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How Much Would a "Made In The U.S.A" iPad2 Cost?
This is from Stone Street Advisors
Currently, Apple has contracted with Foxconn to make their iPad 2's in China, where employees are reportedly paid
(after receiving a 30% raise) a king's ransom of 1,200 Yuan/month, or
about $185 at current exchange rates (y/$ = 0.154), or, if we assume an
average 8-hour/day, 250-day/year (probably unrealistic assumptions),
$1.11/hour. But what if Apple decided to do the "patriotic" thing, and
hire U.S. workers in the U.S. to make its heralded tablet? How much
more would it cost to make the iPad 2 in the U.S. versus in China?
Let's run some back-of-the-envelope numbers and see/
Average U.S. manufacturing/mining/construction compensation is $32.53/hour as of December, according to the BLS. Research firm iSuppli estimates the iPad 2 costs $10 to manufacture,
which - using the $1.11/hour rate - works out to about 9 hours each to
complete. If assembly and manufacture took the same amount of time in
the U.S. as it does in China (another possibly unrealistic assumption),
the cost of making each iPad 2 comes out to $292.77!
Again, according to iSupply, the material cost for the 32gb iPad 2 WiFi + 3g - which sells for $729
- is about $325, or $335 including labor, which puts Apple's gross
margin (ex shipping/handling) at 54%. Just using the simple math above,
if the iPad 2 was made in the U.S it would cost $617.77, bringing
Apple's gross margin down to 15.25%! Of course, Apple is not in the
business of self-immolation, and given their relatively substantial
pricing power, they could just make the iPad 2 more expensive, let's
say, increasing the price to the point where their gross margins stayed
intact, from $729 to $1,144.02!
Is the demand curve for iPad 2's normal, i.e. is it downward-sloping (with a negative price elasticity of demand), or is it a Veblen good,
i.e. as the price increases, the quantity demanded actually increases?
Will consumers still keep lining-up to shell-out their (presumably)
hard-earned money for a product that won't make it into their hands for
weeks, that will likely be rendered obsolete (in the "cool" sense) with
the iPad3 a year or so down the road if the price rises 57%?
Even
if Apple found that the demand curve was in-fact downward sloping, and
that their revenue maximization point (price/unit * # of units sold)
involved absorbing higher manufacturing and assembly costs, buyers would
still be asked to pay significantly more for a "Made in The U.S.A."
iPad 2 than the comparitively cheaper "Made in China" version. This
brings us to the quasi-ultimate question (short of the larger
macro-economic one, for another time): How much more are U.S. consumers
willing to pay for the "Made in The U.S.A" stamp, if anything?
I don't have an answer, at least not anything even remotely approaching a definitive one.
How much more would you pay? $100? 5%? Zero? Let us know in the comments!
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Also the reason it is cheaper for Ipads to be produced in China is not because labor is cheap. There is cheaper labor in Africa.
The reason is, there is more capital allocated to production of electronics in China than the US. Capital is the only thing that increases productivity thus makes production "cheap".
The analysis is a little flawed because prices are not dependent on costs.
Yes, Ipad would have cost much more (probably more than the back of envelope calculations done here) if it was produced in the US but this doesnt mean Apple could have charged more. It just means Ipads would NOT exist if the only option of producing them was producing them in the US.
Snake Street Admonishers
when does your article (oily whitewash) on the CME margin hike Silver Scandal appear?
I was expecting it today, has the brown envelope not cleared into your account yet!
Remember the themes; private investors are 'stupid' not to expect 5 margin hikes in 8 days; "unsophisticated 5th Graders" not to expect surprise margin calls at very short notice; CME are just doing their job as laid out in their 15,000 page prospectus with 2,750 weasel words; the establishment are whiter than white; fleeced private investors are dumber than dumb; the collapse in the Silver price was a 'black swan event' nobody can explain (like Lehmans, cough, AIG, cough, sub-prime, cough, MBS's, cough, deriviatives, cough, ETF's, cough)
What a load of pigs ears from your whiter-than-white financal sponsors eh?
