Apple Special Event 2018
Apple trade accounting: Xing (2017)
• $139.8 billion: net foreign sales, 2015
↘ $55.9 billion: the value added of Apple’s
intellectual property
↘ 3.7% of US exports and 7.5% of its trade deficit
$6.50: PRC workers’value-added to iPhone
Source: Xing (2017).
Supply Chain Finance and Shenzhen's
Smartphone Manufacturing
Shuo Shi
Fudan University
Sep. 14th, 2018
Framework
1. Build my own iPhone in China
2. Industrial organization cost: A simple model
3. Supply chain finance: What, how, and why
4. Conclusions
Shenzhen: China’s tech headquarters
Build my iphone in Shenzhen
Build my iphone in SZ
Whole package smartphone manufacturing in SZ
On global level,
• 90% of smartphone brands
• 80% of assembly
• 70% of design
•99% of components
Source: Shenzhen Mobil Communications Association.
Research Questions
• How is smartphone manufacturing organized in SZ?
• What drives China’s leap forward in high-
technology sector?
• Is trade war useful to contain China?
Industrial Organization Cost
• Organization cost:
• how much to start up a company
• Industrial organization:
• Market power, price discrimination, M&A, antitrust and
competition, industrial policy, etc.
• Industrial organization cost:
• Labor division
• Production chain integration
• Industrial level
A Simple Model
𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛
𝐶𝑜𝑠𝑡
𝐌𝐚𝐱 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
−
− 𝑂𝑟𝑔𝑎𝑛𝑖𝑧𝑎𝑡𝑖𝑜𝑛
𝐹𝑎𝑐𝑡𝑜𝑟
𝐹𝑎𝑐𝑡𝑜𝑟
• A mid-stream firm, or an intermediate firm
• Almost perfect market
• On each procedure, there is numerous suppliers and
demanders which are all homogeneous
• A highly-inner-linked industry means both the items form the
suppliers and the orders from the demanders are critical
• Zero inventory, zero default, many orders
Sandwich Trap: The Embarrassed Middle Stream Firm
Production
Order
Upstream
Mid-stream
Downsteam
Order, Item
No item,
No income
Order, Item
Supply Chain
Finished
products
Supply Chain Service and Finance
• Outsourcee
• Organization
• Outward
• Finance emerges from knowledge.
Big Tech Companies started up in Shenzhen
Small and medium-size technology enterprises in Shenzhen
• Above 30 000 SMEs in technology business in 2014
• More than 6400 SMEs qualified as national high-
tech businesses in 2016
• 65230, number of patents owned by the SMEs, 2016
• 156 listed SMEs, top 1 among China’s cities
• Organizing among these SMEs costs greatly!
Fashion and fast
• Smartphone is more like fashion business.
• Half a year, even every season
• From design to prototype
• From prototype to mass production
• Over-inventory is more common and more
risky!
Shenzhen-Hong Kong-Zhu Hai-Macao
Forwarding Agent
• Workshop owners know little about customs and tax
refund
• Forwarding agent:
• Freight
• Customs clearance
• Foreign exchange settlement
• Agency fee, margin in exchange rates, even tax
refund
SZ to HK: Mechanical & Electrical Export Share
2000
1500
84.9%
1000
500
35.3%
0
1997
Mechanical & Electrical Products
2016
Non-Mechanical & Electrical Products
Fig 1. Shenzhen-to-Hong Kong Goods Export Structure, 100m current RMB
Summary: Why Shenzhen?
• SMEs
• Fashion and fast
• Shenzhen-Hong Kong
Conclusion Remarks
• In highly-inner-linked industry, i.e. smartphone
manufacturing, minimizing industrial organization cost is
critical.
• Supply chain finance results from the mid-stream trap.
• Shenzhen:
• SMEs
• Fashion and fast
• Shenzhen-Hong Kong
Implications: Trade war, or squabbling?
• Steven N. S. Cheung: US gives China an A
• China’s leap over in high-tech industry:
• Free trade and open
• Marketization
• Deregulation
• Improve total factor productivity (TFP)
Thank You!
We are all Schumpeterists, perhaps
• Owing to the importance of the
financial complement of capitalist
production and trade, the
development of the law and the
practice of negotiable paper and of
“created” deposits afford perhaps
the best indication we have for
dating the rise of capitalism.
by Joseph Schumpeter