Dec. 8 (Bloomberg) -- The pledge by Apple Inc. Chief Executive Officer Tim Cook to invest in making Mac computers in the U.S. will probably create about 200 jobs if he follows the pattern of companies such as Lenovo Group Ltd. and LG Chem Ltd.
The investment plan, unveiled by Cook on Dec. 6, marks a reversal for Apple, which made and assembled many products in the U.S. until the late 1990s. It shifted manufacturing to Asia to take advantage of the region’s expanding industrial base and lower labor costs.
Cook, who took over from Steve Jobs last year, said in an interview with Bloomberg Businessweek that Apple will work with partners on the project and put in at least $100 million of its own money. Outside involvement may increase the total.
The investment “sounds like a 200-job operation with about a million-unit output,” said Dan Luria, a labor economist at Michigan Manufacturing Technology Center in Plymouth, Michigan, who studies factory operations. Apple will probably rely on tax breaks and other incentives for the facility, he said.
Even some foreign companies are taking early steps toward building in the U.S. some products that had been handled abroad. Lenovo will assemble computers in Whitsett, North Carolina, starting next year, while LG Chem and other companies plan to create batteries for hybrid and electric cars in Michigan.
Foxconn Technology Group, the Chinese maker of Apple’s iPhone and other products, is a likely partner on the Mac investment, said Michael Hasler, associate academic director for the Supply Chain Management Center of Excellence at the University of Texas, a state where Apple already has operations.
Indiana, Texas
Hewlett-Packard Co. works with Foxconn to manufacture personal computers in Indianapolis for U.S. markets. The facility employs 1,300 workers and will build 2.9 million PCs this year, said Tony Prophet, senior vice president for Hewlett- Packard’s printing and personal systems.
Cook didn’t identify the specific Mac product or a location for the manufacturing. About 70 percent of Apple’s revenue now comes from iPhone and iPad sales.
Apple has taken other steps to beef up operations in the U.S. It’s adding about 3,600 support workers over the next decade in Austin, Texas, where it already has a 3,500-person customer-support center. The company also gets chips for some products from a nearby $14 billion Samsung Electronics Co. facility.
Precedent Setting
“One of our major recruitment targets is general manufacturing,” said Dave Porter, senior vice president of economic development for the Austin Chamber of Commerce, declining to discuss any specifics about Apple. The chamber promotes a five-county region that includes Austin.
While Apple’s commitment could set a precedent for electronics suppliers, it probably doesn’t presage a large or rapid shift of production back to the U.S., said Michael Marks, the former CEO of Flextronics International Ltd., which was the largest contract manufacturer in the world before the rise of Foxconn. He also estimates $100 million may create about 200 jobs.
“This is a trend that will start in little ways like this, and will pick up steam as suppliers move here,” Marks said. “But this does not herald a booming return of high-volume manufacturing to the United States.”
Attempting to create jobs in the U.S. also stands to burnish Apple’s image, Hasler said.
“There is some PR aspect to it and there is also a lot of data out there that show it can make good business sense from a manufacturing perspective to bring that back to the U.S.,” Hasler said.
Foxconn Faulted
Apple’s manufacturing operations in China have been a source of criticism, with worker- and labor-rights groups faulted the company and Foxconn for the conditions at facilities where its products are made. Apple earlier this year enlisted the Fair Labor Association, which has overseen the apparel industry for years, to audit its factories.
Cook, who took over as Apple’s CEO in August 2011, has long been in charge of the company’s supply chain. He gained the trust of Apple co-founder Steve Jobs by managing component purchasing and overseeing work with suppliers.
Some parts for Apple’s products are already made in the U.S., Cook said in the interview. For instance, the glass for the iPhone and iPad is made in Kentucky, he said.
Lenovo’s plan to build computers in North Carolina is a good template for Apple, said Willy Shih, a Harvard Business School management professor, who is traveling the U.S. as part of a Harvard initiative to get companies to bring back manufacturing as a way to rekindle innovation.
Lenovo Assembly
Lenovo will be producing “hundreds of thousands” of notebook computers and other products next year with two shifts totaling about 100 people, said Mark Stanton, Lenovo’s director of global supply-chain communications. The operations in North Carolina will still be dwarfed by plants in places such as Mexico that make millions of units, he said.
Lenovo is adding a $2 million assembly line to an existing distribution center it built in 2008 for about $40 million, he said. Depending on the demand, the facility may add a third shift in the future, Stanton said. Another 15 skilled jobs will be created.
“The state of the industry right now for this type of operation is mostly people, and the skilled people are here,” he said. The manufacturing jobs pay about $32,000 a year, with the skilled positions in the $65,000 range, he said.
Cutting Costs
It’s no longer a pipe dream to bring some manufacturing back to the U.S. thanks in part to improvements in automation gear, said Pam Gordon, founder of electronics manufacturing consulting firm Technology Forecasters Inc. At the same time, the costs of making goods overseas are rising due to higher transportation expenses and increased consumer concern about worker safety and environmental responsibility, she said.
“You could make the case that you could get a lower cost of total ownership,” Gordon said. “Besides strengthening the brand, they would have lower shipping costs and leaner inventory,” making it easier to respond to changing demand patterns, she said.
Government funding also serves as an incentive for companies, Luria said. In Michigan, for example, LG Chem has agreed to match a $151 million investment from the U.S. Department of Energy to build battery cells for General Motors Co.’s Chevrolet Volt electric car, according to the U.S. Department of Energy.
That plant, which is in a testing phase, has about 200 employees, the company said in statement. Once it’s fully operational, the factory will qualify for Michigan tax breaks too.
Manufacturing Rebound
Even before Apple’s investment kicks in, there’s evidence of a rebound in manufacturing. The U.S. has gained 496,000 manufacturing jobs since January 2010, when factory jobs slumped to a seven-decade low, according to U.S. Labor Department data. The shift of jobs back to the U.S. from China may contribute to 2 million to 3 million new jobs by the end of the decade, Boston Consulting Group said in a March report.
“Maybe we’re going to learn how to do it here again,” said Shih of Harvard. “And that’s just what we should be doing.”
--With assistance from Aaron Ricadela in San Francisco and David Mildenberg in Austin. Editors: Tom Giles, Reed Stevenson, Steve West
To contact the reporters on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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