Hacker News Reader

Comment by cageface | Hacker News Reader

I think it’s naive to expect that American companies like Apple that outsource everything but design and software and reap enormous profits are going to be able to do this indefinitely. China is getting better fast at doing these things too and will have tremendous advantages when it owns the entire stack. If American companies want to stay competitive in the long run they’re going to have to break their addiction to the easy profits they’re enjoying now and do the hard work of bringing this manufacturing back on-shore.

View on HN

Isn't this ordinary commoditization? Provided Apple keeps innovating, they'll keep ahead. They have a head start, and innovatiin is their corporate organizing principle, from hiring to advertizing. They leave commodity profits on the table.

The danger is if China has a monopoly on know-how, i.e. if it's not a "commodity". But that doesn't seem to be the case.

However, one day, the iphone will be "good enough", and customers won't pay extra for further innovations... and unless other product lines or new ones (glasses? cars? others?) catch fire, Apple will settle down to become like Sony.

It is also partly marketing. Apple has a lot of other pieces of the puzzle like privacy and racial equality and other socio-political issues well rounded up.

Loyal Apple fans and customers really like to identify with these principles.

Apple does this really well and most Chinese companies are transactional in nature and have been adversely affected by many political and humanitarian issues that are part of their ethos.

I find it hard to believe that people are choosing Apple products over competitors because of anything to do with "racial equality". Especially since most of the components are manufactured in China, therefore by buying an Apple product (or basically any other piece of modern consumer electronics), you're helping to fund a racist ethnostate that's currently committing genocide.

What has Apple done to promote racial equality beyond the same vague performative gestures as every other major Western corporation?

Seems like to many people making nice statements about racial equality and donating money to black only initiatives is enough.

Working with actual genocidal governments is fine though, I mean it's what you say that matters, not what you do.

It's worth noting that 80% of Samsung smartphones are manufactured in Vietnam these days. Something people often forget even in today's geopolitical environment.

I wish Samsung used that fact in their marketing, I think it would really play well.

I’m curious how most Americans feel about Vietnam. Yes, it’s been 50 years, but the war was a huge part of a decade of internal turmoil and a pretty significant defeat for our military.

Samsung may feel that it’s risky to trade on that name in the U.S. market.

Vietnam might not be as bad as China but it still doesn't exactly have a stellar human rights record.

The commodification argument. People have been saying the iPhone is good enough for a decade so far (in fact from before it even came out) and there's no sign of their losing their grip on the high end of the market. In fact this has been said generally about Apple computers since the 80s at least. Hence Apple's unofficial corporate slogan, "Proudly going out of business since 1976".

The fact is nobody even tries to do the level of integration between software and hardware that Apple does. It's hard to compete with an opponent when you don't understand what they are doing, or why they are doing it, or why it works and it's very clear their competitors don't understand any of those things.

As long as the competition sit on their hands following the 'theoretically' ideal business 101 commodification strategy, which hasn't worked for 40 years now, it will continue to not work. But here we are, generations of business managers at Apple's competitors have come and gone and the wait them out strategy keeps losing.

Acyutally, according to TFA, it's the whole ecology of supply chains in one place (an infrastructure) that is difficult to replicate.

Perhaps similar to silicon valley, with investors and many kinds of skilled labour, all in one place.

It's ironic that you make that comparison to silicon valley because silicon valley was the progenitor of these supply chains.

If the supply chains can move across the ocean once then surely they can move back again.

How is moving manufacturing to the USA going to protect against China developing expertise in design and software?

Also the whole made in China panic is overblown. Most of the value in the parts in an iPhone is sourced outside China. CPUs in Taiwan (used to be Texas), flash memory in Korea, Japan and the US, camera module in Japan, Gorilla Glass in Kentucky, Japan and Korea etc, etc. Final assembly is only worth a few bucks per phone. It's fighting over scraps.

I just don't see how reversing the relationship - design and software in China, final assembly in the US, is going to benefit the US all that much.

