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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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And yet there are programmers and IT people (to say nothing of the many other industries - banking, construction, consulting, law, auto, steel, etc) making well north of $20 per hour without the economy collapsing due to anything they have control over.
Look, this is just myopic and businesses are like a snake eating itself or wasting energy fighting over a shrinking pie. They send all these "high" wage jobs overseas and then they cry that customers can't buy with the money they're not making anymore. So, they do another round of cost cutting, which is a euphemism for layoffs and no QC, and it just gets worse. Keep repeating this long enough and it won't matter if the iPad costs a fucking nickel out of China.
If, instead, businesses would pump money into the local economy for a change, suddenly customers would have the money to drive sales without debt. So what if CEOs have to settle for realistic wages that reflect their actual contibution to the company for awhile while everything rebalances? The economy and the country will be healthier for it in the long term. You can't keep taking money out of the economy forever!
Or we can just keep racing to the bottom and acting surprised like a bunch of dunces when it turns out we have nothing but jobless 3rd world poor who can't afford to do anything at all.
Singling out Apple to make its products in the US overlooks one simple reality of the marketplace: other US companies who can make their products overseas will kill Apple in pricing. The made in USA assumption would only work if it applied to ALL corporations. And that is like turning back the clock.
Right, When Henry Ford started the company he raised wages. His reason being his employees should be able to buy the product they were creating.
Now days in our Hyper-Capatalistic society, business results far outweight the workers
wages. You anti-union people should be happy wages are where they are now
from previous union pressure.
Wages are not the worst thing the unions are fighting for, what really kills a business are all the side costs, like health insurance, materlan leave (paternal leave), extra holidays, bonuses not based on performance, retirement costs, legal costs(if an employee decides to sue), all the government regulations about who/where/how you can/can't employ
The unions are only evil because the government has their back, if let's say a firm decided to shut down a plant because of union demands and there was no government to back the unions thing would equalize very quickly between the good of a business and unions
There's the problem, assuming Apple just has to have that 54% margin. Apple could try, I don't know, really earning the money they demand for their product.
They could put user-replacable batteries in it for starters. Why should I pay a super-high margin on a disposable tablet? If I was going to have it for 10-15 years (doesn't exclude updates mind you), absolutely, but 3-4 years?
You know what else they could do? Make it up in software sales. Charge a reasonable price for the hardware and then hit us with $50 an app or something. Heck, maybe even open the stupid thing enough that I could buy a compiler from them and write my own stuff that might draw in new users?
Made in USA would go a really long way for me, but genuine quality would really put it over the top. Wishful thinking though, businesses have to have a super fat margin and dominion of an impoverished Chinese fiefdom to feel like men these days.
not bad thinking.
check out this:
http://strobist.blogspot.com/2011/04/what-china-doesnt-understand.html
In fact, their compiler (xcode) is free. You are charged around 100-200 $ for putting an app up for sale, and they chew off 30% of the app's price.
I do share your opinion towards the batteries, they can be changed, but at a high proce
That's an understatement.
http://www.youtube.com/watch?v=pOg8QbKEkL8
yawn.
we can and do build machines that can do triple that rate, and when the cost of what they do becomes clear and justified, they will too.
but that won't happen while we continue to buy *blink* and its obsolete crap on credit.
The Chinese Govt has a vested interest in keeping PEOPLE employed, not robots!
Those people are being paid per unit made, and if you don't hit a minimum quota you're fired.
I worked like this as a student, after a few weeks you turn into a robot, you can't think about anything else even during weekends. I quit it just in time before my mind was totaly gone and it took me weeks more to get over it.
I think to my self a human has to be worth more that this, that kind of work borders on (voluntary) torture
US workers can't compete -- not just in capability but also in attitude. the vid is excellent example.
BS! Korean Hyndai co. is EATING GM's LUNCH.... with cars like the DESIGNED IN CA, MADE in ALA Elantra & Sonata.
