The core of the problem | Week In China

For a case study of why the Pearl River Delta is trying to upgrade its manufacturing capacity, look no further than the Californian tech giant Apple. More than a decade ago a team of academics at the University of California looked at the value-creation in the making of an iPod. Their findings were that – while the iPod was assembled in China (by Foxconn, the Taiwanese contract manufacturer) – the lion’s share of the profits were earned in the United States. The researchers estimated that retailers were adding $75 in mark-up to the iPod’s $224 wholesale price. The unit costs for the parts for the iPod were about $144, paid mostly to Korean, American and Japanese suppliers. Apple was deriving the best returns with $80 in gross profit on each unit. And the factories in China that put the iPods together were at the bottom of the pile, with no more than $4 in contract fees. Four years later the researchers ran the same exercise for the iPad and the iPhone. The results were similar: only a

Source: The core of the problem | Week In China