If iPads were made in the USA, I'd be afraid to buy one because of the possibility of lousy quality.
The goal of The Elite is to bring America into poverty so that most people WILL work for $1.11 an hour. I thought this was clear?
Look at Fender and Gibson Guitars, they offer both imported and domestic versions, with "tradition" dictating that you spend up to double or more the cost of the imported version for bascially the same guitar. The most revered brand og acoustic guitar in the world is Martin, made in PA, and there are plenty of arguably equivalent but cheaper imports.
I buy the USA version all day - for quality and "karmic" reasons. You don't rock ' n roll on a Korean knock-off. The Chinese are making some decent F-5 mandolins and other instruments, but there again, USA is king of the heap, at a much higher price point. You get what you pay for.
The price being whatever it may be, the cost doesn't change, it's a matter of who bears the costs.
Ipad is a boat anchor. Fortunately, someone designed a solution..
http://gadgetsin.com/uploads/2010/05/iclothing_itee_ipad_tshirt.jpg
Introducing the world's first professional-grade tablet, the BlackBerry®
http://www.youtube.com/watch?v=vL78qcKqd38
Should the American worker not be more upset that the US also has huge trade deficits with Germany and Japan? I assume the jobs in these two countries are the type of jobs that we'd like to see in the US. I'm surprised that we're so focusing on China while we all know that we don't want to e.g. start up labor-intensive shoe or toy industries here.
uhb is ready to pay +15% on german-made goods
Quoting labor costs in something as capital intensive as electronic assembly?
Here's where all the money goes.
http://www.youtube.com/watch?v=jBEGtzARs88&NR=1
I'd suspect overseas operators aren't stuck with our depreciation rules and get to take advantage of transfer pricing schenanigans, i.e., get to avoid the worst aspects of our tax code.
Why do most on this thread miss the essential point. It is this;
American workers do not have the power to compete with 3rd world economy workers.
The manufacturing field is never even, not when world population, political ideology, world energy stability and capital flows favor those governments that can dictate to their people, how and under what circumstances they should work.
The idea that all workers are equal is a fallacy. What we are experiencing today in most of the world is economic slavery. Corporations backed by large capital flows and aided and abetted by governments captured by corporatism, are able to dictate a "take it or leave it" work policy in the employer/employee contract.
Rather than owning a human being in the context of historical slavery, humans today are owned in the sense that they are pitted against each other in 8 to 12 work increments. This used to be done locally, but it is now done on an international level, without much recourse by the individual worker.
Some in the US say that you have the right to not partcipate or work under these circumstances, but then you also have the right to starve as well.
If most believe that this is what this county is all about, then we are truly lost. There is not much more that anyone can say to change your minds.
http://www.youtube.com/watch?v=qUkjOqefwmk&feature=related
http://www.youtube.com/watch?v=95eitLGI1V8&feature=related
Evil is real
Yet Germany, a nation with less than one-third of our population, manages to export more than us while paying wages that match or exceed ours while simultaneously sustaining free healthcare for it's citizens. Maybe it helps to make good products, pay decent wages, provide healthcare and NOT have a defense budget of world conquest proportions?
I wonder what the profit margins of German manufacturers are?
hmmm, now you mention it
yes
Hmm yes, that hidden line item "Imperial Domination" seems to have a large red number next to it.
Yes. The US is spending more money on Defense than THE REST OF THE WORLD COMBINED. Defense is necessary, but i'm afraid the US is having too much of a good thing
The US is not spending money on defense, just to defend the US. The majority of US defense since WW2 has been for the stability and benefit of the entire world. Yes, the US derives great economic benefit for this defense in the form of western economic trading, security, etc., but we provide the military protection umbrella for the whole world.
