Outsourcing Apple IPad Production - Research Paper Example

? Outsourcing Apple IPad Production Outsourcing is one of the key strategies that most companies are currently using in their business activities. Outsourcing refers to the contracting out of business activities that were initially performed within an organization to an external provider. It is evident from the product labels that most products and services, which were initially produced in the United States, are currently being produced by oversea countries. The electronic industry in one of the industrial sectors, where the production of products such as phones, computers, IPods, and IPads are outsourced to external firms. Apple’s IPad is one of the products, which was originally produced in the United State, but its production has currently been outsourced to oversea industries based in North Korea and China. In order to understand the basics of outsourcing strategies, this paper provides a cost break-down of processes involved in the production of Apple IPad, both in the United States and contracting oversea countries. It also discusses the advantages and disadvantages of outsourcing IPad production to oversea firms. As part of this paper, some legal and ethical issues that arise as a result of outsourcing Apple IPad are also discussed. Key words: outsourcing, Apple IPad, and economy Introduction Apple iPad is a modern piece of electronic that performs most of the functions just like a personal computer. Because of its light weight and efficiency, it is highly fantasized by people who need to walk around with their computers, while performing certain tasks (OGrady, 2009). The high demand for this product, both inside and outside the United States, has forced the Apple Inc. to incur large transportation costs so as to reach its local and international customers, something that has significantly increased the cost of production. In order to limit cost of production resulting from importation of material, shipping of the products and labor costs, Apple Inc. realized that outsourcing of IPad production to overseas firms, especially with a large number of customers, will significantly reduce its cost of production and maximize profit (Hill & Jones, 2009). Samsung Company based in North Korea, and some other electronic firms based in China are some of firms that are currently producing Apple IPad. These firms produce Apple IPad and distribute them to both local and international customers. This means that less cost of transportation is incurred when this product is sold to the local customers more than if it was produced in the United States, and sold in either North Korea or China (Schniederjans, 2005). Cost Break-down for the Production of Apple IPad Material, transportation and labor costs are the key determinant of Apple IPad production cost. Apple iPad 2 was the most talked about consumer electronic that was released into the market in 2011 (Sparks, 2011). The price break-down cost for manufacturing 32GB GSM/HSPA version (From iSuppli) in the United States and oversea firms was as follows; Apps Processor - $65.70 Display/Touch Screen - $127.00 Box Contents - $5.80 Memory - $65.70 Battery - $25.00 Other Materials - $84.20 Manufacturing Cost - $10 Total- $336 Apple Inc. manages a network of suppliers across the globe, who assembles its popular electronics such as iPhone and IPad (Sparks, 2011). Recently, Apple’s supply chain policies came under critics from people who maintained that realized that the firm was not paying its factory workers enough wags (Sparks, 2011). A recent research done by Korean Newspaper revealed that Korean workers earn $34 for each iPad, while their Chinese counterparts are earning $8 for each iPad Produced. The American factory workers earn $52 per iPad Produced (Sparks, 2011). A cheap iPad costs around $500 and the labor costs for producing the high-end gadget are relatively low. This means that Apple Inc. enjoys cheap labor costs for producing a single iPad both in the United States and oversea companies. The transportation cost of transporting or shipping an iPad varies with the location of manufacturing industry and customer. For example, the cost of transporting iPad from the United States to India is $31, and to United Arabs Emirates is $31 (Sparks, 2011). Transportation cost from China to both countries is $24. Generally, transportation cost and cost of materials are relatively higher than labor costs. This means that material and transportation costs contributes more to cost of production of a single iPad than labor cost. Advantages of Outsourcing iPad Production Apple Inc. cut production costs of iPads by outsourcing the manufacturing of this gadget to oversea companies. Other than the iPad, Apple has outsourced the production of many product component to Asian outsourcing counterparts (Schniederjans, 2005). According to recent statistics released by Apple Inc, some features of the iPad are more profitable and practical to produce in China and North Korea, because of the availability of specialized factories (Schniederjans, 2005). In addition, easy access to labor and engineering forces make the cutting parts of the materials more affordable to initiate. Labor handwork is also very cheap in Korea and China. In china, handwork labor is 77 cents per hour as compared to $13.52 per hour in the United States (Schniederjans, 2005). The availability of large volume of human resources and at work lodging also make outsourcing of iPad manufacturing more logical for Apple. The cost of land is also associated with the manufacturing cost of Apple’s products. Although the cost of land is higher in China due to high population and real estate boom, China First Capital stated that factory land are very cheap or even free because of low auctioning cost to successful companies, which are capable of generating jobs and revenue (Hill & Jones, 2009). This is one of the reasons why Apple decided to outsource iPad manufacturing to Chinese companies. International capital flows benefit is also the other advantage that Apple Inc. enjoys from outsourcing iPad manufacturing to oversea countries (OGrady, 2009). Capital is also saved when transportation costs are lowered by producing iPad within China and Korea, or through market proximity. When Asian revenue is reinvested into local operation, Apple Inc. usually benefits from tax saving (Schniederjans, 2005). Disadvantages of Outsourcing iPad Production Outsourcing can expose Apple Inc. to legal exposure and potential risks (Hill & Jones, 2009). For example, when an iPad is recalled for faulty features, and it was manufactured in China then the United States based Apple Inc. will carry all the burden of rectifying the damaged reputation of the iPad. Outsourcing is away of turning a whole manufacturing management to another company. This usually leads to imbalanced standards and mission of the production process. Apple, therefore, looses managerial control when it outsources iPad manufacturing to oversea firms, whose main aims are to make a profit just like the Apple. Outsourcing also leads to lack of confidentiality. Apple occasionally transmits some of its confidential information to its contractors in China and Korea, something that causes lack of privacy. There are even some company data and knowledge like drawings and formulas that Apple shares with its contractors. All these cause lack of confidentiality to Apple’s confidential information (OGrady, 2009). Legal and Ethical Issues resulting from Outsourcing Different people perceive outsourcing in different ways. When Apple outsourced its iPad manufacturing to oversea countries, most American employees lost their jobs as workforce was reduced. Outsourcing brought bad publicity to those who lost their job, and morale was lost in the remaining force. In addition, organized labor based in the United States has negative feelings about outsourcing to other nations, which have worse working conditions and poor living standards. This feeling can affect how the workforce responds to outsourcing, and this can also lower their efficiency and productivity. Before outsourcing to oversea nations, Apple Inc. was forced to address issues relating to legal security and compliance in formal documentation in the oversea countries (OGrady, 2009). For example, Apple Inc. had to allow Chinese and Korean employees to access confidential customer data for their personal gain. Conclusion Out sourcing has significantly helped Apple Inc. in reducing the production costs for manufacturing iPad. Initially, Apple iPad were produced in its American based factories, but they are currently being produced by Korean and China based companies, through outsourcing process. The main aim of outsourcing the production of Apple iPad to oversea countries is to reduce the costs of production. Apart from reducing production cost, outsourcing also has legal and ethical challenges, which Apple Inc. had to accomplish before outsourcing manufacturing of iPad to China and Korea. References Hill C, Jones G. (2009). Strategic Management Theory: An Integrated Approach. New York: Cengage Learning. OGrady J. D. (2009). How Apple Inc. Changed the World. New Delhi: Jaico Publishing House. Schniederjans A. M. (2005). Outsourcing and insourcing in an international context. New York: M.E. Sharpe. Sparks D. (2011). IPad at Work. New York: John Wiley and Sons. Read More