Technology | DOI: 10.1145/2063176.2063186
analyzing apple Products
Researchers untangle the complex web of Apple’s global supply
chain—and offer lessons for managers and policymakers trying
to chart the future course of U.S. industry.
APPLe’s IconIc PRoducT boxes boast of their con- tents’ U.S. pedigree with a “Designed in Cupertino” tagline. While most buyers probably suspect the products are
made outside the U.S., almost no one
outside the famously tight-lipped company fully understands the economics
of Apple’s manufacturing supply chain.
Enter University of California, Irvine
business professor Ken Kraemer who
has led a series of far-reaching investigations into how Apple’s products are
made. The team’s findings, as detailed
in “Capturing Value in Global Networks: Apple’s iPad and iPhone,” not
only shed light on the intricacies of the
modern high-tech value chain, but they
may also hold important lessons for
managers and policymakers trying to
chart the future course of U.S. industry.
The team’s analysis reveals that
while most Apple components are
indeed manufactured abroad—
predominantly in Korea, Japan, and Taiwan—the economic benefit accrues
overwhelmingly to Apple. So, while each
iPad tablet computer sold contributes a
theoretical $275 to the U.S. trade deficit,
that transaction comes with enormous
benefits to Apple’s employees, shareholders, distribution partners, and, by
extension, the rest of the U.S. economy.
While the devices may be assembled
in China, that country accrues surprisingly little economic benefit. No iPad or
iPhone components are actually manufactured in China, and as little as $10
from each sale goes to Chinese firms,
primarily by way of wages paid to workers on the assembly line.
The team’s analysis revealed that,
accounting for both consumers’ and
phone carriers’ share of the cost, Apple
probably retains about 58% of the sales
price of a typical iPhone 4 smartphone.
That margin drops considerably for the
lowest-end iPad, where Apple holds on
Distribution of value for the iPhone based on Ken Kraemer’s research.
Cost of Inputs:
Non-China Labor 3.5%
China Labor 1.8%
S. Korea 4.7%
Non-Apple U.S. 2.4%
to roughly 30% of the $499 sales price.
Those margins increase, of course,
when Apple sells the products via its
Web site or stores.
How did the team unearth so much
detail about the inner workings of such
a notoriously secretive organization?
“We just dug,” says Kraemer. The
team, which also included Greg Linden of University of California, Berkeley and Jason Dedrick of Syracuse
University, relied heavily on teardown reports from iSuppli, in which
engineers disassemble products and
perform painstaking analysis of each
component. (The iPad, for instance,
contains more than 400 individual
parts.) The team then worked with industry analysts, former Apple employees, and various experts to unravel the
entire supply chain surrounding the
Apple products, making informed estimates about the involved financial
transactions. The team is now applying its methodology to other industries, such as analyzing, for example,
the U.S. wind power industry.
What lessons can managers derive
from this analysis? First and foremost,
the study calls into question the received
political wisdom that reviving manufac-
turing will pave the way back to eco-
nomic prosperity. For all the Sturm und
Drang around the U.S.’s eroding manu-
facturing base, the real economic value
of high-tech manufacturing and assem-
bly jobs may be quite limited.
Alex Wright is a writer and information architect based in