If Samsung can manufacture 80% of their smartphones in Vietnam on 300 million smartphones, I can see why Apple couldn't move all their manufacturing to Vietnam and India.

I agree, that makes a lot more sense. Not so sure about India though, that's just to avoid punitive Indian import taxes. It would make little sense for export.

It doesn't prevent China from developing expertise. That's inevitable. It prevents the US from falling dramatically behind.

Falling behind on what? Low end assembly line work at the very bottom of the value chain just isn't worth fighting low skilled workers from rural China or Vietnam over. The chances are all of that will be done by robots soon anyway, which is a whole new ball game.

It’s “low end” right up until you have no access to it. When it comes to national security, you don’t want to be in a position where the majority of your manufacturing output is at the mercy of a foreign country’s blessing. Your R&D is worth nothing if you can’t actually build.

That boat sailed a long, long time ago. The era where any country, even a giant like the US can make everything and be entirely self sufficient is long gone. What kind of future would realistically result in no access to foreign manufacturing or resources?

If the risk is seen as China particularly, they only do the lowest value lowest skilled work. Pretty much by definition that's the easiest to relocate. Samsung does most of it's phone manufacturing in Vietnam. Apple has assembly lines in Brazil and India. Yes they're vulnerable to short term pain, but even the recent trade war didn't come even close to the kind of massive economic death struggle that would lead to cutting off access to basic manufacturing. If we end up in an actual war, we'll have more to worry about than not getting the latest iPhone for a few years.

> If we end up in an actual war, we'll have more to worry about than not getting the latest iPhone for a few years.

This is a supply issue with silicon/electronics in general. At this point, it would be more of a disaster for any country to lose access to electronics than to oil. I'm not sure where you heard that manufacturing electronics is low skill, but I definitely don't agree.

The point is that there's no difference between the US and some country that has oil resources but no refining capacity. We can dig silicon out of the ground but we can't make anything with it.

The other thing you may be failing to consider is automation. If another economy gets there first, they won't be just building chips. If you're afraid of China becoming the fastest at bringing technology ideas to market, we are already there. And not just some ridiculously useless SV "x but for uber" product. A real piece of reality that turns on and can perform work.

This is even before you get into the national security argument about a trustable supply chain.

Making the high value parts, the CPU, flash memory, camera module, sensors, Gorilla Glass, display panels, etc is high value. Do you know how many of the components on that list are made in China? None. They’re all made in the USA, Japan, South Korea and Taiwan. Only low value parts and final assembly are done in China yet it’s the low skill final assembly worth only a few dollars in value that counts as “manufacturing”.

I think the flash used to be made in China for a while, but the fancy new stuff is South Korea (Samsung) and Japan (Toshiba). The camera modules are made by Sony in Japan. The CPUs are TSMC in Taiwan. Back in the early years over 40% of the value in the Bill of Materials of an iPhone was made in the USA, including the CPUs by Samsung in Texas, Gorilla Glass by Corning in NY state, I forget all the rest, only about 10% of the cost of manufacture was added in China. It’s probably a bit more now.

You are still talking about iPhone parts.

China is behind on leading edge integrated circuits.[1] However, China can manufacture a computer from entirely Chinese parts.[2] America cannot manufacture a computer from entirely American parts.

China not only made plans for a 100% domestically produced computer, they have already achieved it.

We don't even have plans.

[1] https://semiengineering.com/china-speeds-up-advanced-chip-de... [2] https://www.globaltimes.cn/content/1193625.shtml

Why wouldn't they just move production to another, cheaper country besides China?

I think you are underestimating how much more expensive an iPhone would be if it was made entirely in the United States:

https://fee.org/articles/a-made-in-america-iphone-would-cost...

The article you linked argues why it wouldn't be possible to move to another country. In fact the article argues heavily that labor costs are not the biggest advantage that China has.

The article argues why it would be more expensive in the short term.

The argument I've seen for bringing production closer to home is that it's going to be painful either way so we ought to rip the bandaid off, because every year that we continue the status quo represents more money and market power amassed by other nations on the back of American demand.

There's more to corporate or economic strategy than today's cost of doing business.

