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Summary:

Umair Haque, writing for Harvard Business Publishing, posits what Apple’s iPods would cost if they were made in the U.S., and it turns out it’s not as much as you might think. According to Haque, “an American made iPod Classic costs just 23 percent more than […]

Umair Haque, writing for Harvard Business Publishing, posits what Apple’s iPods would cost if they were made in the U.S., and it turns out it’s not as much as you might think.

According to Haque, “an American made iPod Classic costs just 23 percent more than a Chinese made iPod Classic: $58 more, to be precise.” That is surprising, and in light of Apple’s perennial troubles with manufacturers in Asia, worth thinking about further.

ipod_price_comparison

Claims of “iPod sweatshops” have been around for years, with some of the more damning accusations likening manufacturing facilities with worker dormitories to prison barracks. At best, the pay is low and workload high. More recently, Apple manufacturing contractor Foxconn came under scrutiny regarding the apparent suicide of a worker over an iPhone missing from a sample shipment. Since then, both Apple and Foxconn have expressed regret for the death, with Foxconn compensating the family of Sun Danyong. However, beyond that compensation, it’s unlikely anything will change in labor practices abroad.

That’s where Umir Haque’s thought experiment for building a “good” iPod in the U.S. comes in. The estimated costs of labor in the U.S. and China are $24.59 and $1.47 per hour. The estimated amount of labor required for final assembly is 2.7 hours, creating a difference in manufacturing cost of $58.19. Using that number, Haque extrapolated the costs for iPod categories. I took that a step further, listing every model of iPod and iPhone, iPhone cost being the subsidized price.

Obviously, the lower the price, the greater the differential. The shuffle would likely be hurt the most in the eyes of the consumer. That’s who the chart is really for, in my opinion. It’s a rhetorical question concerning whether you would pay more for an iPod or iPhone built with a living wage, as there is no chance Apple is going to move its manufacturing to the U.S. This isn’t to say Apple is bad. After the death of Sun Danyong, the company reiterated its stance that suppliers “treat all workers with dignity and respect,” and the company has broken no laws, least of all the Iron Law of Wages.

  1. Actually, it could be done for about a 14% increase. The factory would be in Mexico. So it would be the Mexican workers that would suffer (because they have to work). Of course, the Chinese would suffer by not working. The best idea would be for Apple to close its doors so nobody would have to work. Oh, then all would suffer without work. I hate when work gets in the way of unforced labor. I think I’ll go hug a tree today. Will you pay me for that? That way I will not have to work and not suffer.

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  2. I think the words “price differential” are somewhat misleading. I think of the “differential” as the difference between both prices which in actuality is only a small fraction of what appears in the last column.

    The differential for the iPod shuffle, in my opinion, is only the 37%. I hope other readers don’t find this confusing.

    [ Jeff ]

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  3. American’s have shown that they prefer lower prices, even if their own economy is weakened because of it.

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    1. You’re right. We’re also seeing conservatives rejecting “buy American” for auto companies that are “owned by unions”, GM. It’s the same impulse that keeps us wringing our hands over Wal-Mart’s “abuses”, but we can’t seem to pass up those “low, low prices”.

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    2. I wonder if Stan owns a GM car or shops at Walmart. I do on both counts. I also subscribe the notion that union/egghead run companies are doomed to fail. They simple do not have the drive and business savvy required to succeed.

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  4. Please remove the word “thought” from the term “thought experiment”.

    You cannot derive the price of a product simply by swapping wage rates and assume everything else is the same. The plant infrastructure would need to be created, or at least augmented. The cost of utilities and taxes would need to be factored.

    And I’m not even nitpicking yet.

    If you’re going to lobby to put a price tag on humanitarian working conditions, try putting in a little more effort.

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    1. What city, what state would not consider building a plant for Apple on the promise of jobs at those wages? At the very least, infrastructure costs could be partially, possibly completely, offset by promises of little or no taxation and other incentives. Of course, Apple could just pay the current workers in Asia a living wage with the wave of an accountant’s wand, but I guess you hadn’t thought of that ;)

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    2. To STAFF COMMENT: The China workers savings rate is ~40% to 50%. Seems they are already getting a “living wage”.

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  5. Mr Jade

    You are presuming too much and why don’t you go into manufacturing rather
    than just writing. It is more productive.

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  6. Joe Anonymous Sunday, August 2, 2009

    Amazing levels of cluelessness abound……

    First, the above doesn’t consider a wide range of factors. For example, it doesn’t consider the cost of having the COMPONENTS made in the USA – which would greatly increase the costs. It doesn’t include the cost of complying with USA environmental laws. It doesn’t include the ‘litigation tax’ which needs to be considered in putting a factory in the USA. And so on. Most of the time when I compare Chinese prices to US prices for high volume goods, the price for completed Chinese products is lower than my cost for raw materials alone. (fortunately, I deal with low volume specialty things so I can still compete).

    Most importantly, it’s all irrelevant. No company is going to accept a 30% increase in its cost of goods without some MAJOR justification. Legally, they can’t do it even if they wish – since they are required to maximize shareholder returns.

