“Fall 2020” Case Study - 1

Group Exercise On “APPLE”

COURSE: INB 372
Section: 04

SUBMITTED TO:
ADINA MALIK (ALK)
Lecturer
Department of Marketing & International Business
North South University

SUBMITTED BY:
Name ID

QS-1) What are the benefits to apple of outsourcing the assembly of the
iPhone to foreign countries, and particularly china? Explain with example.

Answer: The benefits to Apple of outsourcing the assembly of the iPhone to foreign countries,
and particularly China are given below.

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 i. The labor cost in China is very low. Apple can produce their iPhones for a much cheaper
price in China compared to the USA.

ii. The executives of Apple believe that the workers in China are very flexible, diligent and
skilled. China also has a vast scale of factories. To be able to get both cheap and
hardworking workers is very beneficial for a company.

iii. The labor cost is not just cheap; the workers are apparently willing to work overtime.

iv. The number of qualified engineers is very high in China. The engineers in China are
always available and also highly qualified compared to the USA.

An example of flexible and hardworking workers in China can be how Apple decided to redesign
their iPhones’ screens at the very last minute and the Chinese workers were able to produce
10000 iPhones a day within 96 hours. This is not possible in America. Chinese workers are
flexible and they are willing to do anything at any time.

Another example which proves that the labor cost is very low and highly qualified engineers are
available to work can be how Steve Jobs wanted to replace plastic screens with glass screens to
avoid scratches. Getting this done would have been very costly in America. But in China, the
government agreed to underwrite costs for numerous industries, and those subsidies had trickled
down to the glass-cutting factory. They had free samples for Apple to use. Chinese engineers
were ready to work on this project for almost no cost. Eventually China got the job.

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 QS-2) What are the potential cost and risk to Apple?

Answer: As we saw many benefits that Apple is getting by assembling their product in a foreign
country China in the previous question. But in the long run, those benefits can become the reason
for their potential cost and risk. Also, the other internal and external environmental factors may
become the reason for this. Like

i. Those cheap foreign workers may strike any time for their deserving salary or payment.
Because those foreign manufacturers pay very less money to their workers and sometimes
they don’t even pay those workers for overtime. Thus, those workers get highly demotivated,
and because of those long working hours, workers may lose their efficiency. If this happens,
then manufacturing costs will increase for Apple products. And there is a high possibility that
those strikes may happen in the production time because those are the high time for workers
to achieve their demand. And if the strike occurred in the middle of the production time, then
Apple might get into huge trouble, which is a huge risk for Apple.

ii. From the beginning, the working condition of their employee is always questionable.
Because of the poor working condition of apple products manufacturers and also the safety
measures are not good enough for the working environment. Those working environments
are not following the international standard rules and regulations and those places are not
hygienic enough to work and have the food and there were not enough fire exits for the
worker. Also several Apple subcontractors have been targeted for their poor working
conditions. So if the law and authority take legal action against them, Apple may need to pay
a high amount of fines. This will be very costly for Apple and they will hamper the brand
image well, which may become the reason for their losses.

iii. Shipping costs may increase anytime because of changes in foreign government policy. Like
if the taxes and tariffs increase, then shipping cost will increase for Apple. Also, Apple
product prices may increase. And this will be a risk for decline in sales.

iv. Political imbalance is another thing that Apple should worry about. Because sudden changes
in government business policy can make time tougher for Apple to continue their business in
China, because Apple is very much dependent on Chinese manufacturers. For example, when

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 the US banned Chinese company Huawei and brought some changes in business policy with
China that affected some companies. So if this type of political imbalance happened in the
future, then it might be very costly as well as risky for Apple.

v. Another potential risk for Apple can be if the Chinese technicians copy Apple’s unique idea
during manufacturing. Then Apple will lose its competitive advantage. And their competitor
might increase with offering the same types of products. This might decrease the sales of
Apple products. So risk will always be there.

QS-3) In this whole scenario who are the potential losers?

Answer: In this whole scenario workers of both countries are potential losers such as –

Harmful effects for Chinese workers

The Chinese factory owners made contracts that had the work labor force to be available for 24
hours, with little to almost no cost for their products. In this case, the workers are the ones that
are not profiting as much.

i. Poor working condition: To maintain a low cost production cycle Chinese workers are
forced to work in poor environments that causes a harmful effect on their health
condition.

ii. Low payment: Considering the efficiency of Chinese workers they get a much lower
salary than Americans. They don’t get proper wages according to their work.

iii. Overtime without any extra payment: Chinese workers are forced to work overtime
without any extra payment to survive in the competitive job market.

Harmful effects for America:

The Americans cannot provide as many engineers as the Chinese. Their workforces greatly
outnumbered the Americans and thus, Apple moved most of their productions overseas.
Americans thus, have less employment and lose a lot of jobs. That affects their national economy
in the long run due to the rising unemployment rate.

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