That’s silly, we get as much benefit from free trade as every other country. Let China or India do assembly at wages that would be below minimum wage here, and take those savings to get a bigger piece of the market, sell more iPhones, do more software and hardware design and create more developer jobs.

> we get as much benefit from free trade as every other country

Considering that trade relationships are fundamentally asymmetrical (ie, you wouldn't have them if you were self-sufficient in the market segment being traded), I think this is a naive view of the wealth transfer and externalities associated with international trade.

First, the relationships are voluntary. Second, the relationships are mutually beneficial else one party would end them.

Lastly, free trade doesn’t create a wealth transfer, it creates new wealth for both parties. Chinese assembling iPhones lifted a huge number of Chinese laborers out of rural poverty working in much more physically demanding and dangerous jobs at a fraction of the pay. A significant part of Apples market share, market cap, and tens of thousands of US iOS developer jobs are owed to cheaper iPhones enabled by Chinese labor.

The only time “wealth transfer” occurs is when free trade breaks down a monopoly. Like if we ended sugar tariffs, the wealth would be transferred from certain politically connected families in Florida, to US consumers and foreign workers.

Trade is complicated and protectionism is not always bad, but the idea that "money going out == bad" is a common misconception that underlay the "mercantilist" economic policies of the early modern era. Kings and parliaments were alarmed to see precious gold leaving their shores. Adam Smith set them straight: money and value are not the same thing. In fact, money is only valuable if you can use it to acquire something else of value! If you "give up" an amount of gold but receive valuable goods, which can be combined with other goods to create even more value, the national wealth can go up even with "precious gold" leaving town.

They are starting to do that in India.

As an Indian, India isn't exactly a cheap manufacturing destination. The reasons to move to India for a country like US are more political than economical.

The US perceives China as an ideologically incompatible competition at a political level and wants to work with India. That's pretty much it.

Only to avoid crippling Indian import taxes.

It’s going to be a while before China can own either the top (the OS) or the bottom (the silicon) of the stack, but ultimately you are right.

Genuinely curious - why do you say that? It might not be something they can export to other countries, but that’s mostly because of the rap that they have for surveillance and data collection and not because of a lack of resources. For the domestic market I don’t see why they can’t make their own silicon or software. I’d love to hear thoughts on the matter.

It’s not that they can’t. I’m sure they will eventually.

It’s that they are very complex iterative processes that take time to organize and are hard to get right. You can’t just quickly ‘own’ either one. Consider how long the iOS and Android of today took to build, or how long it took Apple to get from the A4 to the M1.

'Design and Software' ???

Brand, marketing, product strategy, product marketing, industrial design, ui design, millions of lines of code which is all part of design, massive retail distribution chains both direct and indirect, massive loyal userbase, millions of developers, massive supply chain - and the ope rationalizing of all of that.

China is not competing very well in many of those things.

China's advantages are starting to look like working capital , the factories, the labour, and the local supply chain - which is much more advantageous for lower end products but it's still a price advantage more than anything.

I was in the drugstore - there were over 20 different kinds of electric toothbrushes. 20 kinds! I will buy 1 and maybe, maybe another some time in my life. That's a rough business, as is almost everything in hardware.

The 'high end stuff' is not necessarily going to be China. It could, but not necessarily.

Chinese smartphones are selling extremely well and are currently the top ranked camera phones. The reputation of other Chinese brands is getting better too. Here in Asia I see Chinese branded stuff everywhere.

https://www.dxomark.com/rankings/

I remember back in the day "Made in Taiwan" or "Made in Japan" was considered a joke and mark of cheap products. That changed fast and to assume the same thing won't happen again with China is a mark of Western arrogance IMO.

Chinese phones sell well because they are cheap. Apple has never had but a fraction of the market but has always made most of the revenues and profits because they dominate high end phones.

For a long time Apple made more than 100% of the profits in the mobile phone handset industry. That may appear to be impossible, but it's because so many of their competitors made losses and so had negative profits.

Reply on news.ycombinator.com