The Wall Street Journal and other media report that Apple plans to repatriate the majority of its upwards of $250 billion in cash holdings held in overseas accounts. This development has industry supply chain implications since some of this cash is reportedly destined for supply chain investments. However, Supply Chain Matters believes there are political considerations in such moves, and the company is walking a tightrope of perception.
According to the WSJ report, Apple plans to pay-up a one-time $38 billion repatriation tax to free-up foreign cash reserves as a result of the recently passed U.S. corporate tax reform measure. In return, plans call for a $30 billion investment over five years, in a collection of investments. Unclear is where the bulk of the other cash is destined.
Specific investments are noted as building a new U.S. based facility to house customer service operations, an additional $10 billion toward enhancing existing U.S. data centers, and expanding its previously announced program for investing in advanced manufacturing in the U.S. Regarding the latter, the consumer electronics manufacturer indicated it would up its previous $1 billion announced funding commitment toward investing in U.S. advance manufacturing practices to now be $5 billion. Reportedly unclear is whether this advanced manufacturing fund serves as advanced payment to key suppliers or an addition of overall supplier funding.
Apple CEO Tim Cook touted that the company has a deep sense of responsibility to give back to the country as well as the people who help make Apple’s success possible. However, the fact remains that at this juncture, many details related to Apple cash repatriation investment plan are indeed unclear.
Our readers will recall that this blog, before the current Trump era, has long taken Apple to-task for not sourcing meaningful production in the U.S. To the company’s credit, there have been some signs of-late, that indicate an intent to correct such a perception. No doubt, some of that stems from the election of Donald Trump, who was quick to take direct aim at Apple as a rallying cry of the “Make America Manufacturing Great” mantra. As the WSJ noted in its reporting, Trump indicated last year that CEO Cook promised to build three manufacturing plants in the U.S. Unclear was the timing or the scope.
Hopeful signs were Foxconn’s July 2017 decision to build a LCD manufacturing facility in the State of Wisconsin, and an announcement by laser supplier Finisar to build a large-scale manufacturing plant in Sherman, Texas.
In its latest statements, Apple touts that the company directly employs 84,000 people in the U.S. That rubs against the reality of Apple’s contract manufacturing partners together who employ well over one-million people, in China and other Asia regions. Add the vast network of other Asian based suppliers and the numbers are sensitive in today’s U.S. political climate.
Overall, Apple announcement should not be a surprise, it is a forerunner of other unstated strategic moves yet to unfold. Perhaps a major blockbuster acquisition or two.
From an industry and global supply chain lens, the focus on added investment in U.S. product value-chain capabilities is laudable, but still smacks of trying to appease the political climate. We could all speculate that if the U.S. Congress had elected to vote for a border or value-added corporate tax structure, this week’s announcement would be far different, not only for Apple but other high-tech and consumer electrics manufacturers headquartered in the U.S.
Apple’s arguments for maintaining competitive product margins in supply chain and manufacturing sourcing is wearing thin, given the shear size of the cash horde that is about to be repatriated into other purposes including appeasing investors and Wall Street interests. While business strategy and quantitative cost considerations often drive strategic supply chain sourcing decisions, there is also the reality of political alignment or appeasement in various strategic markets. As an example, an announcement this week related to some form of U.S. manufacturing presence for producing iPhones such as the very high margin iPhone X would have more political and national resonance. Just thinking aloud.
© Copyright 2018. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.