    Not to mention the obvious question of why you’re picking on Apple here. The US made a decision years ago that they would rather be a net importer nation rather than a producer and allowed that to happen via a variety of things – tax policy, import policy, exchange rate policy, and so on. It’s not just Apple who’s doing this, it’s the entire US economy.

    Take it up with your Congressman and other elected official. We need to stop (and eventually reverse) the massive outsourcing that has driven our economy for at least 20 years. Expecting one company to do it on their own is extremely misguided.

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  7. Joe Anonymous Sunday, August 2, 2009

    One more major error here – they are comparing Apples and Oranges, anyway. They added the difference in manufacturing COST to the retail selling price – assuming that there’s no overhead associated with the manufacturing. Take the example of iPod Classic 120 GB. Current retail is $249. They assumed that adding $58 to manufacturing costs brings the new retail to $307. Sorry, but life doesn’t work that way.

    The current manufacturing cost is probably around 50% of retail – or $125. Adding $58 to the manufacturing cost is about a 45% increase, not the stated 23% increase.

    Please learn a little bit about business economics before posting drivel.

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  8. Ryan Thompson Sunday, August 2, 2009

    This goes for everything you buy that doesn’t have a Made in USA, Made in Canada, Made in Mexico, Made in (I’m not listing all of Europe, but you get the point). Everything that I just looked at on my desk was made in China under some very questionable ethics and human rights. The sad thing is that I’m very aware of the problem, but the only other option is to either not own consumer products. I would love for Apple to give me a choice of a computer made in China, or one made in North America. The North America one would be more expensive, and would be just slightly better or have a distinguishing mark. But I would know that the product was made under good working conditions, with human rights in mind when it was constructed. We complain about human rights, but I wonder which as a people the majority of us would buy?

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  9. American corporations collectively are destroying their customer base by moving production overseas that is meant for American consumption. The majority of remaining service jobs pay minimum wage, or less. American corporations were able to delay this erosion of the customer base because of the global private credit bubble, which has since imploded. In the past three decades you have had adult Americans working in Walmart and Starbucks buying Apple toys on credit, for example.

    The bigger issue is that free trade is destroying the nation. The mistake of theappleblog is to use Apple as an example because most Apple users are emotional little girls who will defend Apple all the time.

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  10. “The mistake of theappleblog is to use Apple as an example because most Apple users are emotional little girls who will defend Apple all the time.”

    If your point is proving that you’re incapable of rational discussion and have to resort to name-calling because you’re incapable of saying anything intelligent, congratulations – you’ve proved it.

    And, no, free trade isn’t destroying anything. The problem is that we haven’t had free trade for decades (if ever). International trade has been extremely one sided for a number of reasons (exchange rates, environmental rules, liablity laws, etc) since before I was born. Don’t blame free trade – blame people who are promising free trade and then delivering something else.

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  11. i have a 80g classic one yr old in box with 13000+ songs 230 videos all in order with all art work and info ,, have two the same and want to trade one for a itouch with/+ sheldonyoyo@yahoo.com

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  12. There are a lot of assumptions being made on this page about Free Trade. Most of the posters here (not to be too critical–oh yeah), obviously don’t really know what is going on out there economically. If you really want to know what is happening economically, you won’t get real information by shopping at Walmart and buying some electronic crap, or tuning into CNN, MSNBC or ABC. Free Trade has been a disasterous experiment on the world. But hey, don’t take my word for it (or post a reply telling me I’m full of it–who needs it–anyone can do that, and they do on these blogs–I’m dealing with facts NOT opinions), get and read Naomi Klien’s book called The Shock Doctrine. She’s one of a long line of overlooked journalists reporting on the state of the “world economy” and why it crashed in 2008. If Free Trade is so good for us (as the Neocons and the American Media tell us daily), we need to be asking why everything is coming unglued out there and why our overall standard of living has been declining for 20 years. If you don’t know what an EPZ (export processing zone) is, you shouldn’t be talking about Free Trade as if you are some sort of “economics professor”. That’s my take on this.

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    1. Actual Economist Saturday, December 5, 2009

      “Free Trade has been a disasterous experiment on the world.” You are worse than ignorant; you are intentionally, willfully ignorant, and intent on bringing others to into your ignorance.

      Free Trade arose spontaneously. Merchant Law arose spontaneously. Monetary systems (coins, trade instruments, etc.) arose spontaneously. Free Trade isn’t an experiment any more than an ecosystem is an experiment. Perhaps you should read some books written by people who are familiar with, and actually practice such arcane methods as “rational thought”, “logical analysis”, and “critical thinking”. You’ll find that your expectations align far better with reality, and you’ll be less frequently disappointed.

      “Free Trade has been a disasterous experiment on the world.” Please tell the readers of this page that you didn’t actually write this crap yourself, but simply copied it from a book by “a long overlooked journalist”. If these are her words, I hope she’s perpetually overlooked, as her ignorance will never serve to guide anyone to better understand the realities of the global economy.

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