Apple Set to Expand Presence in China

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NEW YORK - Apple Inc recently released its fiscal 2012 first quarter results. The company posted record quarterly revenue of $46.33 billion, with iPhone sales totaling 37 million units.

At the earnings call, Apple CEO Tim Cook said China is an "extremely important market" for the company, and it will continue to look at how to grow its presence in the country.

But China is not simply seen as a potential growth market for Apple products. The country often is regarded as the company's main production base.

US consumers could be misled when they turn over an iPhone and see the "Made in China" label. They often think that means China is taking US jobs and making money from US products.

The reality is that this impression is not an accurate reflection of the situation.

A report written by three US professors - who attempted to capture value in global networks by using Apple's iPad and iPhone as research examples - shows that only about "$10 or less in direct labor wages that go into an iPhone or iPad is paid to Chinese workers".

The report points out that while the Apple products - including components - are manufactured in China, the primary benefits go to the US economy. That's because Apple continues to keep most of its product design, software development, product management, marketing and other high-wage functions in the US. China's role, the report concludes, is much smaller than the casual observer would think.

The supply chain for the iPhone 4 actually presents a good example of how it works: The device was designed by Apple engineers in the US, sourced with components from different parts of the world and is only assembled in China factories owned by the Taiwan-based company Hon Hai Precision Industry Co Ltd, also known as Foxconn Technology Group.

One of the report's authors, Jason Dedrick, a professor at Syracuse University, said that China makes very little money from these products.

Rather, much of the value in high-end products such as Apple's, is captured by the brand, distributors and retailers - the beginning and the end of the process.

The report said that each unit sold in the US - at a price of around $600 - adds between $229 and $275 to the US-China trade deficit (the estimated factory costs of an iPhone or iPad). However, the portion retained by the Chinese economy is "a tiny fraction of that amount".

Another of the report's authors, Kenneth L. Kraemer, a professor from the University of California, said that most consumers simply don't quite understand how global supply chains work in this case.

"They (people who think China's role is bigger in the production of Apple products) focus only on the trade deficit with China, and therefore they think China has a bigger role. What they don't understand is that China gets all sorts of input from other countries from Japan, the US, Malaysia and so on. So China's contribution is really a small amount of labor," Kraemer said.

"They think China's role is bigger simply because they don't understand how global supply chains work. They think everything from an iPad and iPhone is made in China rather than just shipped (components) and assembled there," Kraemer said.