Report details Apple’s ‘iPhone City’ in China and difficulties bringing manufacturing back home

David Barboza takes an in-depth and investigative look into the many moving pieces that have and continue to help Apple maintain the foothold it has in China to this day. Combing through confidential government records and a swath of interviews, Barboza explores the complexities technology companies like Apple have to go through to make manufacturing a success overseas. At the same time, the piece highlights the difficulties companies will encounter when attempting to bring manufacturing back to the U.S.

Barboza’s investigative piece delves deep into the city of Zhengzhou that locals have now dubbed ‘iPhone City’. The city, in one of China’s poorest regions, produces half of the world’s iPhones at a Foxconn facility.

Running at full tilt, the factory here, owned and operated by Apple’s manufacturing partner Foxconn, can produce 500,000 iPhones a day.

Exploring past just the factories we commonly know, Barboza tells the story of how incentives and government play a significant role for technology companies in the region.

Beijing, for decades, has encouraged such efforts at the national level, by developing special economic zones that offer tax breaks to multinationals and exempt them from costly and cumbersome rules.

The years of work and investment developing the supply chain overseas can make bringing manufacturing back stateside near impossible. Foxconn has brought the idea of potentially moving a portion of their operations to the US, but not all of Apple’s other supply chain manufacturers have. With President-Elect Donald J. Trump promising punitive tariffs on companies that move jobs overseas, Apple’s years of relationship building in China are notable to say the least. These deals with government agencies and various companies have allowed Apple to remain as profitable as possible.

A 32-gigabyte iPhone 7 costs an estimated $400 to produce. It retails for roughly $649 in the United States, with Apple taking a piece of the difference as profit. The result: Apple manages to earn 90 percent of the profits in the smartphone industry worldwide, even though it accounts for only 12 percent of the sales, according to Strategy Analytics, a research firm.

Barboza’s reporting shows that although consumers may just see the end product of the newest Apple gadget, the years it took to arrive to that point are full of stories unto themselves. For example, the relationship that had started with Foxconn during the original iPod sales has become a significant contributor in Apple’s strength in China until today.

When Apple’s sales took off after the introduction of the iPod in 2001, Foxconn had the heft and expertise to meet the demand that accompanied each hit product. Foxconn’s factories could quickly produce prototypes, increase production and, during peak periods, hire hundreds of thousands of workers.

Foxconn’s founder, the Taiwanese billionaire Terry Gou, provided political clout. Over the years, he frequently visited China to meet local officials and members of the decision-making Politburo to lobby for subsidies, cheap land, workers and infrastructure for facilities that churned out iPods, iPads and iPhones.

“The reason Foxconn’s so big is Terry Gou,” said Tony Fadell, a former Apple executive who helped design the iPod. “He said he’d create the manufacturing, and the Chinese government would give him some of the money to do it. As Terry grew with the Apple business, no one else could compete.”

The entire piece makes for a great read in understanding not only how Apple has operated within the country, but how even some of it’s competitors like Dell, Hewlett-Packard, and Samsung have too.