The problem is not American workers, but entitled American "MY profit before EVERYTHING (and everyone) else" executives, "investors," & Wall St big finance "banking" swindlers.
Huyndai USA is even competing with Toyota, a company that lives and dies by the ability to export its product(s) in hyper-competitive foreign markets (where a sub-par product means immediate disaster).
The imitation-car company that would die if IP law was actually applied to them. Hyundai can't make anything that didn't come from some other company.
Where does the UAW fit into your finger pointing? Are they exempted?
seems they're a large part of the problem. go ahead, start junking me now for the anti-union talk........
lol yeah, i would like to see Shaiqua or Billy Bob do that
What about the entire upstream supply chain? Apple does the assembly but all those components are made in China. It would hardly be "made in USA" if that just means board stuffing and snapping the case together.
not a great point.
cost of stuffing pcbs (automated placement of IC's, resistors, etc) here costs about the same per part placement as in china.
the difference in cost of raw pcbs is because they can dump their used chemicals into their kid's baby bottles.
yup, i'm sure we're all in on that...
again, externalized costs cannot be pushed out forever.
Good points. I imagine the pc boards are in a fab in Asia too, but those are likely put together by robots. 9 hrs to assemble?! That's got to include the fab time for each part and please don't tell me there aren't robots in the line doing most of the intricacies. Of course a 50%+ margin is really meant for Mr. Livers-from-poor-people and no one else.
Apple a Veblen good? No
But given the prevailing ideologies on ZH, I'm surprised Veblen doesn't come up more often.
"Leisure class" was a great fucking book, changed my views on things more than any one book should.
Not to post something as a reply that actually has something to fucking do with the first post. Junked for being attention whores.
It takes some very original thinking to come up with theories that can reduce and recast the Austrian/Keynesian schism into something akin to the D/R schism (or lack thereof).
And if an employee cut his finger during work Apple would have to shell out millions in compensation, a Made in the USA IPad would cost 1,999.95 factoring all the risk
How much more would I pay for a "Made in USA label"?
Nothing.
Fuck these sheeple. They obviously need something more dramatic to wake the fuck up.
It's every man for himself.
This article has some screwy math and is written by someone who does not understand pricing along the supply chain. If the labor cost is $10 to manufacture in China. And the labor cost is $292 in the US. The difference at retail is *not* measured proportionally. It is measured exponentially.
Retail sales prices are multiples of landed costs -- even when you control the full vertical.
Furthermore, there are many additional costs which are unaccounted in the above example -- from management costs, to insurance, to environmental impact, taxes, etc. etc.
The US retail pricepoint would be well into the thousands.
bullshit.
retail sales are fixed multiples of cost, linear not exponential.
entirely bullshit.
best to close your mouth and appear ignorant, than to open it and remove all doubt. mark twain.
externalized costs, bitchez
and add to that the labor for products on longer life cycles is often replaced by automation. i bet that thing's labor content could be dropped to 1.5 hours tops.
when china's inflation catches up to them, they either have to revalue their currency, bringing us mucho closer to wage parity, once all the costs associated with inventory overhead, transit and duties, and IP theft are accounted for, or suffer civil unrest as the slave labor there chokes on their own shit as they starve.
the rebalance will come.
our (MY) products are designed to minimize labor content, so the declining china labor differential is allowing us to justify new product lines made here in the US.
i trust our manufacturing partners to do a good job; when the time comes, we'll be engaging in mfg ourselves here, with our burdended labor (unskilled) starting at $25, while my engineering staff works out the necessary fixturing and automation for products that are not designed with planned obsolesence as a business necessity.
(pro photo industry)
beat that!
by the way, saw Atlas Shrugged part 1 yesterday. wish things here were as black and white as Ann Rand saw them - comes with the USSR experience, i guess. i think our bastards are worse, since they're sufficiently clever to totalitarianize the US so much more attractively...
i have no interest in buying crap on credit.
why does the nation adopt policy that effectively does just that on a national level. (cynically rhetorical, obviously)