Apple... INsourcing

Apple is such an iconic American brand that many Apple evangelists feel hurt that the company outsources so much of its maufacturing overseas. People are more emotionally attached to Apple than to most brands-- and want it to be all-American... or at least, more American. And that may be happening. According to CEO Tim Cook, Apple is planning to bring back some of its production to the U.S. from China next year. In fact, some of the newest iMacs no longer carry the embarrassing "designed in California, assembled in China" label.

Looks like Apple is sick of being the face of outsourcing. America's most valuable company is bringing production of one of its Mac lines to the US, CEO Tim Cook says in a pair of interviews out today. "We've been working for years on doing more and more in the United States," Cook tells Brian Williams at NBC, pointing out that the iPhone's "engine" and screen glass are already produced domestically. "Next year, we will do one of our existing Mac lines in the United States." (No word on which one, or where said manufacturing will happen.)

"The consumer electronics world was really never here," he adds. "So it's not a matter of bringing it back, it's a matter of starting it here." In a Bloomberg interview also released today, he reveals that the company will do more than "just assembly" in the US. "We wanted to do something more substantial. So we'll literally invest over $100 million." But Cook also sounded committed to Foxconn, boasting of all the work Apple was doing to improve conditions there, including educating workers about their rights.

Cook, who estimates that Apple has created more than 600,000 new jobs since 1980, isn't making this move just because Apple is embarrassed over the labor situation at Foxconn or to do something that feels good for American Apple enthusiasts. As Gary Marshall at TechRadar explained, Apple isn't taking this step to show what patriots they are. "It's doing it out of self-interest. Outsourcing just isn't as attractive as it used to be.

Apple isn't the only firm bringing assembly work back home: The Atlantic describes how General Electric decided to assemble water heaters in the US instead of outsourcing, enabling it to make the same units more quickly, to higher standards, for less money than if it outsourced the jobs, and other firms are following suit.

The phenomenon has been dubbed "insourcing."

Firms are insourcing for several reasons. Fuel prices are soaring, making shipping more expensive, while in the US a natural gas boom means energy costs are falling.

US workforces are more productive and less unionised than they used to be, while Asian workforces are-- quite rightly-- demanding better pay and conditions. It makes for great PR, especially when people are experiencing economic hard times. And it also stops your suppliers from nicking all your best ideas.

As the always-perceptive Horace Dediu writes on Asymco.com, "An insidious problem emerges when outsourcing: suppliers tend to become competitors. It happened in the PC industry with Acer vs. Dell. But it's also happening to Apple."

As he points out, it's interesting how Apple's key supplier, Samsung, managed to go from "near zero market share in smartphones to being the largest vendor in two years, a feat that Apple itself could not accomplish."

Apple isn't cutting out subcontractors and setting up its own enormous Mac factories yet-- Tim Cook says that "this doesn't mean that Apple will do it ourselves, but we'll be working with people, and we'll be investing our money"-- but it's clearly heading down that road, and that sounds like good news to me.

Irrespective of Apple's reasons, the consequences of insourcing are positive: as I wrote earlier this year about Apple's A5 processor being made in Texas, "Samsung's A5 processor plant means that 1,100 Texans are taking home paycheques, paying Texan taxes and patronising Texan businesses."

Scott Paul, Executive Director of the Alliance for American Manufacturing, was even more happier-- if acutiously so-- that the garden variety Apple fan. "We’re very pleased to learn that Apple is among the growing list of major manufacturers that see the United States as an attractive location for manufacturing. We’re also pleased that Apple will be doing more than simply 'turning the final screws' on its products in the U.S., and is committing to use some local suppliers. But if Apple wants to avoid being labeled a 'red, white, and blue-washer,' it must show that this one line of computer manufacturing is part of a larger trend, and not an outlier. Apple is committing about $100 million to production in the U.S. next year, a small fraction of its revenues and market valuation. It can do better, but this is an important step in the right direction. "The 'Made in America' label is a valuable commodity, and we’re happy Apple has discovered this."