mm039: An iPod Has Global Value. Ask the (Many) Countries That Make It. – New York Times

June 28, 2007

As I was at work when I found this today, I didn’t have a chance to Digg it, but I’m certain that many have by now. What a fascinating story. Global business defies our quest for simplistic answers.

Economic Scene

By HAL R. VARIAN

Published: June 28, 2007

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.

One approach to tracing supply chain geography might be to attribute the cost of each component to the country of origin of its maker. So $73 of the cost of the iPod would be attributed to Japan since Toshiba is a Japanese company, and the $13 cost of the two chips would be attributed to the United States, since the suppliers, Broadcom and PortalPlayer, are American companies, and so on.

But this method hides some of the most important details. Toshiba may be a Japanese company, but it makes most of its hard drives in the Philippines and China. So perhaps we should also allocate part of the cost of that hard drive to one of those countries. The same problem arises regarding the Broadcom chips, with most of them manufactured in Taiwan. So how can one distribute the costs of the iPod components across the countries where they are manufactured in a meaningful way?

To answer this question, let us look at the production process as a sequence of steps, each possibly performed by a different company operating in a different country. At each step, inputs like computer chips and a bare circuit board are converted into outputs like an assembled circuit board. The difference between the cost of the inputs and the value of the outputs is the “value added” at that step, which can then be attributed to the country where that value was added.

The profit margin on generic parts like nuts and bolts is very low, since these items are produced in intensely competitive industries and can be manufactured anywhere. Hence, they add little to the final value of the iPod. More specialized parts, like the hard drives and controller chips, have much higher value added.

According to the authors’ estimates, the $73 Toshiba hard drive in the iPod contains about $54 in parts and labor. So the value that Toshiba added to the hard drive was $19 plus its own direct labor costs. This $19 is attributed to Japan since Toshiba is a Japanese company.

Continuing in this way, the researchers examined the major components of the iPod and tried to calculate the value added at different stages of the production process and then assigned that value added to the country where the value was created. This isn’t an easy task, but even based on their initial examination, it is quite clear that the largest share of the value added in the iPod goes to enterprises in the United States, particularly for units sold here.

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.

The unaccounted-for parts and labor costs involved in making the iPod came to about $110. The authors hope to assign those labor costs to the appropriate countries, but as the hard drive example illustrates, that’s not so easy to do.

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.

Ultimately, there is no simple answer to who makes the iPod or where it is made. The iPod, like many other products, is made in several countries by dozens of companies, with each stage of production contributing a different amount to the final value.

The real value of the iPod doesn’t lie in its parts or even in putting those parts together. The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain.

Those clever folks at Apple figured out how to combine 451 mostly generic parts into a valuable product. They may not make the iPod, but they created it. In the end, that’s what really matters.

Hal R. Varian is a professor of business, economics and information management at the University of California, Berkeley.

An iPod Has Global Value. Ask the (Many) Countries That Make It. – New York Times

Our son bought the iPod video model discussed in this story last September. It’s already been replaced once, under warranty. At least it wasn’t toothpaste!

It’s it for now. Thanks,

–MUDGE

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mm038.1: Jews Sorta Like Bloomberg, Even Though He Won’t Suck Up To Them – Wonkette

June 28, 2007

 We takes our analysis where we finds it … and we found this on Wonkette, thanks to Technorati (–>)

Jews Sorta Like Bloomberg, Even Though He Won’t Suck Up To Them

And the walls of the city came tumbling down - Wonkette

Maybe-candidate Mike Bloomberg is Jewish, but it doesn’t seem to be a big deal to him, because the richest people in the world are seldom too concerned with Identity Politics or religion or whatever the rest of you people worry about. That’s the word form the Jewish Daily Forward (another media property allegedly controlled by the Jews):

  • “Chuck Schumer will come to a Jewish Orthodox event and start telling people how his great-grandfather came from some town in Europe …. I have never heard Bloomberg do anything of the sort.”
  • Giuliani made a big show of throwing Yasser Arafat out of Lincoln Center, while Bloomberg fought the City Council’s attempts to close the NYC PLO office.
  • He appointed a Moslem to the city’s Human Rights Convention, despite a terrible outcry from the Jews.
  • At some breakfast, instead of talking “sentimentally about his bubbe or love of noodle kugel,” he told the Jews it was good that he raised their property taxes, and they gave him a standing ovation.

Hooray for a candidate who maybe will shut the fuck up about G-d!

Jews Sorta Like Bloomberg, Even Though He Won’t Suck Up To Them – Wonkette

A few posts ago, I despaired of this country ever electing a woman or person of color as president. Silly me, as one of the persons commenting to the above column reminded us. We can add Bloomberg’s ethnic identity to the list, if we want to be glass-half-empty about this. Well, once again defying my curmudgeon rating, I will try to be glass-half-full. Not electing all those types that haven’t fit somebody’s fantasy of True America has led us to our present sorry predicament. Why not change? Why not now? Bloomberg in 2008!

It’s it for now. Thanks, again,

–MUDGE

Quote of the Day:
Misery is optional.
–Abraham Lincoln

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mm038: Nerve struck

June 28, 2007

MUDGE’s Musings

I have been evading my responsibilities for most of this month, as I have resorted to what I have called “clipjoints” rather than much original text. It’s been that kind of month, with much more interesting things going on outside than in.

Case in point, the explosion (well, for this lonely corner of the ‘sphere) of interest enjoined by the last post, regarding Unity08. Sure did change the look of my WordPress statistics graph. Nerve struck, indeed.

Many thanks to ClapSo, whose thoughtful and passionate responses prompted me to take a look at his blog with which I am quite impressed. I don’t think I’m quite ready to be as extreme as he is, but he certainly makes a strong case for the bankruptcy (except of cash!) of our existing political system.

Campaign politics is likely to become even more consuming of time and attention than ever this election season, and no better example exists than this column found in the always fascinating and incisive TechCrunch (–>). This article from yesterday is particularly telling.

ElectionVine is a new service being launched today by NewsVine that allows users to embed a US Presidential candidate poll on their sites.

NewsVine sees ElectionVine as their answer to mainstream media’s traditional polling methods, turning the tradition polling model on its head by delivering a distributed polling system that can be used by blog/site owners across the United States. Anyone can hold their own election on their own site and even go as far as endorsing a candidate. The site-specific results show what percentage of each sites readers are Democrats, Republicans, or backers of a certain candidate.

The strength of the application comes with an aggregate view of how the election is shaping up in the eyes of the distributed blogosphere. With several months to go before the primaries, NewsVine expects to have tens, if not hundreds of thousands of these independent polling places throughout the web.

He has included said widget — try it out if you like. On his site: I was bummed that our flavor-of-the-week, Michael Bloomberg is not listed. So, no way I’m putting that widget here, even if WordPress’s technology would allow it or if I could figure it out if they did.

I’m still ready to join up, Mike!

It’s it for now. Thanks,

–MUDGE

Quote of the Day:
WARNING: Repeated brain usage may be harmful to others.
–rdude