US Study Shows Taiwan Holding the Global Supply Chain Together
Many U.S. companies sign contracts with Taiwanese firms to have their products manufactured (mainly in China), and then shipped to the United States where they are sold by U.S. firms under their own brand name.
A new study by the US Congress Congressional Research Service on US-China trade provides a rare detailed glimpse into Taiwan’s role in the global supply chain.
Written by specialist in Asian trade and finance Wayne Morrison and published this week by the Congressional Research Service, the study says that in many instances, the level of value added to a specific item in China can be quite small relative to the retail price of the final product.
Researchers at the University of California looked at the production of an Apple iPod, which was made in China by Foxconn, a Taiwanese company using parts produced globally, but mainly in Asia.
Related: A Surprising Report on How Much of Apple’s Top Product is US-Manufactured
The university estimated that it cost about US$144 to make each iPod.
Of this amount, only US$4, 2.8 percent of the total cost, was attributed to the Chinese workers who assembled the iPod.
The rest of the costs were attributable to the numerous firms involved in making the parts — for example, Japanese firms provided the highest-value components: the main storage and the display.
However, US trade data recorded each iPod unit as originating from China and logged each unit as a US$144 Chinese import.
In fact, China was responsible for only a small fraction of the unit. The congressional study says that the iPod was sold in the US for US$299 meaning there was a mark-up of about US$155 per unit, which was attributable to transportation costs, retail and distributor margins, and Apple’s profits.
University researchers estimated that Apple earned at least US$80 on each unit sold in its stores, making it the single largest beneficiary in terms of gross profit.
Taiwan, through Foxconn, pulled the global supply chain together, the report said.
“Apple’s innovation in developing and engineering the iPod and its ability to source most of its production to low-cost countries, such as China, has helped enable it to become a highly competitive and profitable firm as well as a source for high-paying jobs in the US,” the study says.
It says the iPod example illustrated that the rapidly changing nature of global supply chains has made it increasingly difficult to interpret the implications of US trade data.
Such data may show where products are being imported from, but they often fail to reflect who benefits from that trade, the study says.
In many instances, US imports that are recorded as coming from China should really be marked as imports from other countries, including Taiwan, the report says.
Related: All Supply Chain 24/7 content on “Apple”
Source: Taipei Times
Global Supply Chains, China, and the Apple iPod: Who Benefits?
Many U.S. companies sign contracts with Taiwanese firms to have their products manufactured (mainly in China), and then shipped to the United States where they are sold by U.S. firms under their own brand name. In many instances, the level of value-added that occurs in China (often it simply involves assemblage) can be quite small relative to the overall cost/price of the final product.
One study by researchers at the University of California looked at the production of a 2005 Apple 30 gigabyte video iPod, which is made in China by Foxconn, a Taiwanese company, using parts produced globally (mainly in Asia). The study estimated that it cost about $144 to make each iPod unit. Of this amount, only about $4, or 2.8% of the total cost, was attributable to the Chinese workers who assembled it; the rest of the costs were attributable to the numerous firms involved in making the parts (for example, Japanese firms provided the highest-value components—the hard drive and the display).*
From a trade aspect, U.S. trade data would have recorded the full value of each iPod unit imported from China at $144 (excluding shipping costs) as originating from China, even though the value added in China was quite small. The retail price of the iPod sold in the United States was $299, meaning that there was a mark-up of about $155 per unit, which was attributable to transportation costs, retail and distributor margins, and Apple’s profits. The study estimated that Apple earned at least $80 on each unit it sold in its stores, making it the single largest beneficiary (in terms of gross profit) of the sale of the iPod.
The study concluded that Apple’s innovation in developing and engineering the iPod and its ability to source most of its production to low-cost countries, such as China, has helped enable it to become a highly competitive and profitable firm (as well as a source for high-paying jobs in the United States). The iPod example illustrates that the rapidly changing nature of global supply chains has made it increasing difficult to interpret the implications of U.S. trade data.
Such data may show where products are being imported from, but they often fail to reflect who benefits from that trade. Thus, in many instances, U.S. imports from China are really imports from many countries.
*Communications of the ACM, Who Captures Value in a Global Innovation Network? The Case of Apple’s iPod, March 2009
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