The business has realised from time to time, that if the needed expertise may not exist in their stable of in-house professional the solution would be outsourcing. Is it the expertise or the cost?Outsourcing for expertise may be true in the field of IT and software development. But, definitely businesses and industries have been outsourcing to manage their cost. Apple fan followers suffered a blow a couple of weeks ago. All of those beautiful products, it turns out, are the product of an industrial complex that is nothing if not one step removed from slave labor. But of course there is nothing new here. Walmart has long prospered as a company that found ways to drive down the cost of stuff that Americans want. Asia and China have long been the countries where companies shift to drive their cost down.
While Apple users have been beating their breasts over the revelations of labor conditions and suicides that sullied their glass screens, the truth is that Foxconn is just the most recent incarnation of outsourced manufacturing plants -- textiles and Nike shoes come to mind - where working conditions are below American standards.
The irony of the Apple story is that the Chinese labor content may well not be the cost driver that we presume it to be. As in many other industries, the costs of what is in the box can be a relatively small share of total costs, when product development, marketing, packaging and profits are taken into account. This, of course, is why China is not particularly happy with their role in the Apple supply chain. When the profits of Apple products are divided up, far more of it flows to Cupertino than to Chengdu. And that is the reality of modern manufacturing. Based on National Science Foundation data on the value chain of the iPad, for example, final assembly in
China captures only $8 of the $424 wholesale price. The U.S. captures $150 for product design and marketing, as well as $12 for manufactured components, while other nations, including Japan, Korea and the Taiwan, capture $76 for other manufactured components.
The question is, can any factory deliver as good as Foxcon did for them ?For the given profit Margin.