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Why Apple Inc. Assembled Iphones in China

Date:2014-12-16     Views:2430

Now only 30% of the world's population lives in per capita GDP higher than of Chinese nation.
It fundamentally changed the pattern of foreign direct investment in China. The competitiveness of China
is no longer depends on low salaries, but relying on a complete supply chain. According to the data from 
The United Nations in 2013, foreign direct investment in China is $101 billion, continued on the top of the
developing countries. But the change in the mode of foreign direct investment at Chinese market is significant, with the development of China, the trend will inevitably become more and more obvious. 

Some people refuse to admit or don't realize that now only 30% of the world's population lives in GDP per head higher than China's nation, which lead them misunderstand the cause of attracting foreign investment to China.

In 1978 China started economic reforms. The purpose of foreign enterprises direct investment in 
China was mainly to establish an export base in China. Although it was great help to early stage of 
Chinese economic reform and openingup policy, but such investments often only had very low added 
value. For example in 2009 a study showed Though every iPod and the world's most successful consumer 
products was made in China, but China only got 2% from the gross margin.

For example, most of China's export products were from foreign companies in 2010. China's 
exports in the fortune 200 companies, 153 of them were foreign investment enterprises in 2009. 
Chinese companies were only dominant in the small and medium-sized exporters. For example, Alibaba's success in the early period, lied in the connection established the network service system of Chinese enterprises and foreign market.
With the development of China’s economy the reasons behind investment of foreign enterprises has fundamentally changed. 

In comparison with the international markets, China is no longer a lowwage economic entity. 
According to data from the world bank shows only 30% of the world's population lives in countries with GDP per head higher than China now, China's compensation will be somewhere around the proportion. In Developing countries of southeast Asia and South Asia, per capita GDP is lower than China including Malaysia.

China becomes attractive for many foreign companies which are aimed at improving the ability of export 
capability, unparalleled in the field of manufacturing. 

An American study titled "why Apple makes iPhone and almost all of the products in China” has made 
the detailed annotations. 

The New York Times draws a conclusion from the question "what the USA lack in, but China has?”

There are more intermediate engineers, a more flexible Labor and a large number of factories which can 
increase production immediately in China. 

There are also many one-stop high-tech enterprises in China. A former Apple executive said to the New York Times.

“The all supply chains are now in China. Do you need 1000 rubber washers? The factory is next door. 
Do you need 1 million screws? The factory is across the street. Do you need to make some small changes 
to screw? Three hours are enough.”

In fact, the success of IPhone is a vivid proof: how China's manufacturing capability saves a 
potential public relations disaster and make it into PR victory. As the New York Times pointed out:

Mr Jobs called several executives into an office. an iPhone prototype had been in his pocket from few weeks. 

Mr Jobs lifted the prototype angrily and adjusted the Angle of the prototype, let everybody see dozens of tiny scratches on the plastic screen. 

“People usually put their mobile phone in pocket, I don't want to sell the product which will have scratch. 
The only solution is to use no scratches glass to instead. I need a glass screen, I hope this
thing can be done within six weeks.” 

An executive walked out of the office, then booked a ticket to Shenzhen. Mr Jobs wanted a perfect product 
now that only can be found in shenzhen, not elsewhere.”

As a result, when the screen arriving at the factory, the workers mounted glass screens to 10,000 iphones a day.
It was finished within 96 hours. Therefore, the main reason for China to attract investors is no longer a low pay.

“In fact China’s competitiveness no longer dependent on low salaries but relying on a complete supply chain.” 
Sarah Lacy commented on Pando Daily, “Now other countries surpass China on pure cost, rather than speed, agility and skill.”

Since 2007, the second important reason for China attracting foreign direct investment is that China is not only the export base, but also the world's fastestgrowing markets. And this trend will continue. Although according to the market exchange rates, the United States remains the world's biggest economy, but China's economic growth rate is about three times as much as the United States.

China's unparalleled market expansion potential brings decisive advantage to the enterprise growth prospects. 
Chinese enterprises can achieve rapid growth without any increase in market share, only by the market expansion under existing scale. The prospect of Chinese enterprises of fast growth is easier to implement.

Therefore, foreign direct investment is gradually using of china's domestic market to expand its market share, rather than as its export base. Further as a result, the foreign direct investment flows to the main service of China's domestic market, rather than exports. In 2013, 52% of foreign direct investment in China is to enter the Chinese service industry.
At the primary stage of development, China was eager for foreign direct investment. As a result, enterprises with foreign investment in China were provided preferential tax policies, and regulatory enforcement sometimes was not strict. But now, most of the tax preferential policies have been repealed, and the circumstance of lax law enforcement is also improved.
Enterprises with foreign investment in China still enjoy obvious advantages in key sectors. These sectors include high-tech industry in Defense, highly centralized global industry, non-financial services, etc. 

But in the science and technology and in many fastgrowing industries, Chinese enterprises are increasingly become strong competitors. For example, Lenovo is now the world's largest PC maker. At the same time, the domestic market competition between China's smartphone manufacturers such as Xiaomi, Lenovo, Huawei, with Apple and Samsung is increasingly fierce.

In consideration of China's market size and growth rate, foreign direct investment in China will continues to maintain a very high level. The era of China as a cheap labor export base has come to an end. If China wants to accurately evaluate the advantages and disadvantages of attracting foreign investment and formulate the corresponding policy, it is necessary to accurately analyze its actual development and the real position in the world economy.

Personally, modesty is a virtue that is admirable. But for serious economic problem, neither vaunt nor overmodest is a virtue. That is to say realism is a virtue. Someone wants to drive a ship smoothly, he must have accurate charts. 
If not, there will be in danger of hitting reef. Overall, this not only applies to foreign investment, but also applies to the economic policy in China.