WHO MAKES THE APPLE iPHONE

13P014 Sravanti Badam

13P032 Piyush Garg
13P052 Tejaswi Kalisipudi

Where does Nutella come
from ?
Origin: Italy
Ingredients:
Sugar, palm oil, hazelnuts,
cocoa solids, milk powder
Sales: US$240.4 million
25 million followers on
Facebook
Total sales volumes: 365
thousand tons
Largest Markets:
Canada, US, Egypt,
Germany, Italy, Russia
Agenda
iPhone Manufacturers
Benefits of Outsourcing
Costs & Risks involved
Beneficiaries & Losers
Ethical issues and corrective measures
Outsourcing Good or Bad for US?





Creating an iPhone - Suppliers
SONY, SHARP,
TOSHIBA,
FOXCONN, TDK
Apples Manufacturers
Outsourcing Why China ?
Average wages in China are 1/5
th
of the average
wages in America
Easy to hire engineers in China.
China has the largest workforce of 783 million with GDP
per capita of $6091.
Median age of workers in China is 33 years.
Many of the factories which provide apple components
are located near the assembly unit in China. This helps
in responding to any dynamic requests
Gartners ranking of the top 25 supply chains named
Apple as the best in supply chain management

Outsourcing Costs and
Risks
Costs Risks

IP Risks - Risk of being copied

Price Risk - Volatile Market Price

Shortage risk - Component Availability

Quality Issues




Costs of choosing a vendor

Transportation cost

Cost of transition & relationship building


Outsourcing Who Benefits and Who
Loses?
Benefits in US
iPhone sales increase shareholder value of
Apple stockholders, many of whom are
Americans
Low costs are better for customers. Less
expensive products.
Losers

Loss of manufacturing jobs in US

China Foxconn workers are subject to bad
working conditions long working hours, weak
labour laws, no unions

Erosion of middle class/ worker class in US
consumption decreases, income inequalities
broaden and ultimately economy may get
affected

Benefits in China
Employment: China has large amount of well-
educated semi engineers and skilled workers.
Jobs created in China, gives the Chinese
disposable income (to purchase iPhones
themselves)
With the large amount of resources, China
could build a faster and cheaper supply chain.
Many suppliers of Apple are from Asia
Estimated extra cost if a smartphones are
manufactured in US - IHS, Inc
$4
Estimated additional assembly costs for
bringing back iPhone Manufacturing to US
(Approx 150Mn handsets sold last yr)
$600
Mn/Yr
Tax on profits for US Made iPhones
Currently pay 2% tax on overseas profits
35%
Cost of Reshoring iPhone
Manufacturing to US
$4.2 Billion: Cost to Apple for bringing iPhone Manufacturing to US
-Tim Worstall, Forbes
Ethical Issues
Working conditions at Foxconn
Under media spotlight since 2010
Underage Workers
On average Foxconn workers are said to
work 174 regular hours per month and 80-
100 hours overtime with little or no pay
Frequent and growing numbers of suicide
incidents of factory workers
Use of potentially toxic chemicals eg. n-
hexane (persistant nerve damage), because
it dried a few seconds faster than a safe
alternative.
Less than adequate health care benefits
and medical care on premises
Tuckers 5-Question Approach
to Ethical Decision Making
Is the decision
Profitable
Legal
Fair
Right
Sustainable
Development
Apple reported profits of
$ 37 Billion for FY13
Foxconn does not comply with
Chinese overtime limit laws
Chinese workers paid lower
compared to US workers
By associating with Foxconn,
Apple encourages poor
treatment
Apple may lose ethically
conscious customers
Potential conflict zone material sourcing
Ethical Issues Corrective
Measures
Supplier Responsibility Program
451 Audits
1.5 Mn
Workers
Covered by
Audits
Max 60
Hrs/Week
Strict policy
against
underage
workers

Apple agreed to undergo audits by the
independent Fair Labor Association
Apple asked suppliers to reimburse
$6.4 million in excess foreign contract
worker fees in 2012.
The company said it achieved 95
percent compliance with a maximum
60-hour work week in its supply chain.
Apple also found and stopped
discriminatory practices against
women workers in 34 supplier facilities
Apple found 95 percent of sites audited
complied with avoiding underage labor.

1 Mn
Workers
Weekly
overtime
Hours tracked
1.3 Mn
Workers
received
Empowerment
Training
Outsourcing Good or Bad for America?

Happy Birthday Nutella! Half a century of deliciousness Made in
Italy - http://www.ferrero.com/group-news/Happy-Birthday-Nutella-
-Half-a-century-of-deliciousness-%E2%80%9CMade-in-
Italy%E2%80%9D
Nutella - http://en.wikipedia.org/wiki/Nutella
Can you buy the iPhone 5S or 5C with a clear conscience? -
http://www.theguardian.com/technology/2013/sep/10/iphone-5s-
5c-apple
In China, Human Costs Are Built Into an iPad -
http://www.nytimes.com/2012/01/26/business/ieconomy-apples-
ipad-and-the-human-costs-for-workers-in-china.html?_r=0




References