632 Part 7 Integrative Cases

How the iPhone Is Made: Apple’s Global Production System

In its early days, Apple usually didn’t look beyond its own easily. This last-minute change in the design of the iPhone
backyard to manufacture its devices. A few years after put Apple’s market introduction date at risk. Apple had
Apple started making its Macintosh computer back in selected Corning to manufacture large panes of strength-
1983, Steve Jobs bragged that it was “a machine that was ened glass, but finding a manufacturer that could cut those
made in America.” As late as the early 2000s, Apple still panes into millions of iPhone screens wasn’t easy. Then, a
manufactured many of its computers at the company’s bid arrived from a Chinese factory. When the Apple team
iMac plant in Elk Grove, California. Jobs often said that visited the factory, they found that the plant’s owners were
he was as proud of the Apple’s manufacturing plants as already constructing a new wing to cut the glass and were
he was of the devices themselves. installing equipment. “This is in case you give us the con-
By 2004, however, Apple had largely turned to foreign tract,” the manager said. The plant also had a warehouse
manufacturing. The shift to offshore production and full of glass samples for Apple, and a team of engineers
assembly reached its peak with the iconic iPhone, which available to work with Apple. They had built onsite dormi-
Apple first introduced in 2007. The iPhone contains hun- tories so the factory could run three shifts seven days a
dreds of parts, an estimated 90 percent of which are man- week to meet Apple’s demanding production schedule. The
ufactured abroad. Advanced semiconductors come from Chinese company got the bid.
Germany and Taiwan, memory from Korea and Japan, Another critical advantage of China for Apple was
display panels and circuitry from Korea and Taiwan, rare that it was much easier to hire engineers there. Apple cal-
metals from Africa and Asia, and the gyroscope used for culated that about 8,700 industrial engineers were needed
tracking the iPhone’s orientation comes from Switzerland. to oversee and guide the 200,000 assembly-line workers
Apple’s major subcontractor, the Taiwanese multina- involved in manufacturing the original iPhone. The com-
tional firm, Foxconn, assembles half of all the iPhones pany had estimated it would take as long as nine months
sold in the world today at a huge factory in China. to find that many engineers in the United States. In
Foxconn also has factories devoted to iPhone assembly at China, it took 15 days.
several other locations, including Brazil and India. Also important is the clustering together of factories in
Another Taiwanese-based company, Pegatron, also assem- China. Many of the factories providing components for
bles iPhones for Apple at a factory in China. the iPhone are located close to Foxconn’s assembly plant.
Apple still employs some 80,000 people in the United As one executive noted, “The entire supply chain is in
States, and it has kept important activities at home, China. You need a thousand rubber gaskets? That’s the
including product design, software engineering, and mar- factory next door. You need a million screws? That fac-
keting. Furthermore, Apple claims that its business sup- tory is a block away. You need a screw made a little bit
ports another 450,000 jobs at U.S.-based suppliers. For different? That will take three hours.”
example, the glass for the iPhone is manufactured at All this being said, there are drawbacks to outsourcing
Corning’s U.S. plants in Kentucky, Analog Devices in to China. Several of Apple’s subcontractors have been
Massachusetts produces chips that enable the iPhone’s targeted for their poor working conditions. Criticisms
touch display, and a Texas Instruments plant in Maine include low pay of line workers, long hours, mandatory
makes electronic components that go in the iPhone. overtime for little or no additional pay, and poor safety
However, over 1.5 million people are involved in the engi- records. Some former Apple executives say there is an
neering, building, and final assembly of its products out- unresolved tension within the company: Executives want
side of the United States, many of them working at to improve working conditions within the factories of sub-
subcontractors like Foxconn. contractors, such as Foxconn, but that dedication falters
When explaining its decision to assemble the iPhone in when it conflicts with crucial supplier relationships or
China, Apple cites a number of factors. While it is true that the fast delivery of new products. Apple’s outsourcing
labor costs are lower in China, Apple executives point out decisions were criticized by President Trump, who argued
that labor costs only account for a small portion of the total that the company is guilty of moving U.S. jobs overseas.
value of its products and are not the main driver of location While Apple disagreed with this assessment, it responded
decisions. Far more important, according to Apple, is the by increasing its investment in U.S. facilities. In 2018, for
ability of its Chinese subcontractors to respond very quickly example, the company announced it would invest $30 bil-
to requests from Apple to scale production up and down. In lion over five years to create 20,000 new Apple jobs in the
a famous illustration of this capability, back in 2007 Steve United States. Most of these jobs, however, are expected
Jobs demanded that a glass screen replaces the plastic to be in software development and data center opera-
screen on his prototype iPhone. Jobs didn’t like the look tions, not manufacturing and assembly. Finally, in early
and feel of plastic screens, which at the time were standard 2020 a new risk associated with a globally dispersed sup-
in the industry, nor did he like the way they scratched ply chain emerged when a highly infections novel
 Integrative Cases 633

coronavirus, COVID-19, emerged in China, forcing a tem- particularly China? What are the potential costs and
porary shutdown of many suppliers, limiting production risks to Apple?
of the iPhone in China and threatening to depress the 2. In addition to Apple, who else benefits from Apple’s
company’s global revenues and profits. decision to outsource assembly to China? Who are
the potential losers here?
Sources 3. What are the potential ethical problems associated
with outsourcing assembly jobs to Foxconn in
Sam Costello, “Where Is the iPhone Made?” Lifewire, July 14,
China? How might Apple deal with these?
2018; David Barboza, “How China Built iPhone City with
Billions in Perks for Apple’s Partner,” The New York Times, 4. On balance, do you think that the kind of outsourc-
December 29, 2016; Gu Huini, “Human Costs Are Built into ing undertaken by Apple is a good thing or a bad
iPad in China,” The New York Times, January 26, 2012; Chuck thing for the American economy? Explain your
Jones, “Apple’s $350 Billion US Contribution Was Already on reasoning.
the Cards,” Forbes, January 19, 2018. 5. How can a company like Apple, with a global supply
chain, hedge against the risks of significant supply
Case Discussion Questions chain disruption due to the emergence of a new
virus such as the SARS virus that appeared in 2003
1. What are the benefits to Apple of outsourcing the and the COVID-19 virus that appeared in 2020?
assembly of the iPhone to foreign countries, and