iPhone 5S: As Apple declines, Samsung, Chinese smell blood

wpnadminBusiness, Technology

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Tomorrow, Apple is slated to bring fresh produce to the technology meat-market with an evolved iPhone 5 dubbed iPhone 5S.

The Apple faithful are also expecting a cheaper version positioned towards East and South Asian markets where the computer giant is being mauled by insular and cut-throat Korean and Chinese rivals.

But the level of excitement that Apple used to garner in its hey days is gone. With Steve Jobs deceased, there is a palpable sense that Apple no longer commands the status of Sun at the center of consumer electronics Solar System.

Sure, there are confirmed reports that Apple is going to introduce innovative security features based on fingerprinting technology, the obligatory faster processor, and a more sophisticated camera at its Cupertino conference tomorrow. Needless to say, there will be plenty of stuff to feast your eyes on. And who can forget that Apple stock is still at a respectable $506.17?

So why the lack of bated breadth, clenched lips, tense foreheads?

The answer to that lies in two words. Offshore Outsourcing.

Apple's addiction to outsourcing is not unique. Most big American corporations in their headlong rush for a tiny slice of East Asian market, have outsourced vast swaths of manufacturing know-how to Japan, Korea, Taiwan and China. With little to no manufacturing base left in America, companies like Apple are completely at the mercy of their East-Asian suppliers.

It does not take a fertile imagination to realize that sooner or later these suppliers would gain all the core competencies and no longer be content to sit in the kitchen making dinner for their American counterparts. Now they want to wine and dine themselves and send Apple to the dumpster.

This is what has been happening to Apple's phone business, as it is being shoved aside by rivals such as Samsung, ZTE, Huawei, Lenovo in the world's largest phone market - China, and beyond.

Consider Samsung. In 2009, the Korean behemoth's global share in smartphones was a puny 5.9%. Fast forward to 2013, Samsung is rocketing towards almost one-third of global market. How did Samsung catch up so quickly and surpass Apple in global market-share?

The explanation is simple. Remember how Apple outsourced the manufacturing of iPhone's processor to Samsung? Why would you outsource the heart and soul of your hardware to your rival and not expect them to accelerate their own design and development process and then come back at you like a Frankenstein?

Probe further into iPhone 5, dismantle it, count all the critical components and what do we see?

That it is more Japanese than American. If Apple were to stamp all its iPhones with Made in East Asia, it would outrage the Apple fanatics, but won't be too far from the truth.

So what? Comes the cheap rhetoric. We live in a globalized world, where people are free to exchange goods and services as they see fit. What is so wrong with East-Asians producing all the advanced materials and components? Apparently, the Asians beg to differ. When was the last time Samsung, Sony, Huawei outsourced most or all of their advanced manufacturing to America (or Europe)?

If Samsung is harbinger of things to come, then imagine what will happen when one of these days two or three new Chinese rivals with 30 times the population and resource base of South Korea give Apple a run for its money.

If Apple does not bring back manufacturing of advanced components and materials back to America, that day may not be too far when this once great company will go the same way as RIM and Motorola did. Until then, enjoy Siri's sweet voice.

[images via Flickr and Asahi Shimbun]