Directions: Take a Look at the Video from youtube: Here is the Link
http://www.youtube.com/watch?v=zqL2nS6GljY
If for some reason, the link is not working, type into the Youtube Search engine:
FoxConn ABC news
After Viewing the news clip and reading the article and studying the figures below, write a 1 -2
paragraph blog of your impressions of the last paragraph. Should America continue to rely on
Chinese workers and companies to produce our innovative Ipads and Iphones? Or, should there
be more outrage and regulations for what is going on in China? Look at the costs of labor for
Apple. Why isn’t there more rigorous investigations or insistence that Apple produce their
products in America and give Americans the opportunity for work? What do you think?? Give
your opinion and thoughts!!
Next, the story that has gone unreported lately is a University of California study titled
“Capturing Value in Global Networks: Apple’s iPad and iPhone”. The study's most interesting
finding, in my opinion, is the tiny percentage of the total value of Apple's iPhone and iPad that
actually goes to the Chinese manufacturers of the products. The charts below, from the study,
show how the value is divided among the various groups involved it their production and sales:
The Economist provides the analysis:
The chart shows a geographical breakdown of the retail price of an iPad. The main rewards go
to American shareholders and workers. Apple’s profit amounts to about 30% of the sales price.
Product design, software development and marketing are based in America. Add in the profits
and wages of American suppliers, and distribution and retail costs, and America retains about
half the total value of an iPad sold there. The next biggest gainers are South Korean firms like
Samsung and LG, which provide the display and memory chips, whose profits account for 7% of
an iPad’s value. The main financial benefit to China is wages paid to workers for assembling the
product and for manufacturing some inputs—equivalent to only 2% of the retail price.
A student today asked why Apple doesn't produce its products in the United States, where an
economic downturn has left 14 million American out of work for the last three or four years. If
iPads and iPhones were just made in America, jobs could be created, households would have
more income to spend on Apples products, and both the country and the economy would
benefit.
The data in the UC study indicates that in fact, more than half the value of an iPad or iPhone
does end up in the hands of Americans. But Apple could never achieve the low costs and high
profits that it does by assembling its products in the US. After watching the Nightline video
above, it should be clear that the type of production involved in Apple factories' is very lowskilled and labor-intensive. Using American labor, with its unions, minimum wages and 40 hour
work weeks, would require Apple to employ such large numbers of workers and raise the
company's variable cost to such a level that the firm's profits would be reduced significantly and
its sales would fall dramatically. Apple would lose out to foreign producers of smart phones and
tablet computers, such as LG, Samsung, Sony and others, which would continue assembling
their goods with Chinese labor.
Ultimately, any gain to the low-skilled American workers (presuming Apple could even find
enough to do the work of the 400,000 Chinese employed in the production of Apple products in
China), would be offset by a loss of profits enjoyed by the millions of Americans who hold
shares in Apple Computer and the thousands of American who are employed engineering and
designing its products, as the firm's sales would slip in the face of lower-cost competitors.
So this student's question identifies an interesting paradox: America, with its large pool of
unemployed workers, will never be attractive as a place to produce labor-intensive products
such as phones and tablet computers, due to the vast wage differential between the US and
China. And even if one firm did decide to produce its products in America, the gains to lowskilled workers who may find minimum wage work in the new assembly plants would be off-set
by losses to the firms' shareholders and the high-skilled workers whose jobs would be lost as
sales decline due to the lower prices offered by lower-cost competitors.
The lesson here is two-fold: First, Apple and other American technology companies should
continue using Chinese labor to assemble their products, and second, America is better off for
it: lower costs mean cheaper products and higher sales, thus greater employment in the highskilled sectors of the US economy, and more profits and returns on the investments of
shareholders in American corporations. Americans are richer and enjoy a higher standard of
living thanks to the millions of Chinese working in factories assembling the goods we consume.
Keep in mind, this analysis did not even consider the effect on the Chinese economy and the
millions of Chinese workers (whose lives are much harder than the typical American) should
companies like Apple shut down their Chinese manufacturing plants. That's a whole other blog
post!