Can US Manufacture an iPhone?

I honestly think that answering the above question is what it boils down to and that is what it will eventually take to get the US economy back on track. The US economy has gotten crowded and consumed with services as the manufacturing activities have gotten traded away to emerging markets over the last few decades.

Why can’t we build the iPhone right here in the US? We are great in designing and spec-ing out the product (i.e. disruptive innovation) but when it comes to manufacturing stuff, especially electronics, the economics just do not make sense and the numbers simply do not add up. As a result, the iconic American inventions are contributing significantly to the US trade deficit with the rest of the world. Can’t think of the last time I saw “Made in America” stamped at the back of an electronic product!

Back to the iPhone – Check out the table below. The number that stands out is $8 - It only takes $8 worth of labor to produce an iPhone and this constitutes a measly 5% of the total costs for manufacturing the device. The other 95% is consumed by the parts/materials that go into the device. I am not an expert in economics of labor or materials but let’s consider a hypothetical scenario where the iPhone (16GB version) is assembled in the US. I am guessing the labors costs will double or triple to say $24. In order to keeps the total costs to <$200, the materials will need to be sourced for $176. I think it can be done. With increased automation and productivity levels, these materials/parts can be manufactured right here in US. Or they can be procured for prices far less than listed, just get WalMart to do it for you. Needless to say, I am making a number of assumptions here, one of them being the availability of skilled engineers to setup/manage such hi-tech factories. But given the current talent supply glut in US, I think my "skilled labor" assumption will hold good when put to test.

Unless US gets the manufacturing mojo back and the trade equation in order, the current economic morass will continue to linger for a long, long time. Manufacturing hi-tech consumer products on a large scale offers opportunities that are highly differentiable and defendable in the long run.

If you liked what you just read, please support Kazira by sharing it with your network (click on Share It link below). Thanks!