Ask Siri, the digital assistant
View(s):Where are iPhones made? Perhaps, the best person to ask that question is “Siri” – the talking digital assistant in iPhone. But you need to ask the “right” question not to confuse that assistant: “Where were you manufactured?” 
“Siri” will give you this answer: “Like it says on the box… I was designed by Apple in California.” What the assistant says is that the device was “designed” in California, but not where it was manufactured? It is not a lie, but obviously it is not the answer to the question.
If you ask the question in different ways, Siri will also start bluffing you to avoid the right answer.
If we examine world trade statistics to find out where it comes from, we will find that most of the Apple devices such as iPhones, iPads and, iPods, are exported from China. But it doesn’t mean that they are “Made in China”. It is a US brand, but it doesn’t mean that they are “Made in the US” either. Apple is primarily designed in the US and assembled in China, but they are made everywhere.
Apple has unveiled various economic aspects and issues to be studied, both internal to the firm and industry, and external to the global production and trade patterns. Today, the industry has been hit by the coronavirus outbreak in China, just like any other business operating in China. As a result, the company expects a downturn in its production and revenue. Let’s examine some of the issues today.
Bigger than Sri Lanka
If you are using an Apple device – such as an iPhone, iPad, iPod, and a laptop, it is quite difficult for any other brand to convince you to change your mind. You would stick to Apple by its quality and design as well as the technological sophistication that it carries. And compared to the competitor products, Apple is costlier too. Perhaps, it might be the only reason that would force you to move away from Apple products. 
Apple is one of the “Big Four Tech companies” in the world alongside Amazon, Google, and Facebook – they all are US-originated but globally-operating companies. Had they all been confined to their “domestic market”, they would never have been global technological giants.
Apple’s annual revenue was reported as US$267 billion in 2019 – three times bigger than the Sri Lankan GDP. Ten years ago the company had less than $100 billion revenue. About 80 per cent of its revenue comes from iPhone sales.
The company was founded in 1976 and, started manufacturing computers, while the first portable computer was launched in 1989. The first iPod was released in 2001 and, the first iPhone in 2007. China is not only the main assembly centre for Apple devices, but also the third largest market for its iPhone sales. The first and the second largest markets are the US and the EU. The bigger and growing Chinese market, the abundant labour supply at lower wages, and the fast-integrating and fast-expanding region are some of the important factors underlying Apple’s investment in China.
US losses and China’s pluses
But here is the economic irony: In spite of being a US brand generating export revenue for the US, Apple products drain import expenditure from the US adding to its huge trade deficit. For instance, according to a Reuters Report published in 2018, Apple has exported 61 million iPhones in 2017 from China to the US. This was the iPhone 7 and 7 plus series, while it costs $258 on average to make a single unit. This implies that the shipment of iPhone 7 and 7 plus series has added $15.7 billion to the trade deficit in the US, and trade surplus in China.
No wonder the US President is troubled about its bilateral trade deficit with China. The US had a total trade deficit amounting to $550 billion in 2017, while with China alone its trade deficit was $375 billion. And a large part of this bilateral trade deficit has been due to US-branded products manufactured in China and, then exported to the US. The loss was not only for international trade in the US. The shift in the US brands away from the US has made potential losses to the US citizens’ incomes and jobs, which have now been added to incomes and jobs in China.
The upside-down export-import trade episode has been the issue at the heart of the current US- China trade war. However, it is absolutely wrong to say that all US spending on imports from China have gone to China. Apple iPhone itself shows how a significant part of that spending is shared by many global suppliers of parts and components of the iPhone that are only assembled together in China. Thus, a big portion of the $15.7 billion export income paid to China also goes away from China to various suppliers in other countries.
The iPhone X, for example, has a manufacturing cost of about $400 and a retail price about $1,200, as reported by Reuters. Out of the parts and components which cost $370 for a single unit, $110 goes to Samsung in South Korea for displays. Another $45 goes to Toshiba in Japan and SK Hynix in South Korea for memory chips. Other suppliers from Taiwan, the US and Europe also take their portion. Assembly is done by contract manufacturers in China like Foxconn which costs just an estimated 3 to 6 per cent of the manufacturing cost.
It looks like it is quite unfair for the US to get angry with China about its huge bilateral trade deficit. After all, China which is at the tail end of manufacturing the Apple devices is not the real culprit responsible for that.
Performing tasks versus producing goods
All the evidence as above unveils another dimension of modern production systems and modern trade patterns – globalised supply chains. It is related to the emerging production and trade patterns, which are distinctively different from their old patterns. Manufacturing firms that are located everywhere in the world have increasingly become specialised in “performing tasks” rather than “manufacturing products”. Apple is one such company which has extensively followed this global supply chain management system.
Apple has received many awards for its supply chain strategy under which there are multiple suppliers of parts and components of Apple devices, scattered in many different countries all around the world. There are also multiple suppliers of the same parts and components enabling the company to minimise the supply risks and uncertainties. Finally all the parts and components are gathered in an assembly centre, which is China where they are put together to finish the final product.
Apple has 785 suppliers in 31 countries worldwide, while 349 of them are operating in China. According to Apple’s “2015 Supplier List”, 97 per cent of its supply chain is accounted for by its top-200 suppliers. This means the balance 3 per cent is supplied by 585 suppliers. Top-200 suppliers are located in 11 countries in Asia, 11 countries in Europe, three countries in South America, Israel, Australia and, the US.
US versus Asia
The coronavirus outbreak in China has affected Apple as well so that the company has already downgraded its sales and revenue targets for the year. Not only the decreased production but also the weaker consumer demand has affected businesses in China. It might be a temporary setback, but Apple has already been considering moving into some other locations.
In spite of the US pressure to move back to the US, Apple is interested in another country in Asia for good economic reasons. Economics and politics may not go together. There are already forerunners such as India and Vietnam to welcome Apple, while many other countries in their neighbourhood are interested more in politics than in economics.
(The writer is a Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk).