Market Overview

Instead of Dividends, Apple Could Bring Jobs to America

Apple (NASDAQ: AAPL) is perfectly poised to bring jobs back to America, even as Apple ramps up pressure on supplier Foxconn with an audit by the Fair Labor Association, whose mandate is to "end sweatshop conditions in factories worldwide." With over $100 billion in cash reserves that CEO Tim Cook is actively looking to spend, the company may consider raising its labor costs slightly by repatriating jobs.

A number of factors are making a return to American manufacturing attractive for the tech giant, but the biggest is that China's economy is weaknening as American manufacturers begin returning home.

The strongest argument for bringing back jobs came from Boeing CEO Jim McNerney, who said that the "lemming-like" move to a global supply chain to contain cost resulted in a drop in quality. "We lost control in some cases over quality and service when we did that, we underestimated in some cases the value of our workers back here," he said, according to Reuters.

Apple, a company famous for the quality of its goods and its secretive control over its products, might want to consider whether a return to American manufacturing could help it on several fronts. For one, domestic production overseen more closely by Apple itself may lower the number of product leaks that have come from suppliers in recent years. Secondly, a production chain closer to home would make it easier for the company to control every aspect of product manufacture, which may make the products higher quality than they currently are.

At the same time, China is in need of companies like Apple to keep its manufacturing base running at a time when foreign companies are taking their cash elsewhere. Chinese foreign direct investment has faltered for the third month in a row. Slow ecoonmic growth, Europe's debt crisis, and domestic inflation have been cited as challenges that the Asian economy has struggled to overcome as American manufacturing is in the dawn of a renaissance.

This does not mean that China is no longer a major exporter or that the Chinese economy is facing a recession. While exports of American goods and services increased by 14.5 percent in 2011 compared to the previous year, the trade deficit increased to $558 billion from $500 billion in the previous year, and the country's trade deficit with China increased to $295.5 billion in 2011, up from $273.1 billion in the previous year, according to data from the U.S. Census.

Despite the slowdown in foreign investment, which fell 0.3 percent to just shy of $10 billion in January, China is still seeing plenty of American companies looking to invest more in the Asian company. This hasn't placated the Chinese Commerce Ministry, who said that the outlook for foreign investment and trade is "grim" as pressure from Europe hits the country hard. The EU is China's biggest trading partner and biggest export market, so a slowdown in Europe has been a brewing disaster for China. The EU's trade deficit with China, unlike America's, is beginning to fall.

In 2008, the Chinese government was able to offset slow foreign demand with a housing bubble that is now beginning to pop. More creative solutions are needed this time around. Inflation, raising wages, greater pressure to improve working conditions in Chinese factories, and foreign worries about off the charts pollution in China are making a perfect storm for American manufacturers to consider a return to America, as the higher labor costs at home look increasingly marginal. Now that Chinese workers are looking for better pay, we may see that marginal savings simply vanish in a few years.

Eventually, Apple may abandon Foxconn and headlines about worker suicides and return to America, because assembling in China will no longer save it money. The company may consider moving earlier, which would prompt cheers from labor advocates and American workers. Investors may also welcome the move as a sign that Apple's products will improve, but they might also see it as a sign that Apple won't give them that dividend payout that has become the Eldorado of Wall Street.

Posted-In: News Global Hot Tech Best of Benzinga

 

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