Anton Zhang's Profile

I think it really depends on what types of jobs Apple target to bring domestic. The assembly line in my hometown Zhengzhou back in China adds less than $15 in the whole supply chain. Therefore, although it seems to help create jobs in China, it may not be the case in US since the hourly wage is so low that US workers will not find it attractive at all. More importantly, the job is so repetitive and boring that I doubt even when the financial compensation is competitive, millennial in the US are willing to take the job.

In addition, since Apple sources lots of components from Taiwan, Korea and Japan, the geographical proximity also plays an important role. My hometown is 3 hours’ flight from Korea and 4 hours’ flight from Japan and Taiwan. Therefore, the components can be shipped by air directly from suppliers, assembled in the factory just next to the airport and then the finished goods can be shipped by air again to Hong Kong where finished goods are shipped all over the world. Thus, considering the logistics and transportation costs involved, it may not make sense economically in both long & short term for Apple to relocate the assembly jobs back onshore.

Thanks Danny. It’s very inspiring to see how the maths work from the perspective of the government. On the one hand, there may be some economic benefits that will be very difficult to quantify. For example, the network effect which may attract other manufacturers. Foxconn may pay itself to improve the infrastructure around the factory. On the other hand, the government officials can be short-sighted and only focus on short term political benefits.

For Foxconn, since the company focuses on automation in the future, the high labor cost in the US will be less a issue. Besides, locating factories closer to customers may also save transportation and logistics cost as shown in Fuyao’s case on top of the tax credits. Therefore, I think the mathematics from Foxconn side may be more favorable in this project.

Finally, I think it may be easier for Foxconn to find talents of automation in the US considering the talent pool here, especially considering the protectionism in the filed of intellectual property. The company may develop better know-how in the US than elsewhere.

As for the offline store, I think the major change is about the layout and space allocation. Traditionally, when we shop, we need to go through all the aisles to find the products we already have in mind. Nowadays, since we have already placed online orders, what we need is to drop by and pick up the order in minutes if not seconds. The pick-up function should exist in harmony with the existing functions. Online shoppers should not have the trouble to pick up. Offline shoppers should not find the pick-up area chaotic or noisy that affect their own shopping experience. To push it forward, if the offline channel serves more and more the function of picking-up, shall we keep it as spacious and enjoyable as it is right now? Home Depot may need to strike the balance.

As for the whole supply chain, distribution center now ship inventory in batches to different stores. With a larger online portion, more orders need to be distributed order by order, in smaller units per order but more orders. Traditionally, inventories are only sent to a bunch of stores but now directly to millions of households all over the country.

Thanks much Solomon. I agree with the concept of digitization of the supply chain. I wonder whether Pfizer can successfully leverage the data accumulated to improve its supply chain efficiency. As you mentioned, the margin profile was so lucrative that the company historically did not bother to work on the supply chain. Nowadays, I still suspect whether the management has the bandwidth or can find the right specialized talents to tackle the problem. Maybe the talents are more willing to join IBM Watson given its reputation in technology, instead of Pfizer which is viewed as a pharmaceutical player. In addition, historically, companies like Owens & Minor have developed expertise in healthcare supply chain. They may be in better positions to optimize the supply chain.

Thanks Austin. I find HP in a perfect position to push the ‘green’ server concept because of its customer base. My guess is that most of the customers for the servers will be IT and Internet companies, most of which happen to be advocates for less GHG emission. Quite likely, these IT and Internet companies set the target to reduce or even eliminate GHG emission themselves, meaning they are more than willing to buy the servers with a ‘green’ supply chain, helping them to achieve their own goals. In some sense, I think the move to a ‘green’ supply chain will help HP to secure more customers and orders even with a higher price.

If HP’s supplier push back on the idea of ‘green’ supply chain, I think HP can first offer higher price to the suppliers who are willing to join the team. Those who lose the orders from HP may find it hard to secure orders from other customers with a scale comparable to that of HP. Over the time, I believe at least some of them will accept the idea. With more suppliers coming in, HP can leverage its bargaining power and seek lower quotes from suppliers.

Thanks much Tim and Philip. It is indeed a very interesting topic. I covered the clean energy stocks, including Goldwind and China Datang for one and a half year and would like to share more thoughts on the ‘supply chain’ involved in China’s clean energy policy.

As mentioned, one of the biggest problem with the wind electricity is the curtailment, which is as high as 10%-15% in China vs. 1%-3% in the US vs. almost 0% in Denmark. The potential solution lies in the grid and dispatching mechanism, i.e. how the electricity is shipped along the supply chain.

China do not have the electricity dispatcher in the network. The company which owns the national level grid also owns the local dispatching network. Since wind electricity tends to be more volatile compared with other forms of clean energy, on the national grid level, to make its job easier and the grid safer, the grid simply curtailed wind electricity instead of shipping the electricity from the Western China where electricity is produced to the Eastern China where electricity is consumed.

If there is an electricity dispatcher, the incentive will be different because in European countries such as Denmark, the dispatcher bid for the electricity from different sources. If we look at the marginal cost for different forms of electricity, wind will be among the lowest, since we do not need to burn coal/natural gas and all we need is the ‘free’ wind. If the dispatcher only pay the price for wind electricity, which is lower, the grid has no economic incentives to ship coal/natural gas electricity any more.

Therefore, to make sure that China can hit its target of clean energy, a smarter grid has to be built, making it safer and less volatile to ship wind electricity. On top of this, the company in charge of both grid and dispatching should be split into two independent entities, giving them the incentive to seek for the source of electricity with the lower marginal cost.