Since 1989 we have also provided this protection for Russia and China relative to open seas trade routes and a stable and predictable oil flow and price point. The US needs to stop this or negotiate a "security surcharge" from every other country. The US military is not a philanthropic organization. It costs a lot of money to provide the worlds security umbrella.
...and average net household income in germany (after taxes, healthcare costs, pension savings) is 2.700 EUR
I'm pretty sure the German GDP/capita is as high if not higher than the US.
It isn't. we're still struggling with the fact that the eastern part of germany was communist for 45 years
As a non German I don't have the emotional grounding on the subject, but the financial equalization will happen much sooner than later. The important consideration for Germans is that they chose to unite again economically. The concept of national identity is strong. I wish we had it here in the US.
Thanks for pointing this out. The Germans however have a sense of national and cultural understanding of who they are.
During the last 40 years we have lost ours. The question are - Who are we and what do we believe? Are we a country or is it every man/woman for themselves.
http://www.youtube.com/watch?v=8nyU3A3qHfs&NR=1&feature=fvwp
i don't know about the US , but i think/hope Germany is still a country
our healthcare is far from free, it's costs are shared 50:50 between employers & employed
If the analysis included the inflation offset produced by the mercantilist practices of the chinese government, I feel it would be higher. Excess liquidity dumped into the american economy is sucked up by americans buying chinese goods, the chinese companies then exchange the dollars for yuan and the chinese central bank stuffs the dollars into their huge mattress. If we bought ipads made in america, they dollars would not be stuffed into china's mattress, rather dumped into the us economy resulting in run-away inflation. I do acknowledge this would place the activites of the FED front and center, resulting in possible wake up of the sheeple, so there is a potential up side.
Why inflation and not investment in new products and services?
Apple would sell the same number if made in the USA. Why, because that would mean the entire economy would be at the higher cost/pay structure, and the inflation would just be passed on to all products equally.
Why is this person attempting to make apple look bad. He couldn't be taking his (short) book could he?
as far as the article goes, I'd add that ultimately, Americans would suffer much les dollar inflation if they did build their own stuff and stop adding to he trade deficit.
So perhaps it would not be as expensive in the long term as would be otherwise.
Once, when I was 18, I got a temp job in industry. I had no real idea what the job involved.
When I arrived to do the work, a guy sat me down on a crate, gave me a stanley knife, and then pointed me at a box of approximately 10,000 (GM) Vaulxhall card door handles.
He picked one up, pointed to a tiny piece of plasic flash (a thin piece of plasic left over from the mold), and in an instant, with a single click, cut off the flash.
The idea was, I repeat that process 10,000 times for the day :)
I'm glad I did it but all I'm saying is.. kids... don't skip lessons :)
Georgia Department of Corrections Prison Industries Enhancement (PIE) brochure :
We invite you to partner with us!
Advantages for businesses to locate private industries within prisons:
Financial incentives for prison-based industries include:
1. No requirement for offender employee annual, sick , or family leave;
2. No requirement for costly employee life or health insurance premiums;
3. No requirement for employee retirement pension plans;
4. Reduced Operating costs;
5. Reduced security costs due to the presence of assigned security personnel;
6. The ability for private industry to put a .Made in the U.S.A.. label on offender-produced goods.
Change the logo on the brochure to XYZ Chinese Company.
Send the brochure to as many purchasing/sourcing managers of American Corporations as possible, watch the contracts come your way quickly.
But why then is New York getting Japanese cabs?
You mean golfcarts.
All paid for by Mr. Unarrested (yet) taxpayer!
Funny, how do the Germans manage to be the #2 world exporter?
Because of the Rhineland-model, a model US 'free-market' capitalists despise.
Can you give a summary of the Rhineland-model?
I started up a service company about ten years ago and hired staff in Delhi, India. I recently moved the operation to the United States and find that I can compete with and crush any Indian competitor, while paying competitive comp to the US staff. My experience is that Indian labor sucks--you get what you pay for. American workers know how to solve problems which is something the Indians can't do.
