and $123.25 per unit. That’s an increase of labor cost between 400-500%, or a difference of $36-88.
While that might not seem to make much of a difference at the sales counter, consider that this goes into cost of goods of the product. Everything else being equal in the production of the phone, in order for Apple to maintain their estimated 55% profit margin on the product, they would need to sell each phone for $100-200 more in order to account for that labor difference. Seemingly little differences in cost end up making large differences in final sales price.
And this doesn’t take into account the gaping chasm of tooling cost between China and the USA. In my experience it is often 10 times as expensive to produce a steel mold in the USA versus China.
Would customers be willing to front $100-200 more for an iPhone? I doubt it. Sure, there may be a few that would empty the bank for Apple, and others would be patriotic about the “Made in USA” emblem, but considering that most people are buying the iPhone for a total of $200 with carrier contract and subsidy, it could very easily double that price at the cash register were it manufactured in the USA. I don’t think the carriers would want to see a penny more on their plate either. Again, that’s just taking into account labor force wage differences.
But wouldn’t the work conditions be much better for the laborers in the USA? Wouldn’t it bring jobs back to the states? I tend to agree with Seth Godin on this one. In his recent book Stop Stealing Dreams he states that a race to the bottom shouldn’t be our goal:
Some people argue that we ought to become the cheaper, easier country for sourcing cheap, compliant workers who do what they’re told. Even if we could win that race, we’d lose. The bottom is not a good place to be, even if you’re capable of getting there.