ON iPODS AND GLOBALIZATION

MURKY WATERS

Another interesting article in the New York Times today, for any student of Globalization.  Titled "An iPod has Global Value", the piece explains:

"Who makes the Apple iPod? Here’s a hint: It is not Apple. The company outsources the entire manufacture of the device to a number of Asian enterprises, among them Asustek, Inventec Appliances and Foxconn.

But this list of companies isn’t a satisfactory answer either: They only do final assembly. What about the 451 parts that go into the iPod? Where are they made and by whom?

Three researchers at the University of California, Irvine — Greg Linden, Kenneth L. Kraemer and Jason Dedrick — applied some investigative cost accounting to this question, using a report from Portelligent Inc. that examined all the parts that went into the iPod.

Their study, sponsored by the Sloan Foundation, offers a fascinating illustration of the complexity of the global economy, and how difficult it is to understand that complexity by using only conventional trade statistics

The retail value of the 30-gigabyte video iPod that the authors examined was $299. The most expensive component in it was the hard drive, which was manufactured by Toshiba and costs about $73. The next most costly components were the display module (about $20), the video/multimedia processor chip ($8) and the controller chip ($5). They estimated that the final assembly, done in China, cost only about $4 a unit."

Here are the two non-intuitive conclusions from the study:

"The researchers estimated that $163 of the iPod’s $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers. Japan contributed about $26 to the value added (mostly via the Toshiba disk drive), while Korea contributed less than $1..."

"This value added calculation illustrates the futility of summarizing such a complex manufacturing process by using conventional trade statistics.

Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese."

The bolding above is mine.

Here's hoping some of our legislators like Senator Chuck Schumer take a look at this study.  See this Financial Times article for some of things they've got in the works.  The humble iPod shows how threats to escalate a global trade squabble, could end up really shooting ourselves in the foot.

Comments

[Alex Tolley]

This is really another way to argue that it doesn't matter if we export microchips or potato chips. I disagree. Whilst it may look like the value-added is captured by the US (although it is arguable that the $75 is just our distribution inefficiency), over the long term, the ability to design new products is quite transferable, will be transferred to places that can do it cheaper/better, whereas our ability to design and manufacture the high components is already being lost. One really has to believe that conceptualizing new ideas based on existing components is a long term advantage of the US. I don't believe it is.