The problem is a little different in China in that companies, including Apple should assume that all of the physical assets and intellectual property that they have created will be nationalized. I have quite a few clients in China and am seeing a big change in the business relationships--a rise in nationalism and a vulgar, thuggish attitude that is unsettleing to say the least. Anyone who is not Chinese and counting on China for their future is living in a fool's paradise.
In one of my previous companies I had to visit one of our indian subsidiaries to see what was going on. On top of what you noted, it turns out they were running the same business in parallel using our assets and pocketing the profits for themselves. In that respect the indians were highly productive, but to what end? The chinese are certainly going to take this kind of behaviour to the next level.
Thank you for a cogent reply to reality. Top thinking Company's are aware to these dynamics if they wish to perserve there knowledge base.
Lets assume that we add in the indirect costs you pay when you purchase the iPad manufactured in China. We have: unemployment compensation, medical costs for the indigent, prison costs, increased food and raw materials costs (because China will come right back and compete with you in purchasing power), social costs of broken and jobless families), potholes, rotting schools, and finally you lose your job at the semiconductor fab because it's being sent to China. You get what you pay for.
Is slave labour cheaper? Why yes, yes it is. Then it must be the right thing to do!
Americans should be more willing to be slaves for plutocrat profits, the lazy bastards.
If Americans want jobs, why they can just move China! Oh wait they can't.
Screw you apologists for feudalism and wage arbitrage.
Keep taking a piss on Americans, slavers.
Point well taken. Doing the right thing is not rewarded currently. Do you know of a system for rewarding the right thing in stead of rewarding the profit thing/stock price thing?
Yes, an economic and monetary system based on hard money. The (de-)evolution of the American economy, post-WWII, is the (un)natural progression of a fiat monetary system. True capitalism and fiat money are not compatible, the former is destroyed by the latter. Fiat is always meant to be destroyed, eventually..
I'm too lazy to do the math on a beautiful Friday but I'm sure the amount of wealth created for AAPL shareholders by Apple's decision to make its products in China is orders of magnitude greater than that which would have been created if Apple sourced American labor and materials. Disgusted by Apple's profits? by the damn stock.
Even if Apple did make Ipads in the USA, almost as good, made in China knock-offs at 1/3 the price would win the day and that company's stock would soar.
Most importantly, Apple was motivated to make I-whatevers in the first place because they knew that if they were successful in developing a killer product they could make a shitload of money. And that's why we're not sitting here today talking about Le Ipad.
Making the product in China or another place off-shore exposes you to industrial espionage, reverse engineering in the foreign plant and other acts of piracy.
I have no problem with profit. You can make more profit by manufacturing the device in the USA. You can change small details in your own plant on a weekly or daily basis and thwart reverse engineering. You can't do that overseas. You must have a captive plant on your own turf with a loyal workforce.
As many have remarked, the Germans do this and have succeeded. Germany is really one very big machinery manufacturing center. High quality mechanics and electrics.
The Germans will tell anyone - if you want our stuff at Chinese prices, we will deliver it to you. But, you will get Chinese quality.
My point is that you have to give AAPL and other companies a damn good reason to repatriate jobs to America. And, if that reason is zero tax on profits and/or whatever, then just do it.
Give me the contract to build the devices in the USA.
Works like this:
I take unemployed people, with basic skills and pay them $15.00 an hour. They pay zero tax to anyone. They now have money to spend are engaged in useful work.
I make 10% profit net before corporate income taxes.
AAPL sells all USA-manufactured devices tax free to them. 20% net, net profit should be satisfactory. Consumers pay the usual consumption tax. Internet sales still being tax-free.
Let someone else figure out what the device would sell for here.
Get productive Americas back to work.
Labour costs are one thing ... the costs of opening a US-based factory that complies with environmental, safety, and disability-act-compliance standards would probably add another $100 in fixed costs per unit, which would require adding at least another $200 per unit to maintain the gross margin.