Executive Briefings

Analysis of iPhone Supply Chain Indicates Cost of Manufacturing in China Is About to Escalate

Manufacturing in China is about to get far more expensive. Soaring labor costs caused by worker shortages and unrest, a strengthening Chinese currency that makes exports more expensive, and inflation and rising housing costs are all threatening to sharply increase the cost of making devices like notebook computers, digital cameras and smartphones.

Desperate factory owners are already shifting production away from this country's dominant electronics manufacturing center in Shenzhen toward lower-cost regions far west of here, even deep in China's mountainous interior.

At the end of June, a manager at Foxconn Technology - one of Apple's major contract manufacturers - said the company planned to reduce costs by moving hundreds of thousands of workers to other parts of China, including the impoverished Henan Province.

While the labor involved in the final assembly of an iPhone accounts for a small part of the overall cost - about 7 percent by some estimates - analysts say most companies in Apple's supply chain - the chip makers and battery suppliers and those making plastic moldings and printed circuit boards - depend on Chinese factories to hold down prices. And those factories now seem likely to pass along their cost increases.

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Manufacturing in China is about to get far more expensive. Soaring labor costs caused by worker shortages and unrest, a strengthening Chinese currency that makes exports more expensive, and inflation and rising housing costs are all threatening to sharply increase the cost of making devices like notebook computers, digital cameras and smartphones.

Desperate factory owners are already shifting production away from this country's dominant electronics manufacturing center in Shenzhen toward lower-cost regions far west of here, even deep in China's mountainous interior.

At the end of June, a manager at Foxconn Technology - one of Apple's major contract manufacturers - said the company planned to reduce costs by moving hundreds of thousands of workers to other parts of China, including the impoverished Henan Province.

While the labor involved in the final assembly of an iPhone accounts for a small part of the overall cost - about 7 percent by some estimates - analysts say most companies in Apple's supply chain - the chip makers and battery suppliers and those making plastic moldings and printed circuit boards - depend on Chinese factories to hold down prices. And those factories now seem likely to pass along their cost increases.

Read Full Article