Apple s China Problem

The New York Times has been going after Apple lately. Read How the U.S. Lost Out on iPhone Workand In China, Human Costs Are Built Into an iPadfor a critical report on Apple’s manufacturing partners in China.

Even without nagging from the Times, Apple recognizes the issues at hand according to a recent Form 10-Q:

The Company depends on component and product manufacturing and logistical services provided by outsourcing partners, many of whom are located outside of the U.S.

Substantially all of the Companys manufacturing is performed in whole or in part by a few outsourcing partners primarily located in Asia. The Company has also outsourced much of its transportation and logistics management. While these arrangements may lower operating costs, they also reduce the Companys direct control over production and distribution. It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or the Companys flexibility to respond to changing conditions. Although arrangements with these partners may contain provisions for warranty expense reimbursement, the Company may remain responsible to the consumer for warranty service in the event of product defects. The Company also relies on its partners to adhere to the Companys supplier code of conduct. Any unanticipated product defect or warranty liability, whether pursuant to arrangements with outsourcing partners or otherwise, or material violations of the supplier code of conduct, could materially adversely affect the Companys reputation, financial condition and operating results.

The supply and manufacture of many critical components is performed by sole-sourced outsourcing partners in the U.S., Asia and Europe. Single-sourced outsourcing partners in Asia perform final assembly of substantially all of the Companys hardware products. If manufacturing or logistics in these locations is disrupted for any reason including, but not limited to, natural and man-made disasters, information technology system failures, military actions or economic, business, labor, environmental, public health, or political issues, the Companys financial condition and operating results could be materially adversely affected.

Tagged as: apple, China

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