Will Apple Spark a U.S. Manufacturing Renaissance?

Harvard Business Review

Today the only American-made Mac is the kind you buy under Golden Arches and eat. America's other well-known Mac, Apple's Mac computer, is manufactured in China (like all other Apple products). That's about to change. Apple announced last week that it will invest $100 million to make Macs (through third parties) in the U.S. This move makes strategic sense for Apple and is potentially important for the U.S. economy longer term.

It would be easy to dismiss Apple's move as a pure publicity or political play. After all, Apple is often criticized for being the ultimate "designed in America, made in China" company — even though many other companies follow the same strategy. But there are other good reasons for Apple to source some products from the U.S.

Diversify Its Sourcing Footprint

Currently, just about all of the final assembly of Apple's products is performed in China. That leaves Apple vulnerable to a whole host of supply chains risks (e.g., disruptions due to natural events, political events, protectionism, rising wages, etc.). Moving some production out of China is a good way to diversify its sourcing risks. The U.S. is not a bad home for some manufacturing given that America is Apple's largest market. Being geographically close to markets can help responsiveness.

Move Manufacturing Closer to R&D

As Willy Shih and I argue in our new book Producing Prosperity: Why America Needs a Manufacturing Renaissance, when products and process technologies become interdependent, geographic proximity between R&D and manufacturing can be valuable. Everyone recognizes Apple as a product innovator, but what is often less appreciated is that Apple also develops innovative manufacturing processes. Why is that? It's not about cost. It's because Apple's innovative product designs often require innovative process technologies to be manufacturable. By bringing manufacturing back to the U.S. where it does design, Apple will be in a better position to coordinate its product- and process-innovation work.

Good News for the U.S. Economy?

Should Americans care that Apple plans to source a relatively small volume of its products in their country? And does this auger a "return to American manufacturing" that some have touted?

Some estimate that sourcing the Mac computer in the U.S. will create just 200 new jobs in this country. And even if Apple (and other companies such as Lenovo and HP who already source some products from the U.S.) were to expand production dramatically in America, this would likely to create relatively few jobs given the high degree of automation required to be cost competitive in the U.S.

Even so, Americans should still welcome a rebirth of rebirth of electronics production in the U.S. As I noted above, a local production base can facilitate local innovation. Moreover, while automated manufacturing may not create a lot of direct factory-floor jobs, it does create high wage jobs for production engineers, skilled maintenance technicians, and managers.

But can we really expect a rebirth of U.S. electronics manufacturing? Frankly, it is too early to tell. Apple has stated that it intends to invest $100 million in U.S. manufacturing. That's a pretty small amount when compared to Apple's global investments — or compared to, say, Intel's capital investments in the U.S.

As I mentioned, there already is some electronic assembly in America. But much of the supply chain, along with the associated engineering skills, for high-volume consumer electronics gravitated to Asia decades ago. This is a big barrier to a major expansion of U.S. electronics production. America's entire industrial commons associated with electronics manufacturing would need to be rebuilt for a wholesale rebirth of this type of manufacturing to occur in the U.S.

That said, Apple's move is a spark that could help rebuild the electronics industrial commons.

There is some precedent in other industries for this kind of rebirth. Recall that prior to the 1980s, the southern regions of the U.S. were not known for auto or machinery manufacturing. But then companies such as Toyota, Honda, and Nissan began to build auto assembly plants in places like Kentucky, southern Ohio, and Tennessee. Initially, these were derided as superficial efforts to appease increasingly protectionist American policymakers. All the high value components were initially made in Japan and the American assembly plants were limited to assembly.

But a funny thing happened along the way. These companies began to encourage — even require — their components suppliers to locate closer to their plants. They began to train workers. When other foreign auto companies — including BMW, Mercedes, and Volkswagen — decided to locate some production in the U.S., they found it attractive to locate their plants in the South because that's where they could find suppliers. In turn, additional auto suppliers began to move south to serve the burgeoning market.

This industrial commons did not just support the auto industry. It provided fertile ground for companies in other industries that need advanced mechanical manufacturing skills to put plants in the region. These included Boeing, Airbus, and Caterpillar.

Toyota started a cascade. Only time will tell if Apple's move will do the same thing.

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