The country with the largest manufacturing of semiconductor chips, Taiwan, is an important partner...
Why does Apple outsource its manufacturing
Companies outsource their manufacturing for any number of reasons.
Tech giant Apple, renowned for sleek designs and user-friendly interfaces, is also known for outsourcing its manufacturing, especially to China.
What you may not be aware of is WHY they’ve made this decision. It’s not just a cost-cutting strategy. Instead, it’s actually because of their laser focus on design and the customer experience.
This is what we will be exploring today: Apple’s history, Steve Job’s strategy for Apple, their unique reasons for outsourcing and what it means for your organization.
Apple was created in 1976 by Steve Jobs and Steve Wozniak. The two Steves sought to make computers accessible and a staple of everyday life, wrote the Library of Congress. As a result, by 1980 alone, the year Apple had its IPO, Apple sales jumped to USD 117 million (compared to USD 7 million in 1978).
Thereafter, the Macintosh, released in 1984, was among the first “affordable” computers with a graphical user interface, says the Guardian. However, Wozniak’s departure and Jobs’ sacking in 1985 became the major catalysts for Apple’s stagnation.
Ironically, Apple’s return to form only began with the return of Jobs in 1997. The following year, he helped revitalise Apple by introducing the iMac. It quickly became known as an accessible computer system aimed at the low-end, internet-enabled market.
By this point, the Guardian argued, Apple had become a household name. The iMac was swiftly followed by the iPod in 2001 and the iPhone in 2007.
Job’s Grand Strategy
These were arguably the first steps in Job’s grand strategy of creating aesthetically pleasing products and an ecosystem of customer-oriented devices and services.
Forbes explained it best. “Apple has a legendary focus on the customer experience. Every customer touchpoint (products, the website, ads, app store, and retail store) yields a consistent Apple experience.”
The Harvard Business Review states that Apple is able to do this through hundreds of specialist teams led by specialists - instead of managers - working tirelessly on specific components and component designs for a specific product.
Giving specialists control has many benefits. Primarily, it promotes innovation. It also ensures a better understanding of market trends and thus the needs of the customers. Moreover, having specialists in charge allows other specialists to innovate free from short-term profit and cost targets. Both would arguably be priorities for traditional managers.
Indeed, any and all Apple products were supposedly created with the needs of the customers and the average person in mind (this philosophy even extends to Apple stores which prioritise enhancing customer experience through products). In contrast, more traditional tech companies would create a product around the most recent innovations.
Innovation, design, and customer friendliness were always priorities from the earliest days of the company. Following his return, Jobs brought on Tim Cook as Senior Vice-President for Operations in 1998 in order to focus on the aforementioned trifecta.
It was actually Cook who, through significant supply chain reforms, helped ensure all Apple products reflected the so-called “consistent Apple experience.” Embodying the specialists-oriented corporate structure, Cook understood that manufacturing would be best carried out by specialists.
Manufacturing can quickly become a distraction for the management team. As Apple prioritised innovation, design, and customer experience, it became a no-brainer that manufacturing would be deemed a non-priority and thus outsourced to specialists.
At the same time, however, Cook ensured that Foxconn, and other companies Apple outsourced to, adhered to Jobs' extravagant aesthetic and quality specifications, said Bloomberg. For example, Cook demanded Foxconn build entire factories to meet these product specs. Again, design reigns supreme.
Moreover, Inc.com reported that as the scale of annual manufacturing increased to hundreds of millions, the need to outsource became more and more present. Harvard Business Review argued US companies were simply unable to meet the scale of manufacturing.
What It Means For You
This fundamental need to focus on innovation, design, and customer experience, in addition to its need for engineering expertise, flexibility, and supplier availability is why Apple outsources its manufacturing.
In the past, companies were vertically integrated and controlled all processes from R&D to manufacturing to distribution (e.g. Carnegie Steel, Shell).
Since the 1980s the trend is to focus on your core competency and outsource what is not core (as is the case with Apple).
We here at Kusu believe that outsourcing is here to stay (the alternative is very expensive) and that is why we are promoting Southeast Asian manufacturers as an alternative to China.
If you or your company are interested in outsourcing, and especially if you are interested in outsourcing to Southeast Asia, Kusu can help. We are ready and dedicated to helping you with any and all outsourcing or manufacturing needs you or your company may have.