Summer 2020 INB 372; Sec-2 Date: 27/07/2020 (Monday)

Group Exercise Case-1 Apple

1. What are the benefits to apple of outsourcing the assembly of the iPhone to foreign
countries, and
particularly china? Explain with example. (3 marks)
2. What are the potential cost and risk to Apple? (4 marks)
3. In this whole scenario who are the potential losers? (3 marks)

Answer to the question number 1:

Apple is outsourcing the assembly of iPhone to foreign countries specially China. It is known as
globalization of productions because American company Apple is sourcing goods and services
from China. For this Apple is getting benefited.

● Skilled labor- In America, there are less skilled engineers. So, Apple faced labor
problems to do their work smoothly. So, they shifted their work to China because China
is full of skilled laborers. They can provide mid level engineers easily.
● Good quality materials- In the U.S.A, the glass which is used to make iPhone screens are
not in good quality. They get scratched easily from keys if the iPhone is kept in pockets.
As Steven P.Jobs wants a perfect glass screen so he wants China to do it for them. China
is giving hundreds of glass pieces to do experiments and provide best quality glass.
● Time consuming- In 2002, Top Apple executives had to drive for 2 hours from
headquarter to factory which is very much time consuming. So, by 2004 when Apple
started foreign manufacturing top executives did not need to drive so long for factory
visits. They get more time now to focus on other work in headquarters. Besides, having
dormitories just beside the factories can help workers to do work easily which is available
in China not the U.S.A.

Answer to the question number 2:

One of the potential costs to Apple of outsourcing the assembly of iPhone to foreign countries is
labor cost is low in china compared to American labor cost. This will lead to a reduced average
cost of production for Apple and thus Apple will get economies of scale in production.

Another one is the factories for the raw material is close by and easily available for use not only
that, the slight changes in the raw materials like screws are readily made as well. Besides this the
factory has dormitories for workers so they are available on site for working any time especially
if there are any last minute changes in assembly.

The potential risk is some of the subcontractors have complained about poor working conditions.

Strong and strict patent rights and laws can be used to avoid the risk of Apple being vulnerable to
its patent software and design.

Answer to the question number 3:

In the whole scenario, we can say that the losers should be the US because China is now
manufacturing the products. So, in the US, unemployment is rising, and people are losing their
jobs and wages to the Chinese people. Besides, in the US, they charge the products with a lot of
money to the consumers. So, owning an Apple product is costly, while at the same moment, they
do not give much back to the US citizens. They cannot provide sufficient job opportunities for
their people. In this circumstance, the US is moving down economically while China is growing
faster. Other potential losers are the glass companies like Corning Inc. Because of the product,
Apple needs uncatchable glass to avoid tiny stretches. For that reason, they need an empty
cutting piece, hundred pieces of glass for an experiment, and a group of mid level engineers. But
it will cost more. On the other hand, the Chinese companies have a warehouse filled with glass
samples for Apple. Also, the engineers are available 24 hours and almost lower costs. As a result,
the Chinese company got the job. In the scenario, the American company is losing its potential
customers as well as it incurred them in many ways. And the Chinese company is making a
profit from global companies like Apple.