In my recently submitted PhD thesis I took a quick look at the Foxconn model of China's engagement with the world economy. Sharing that section here as Foxconn enters India with a $5bn commitment to investment in an industrial park. While investment is welcome, India must learn from mistakes that China made in the past 30 years and try and avoid them. Of course, workers' exploitation and suicides by Foxconn workers is a known issue and not going to intervene into it here.
(of course, if one is interested in knowing how factories like Foxconn work, one must read Leslie Chang's Factory Girls)
Foxconn, Apple and iPad: China and the issue of Value-Addition
Apple’s
iconic product iPad is produced in China by Foxconn Inc., which is a registered
company in Taiwan. During 2010-2011, Foxconn was embroiled in a major
controversy over labour abuse issues after it came to light, following a spate
of worker suicides, that the workers at the iPad production facility were not
only overworked but also grossly underpaid. There have also been issues of
neglect of workplace safety as deadly explosions and chemicals caused injuries
have been reported in the past at Foxconn’s production facilities dedicated to
Apple products. Neither Apple nor Foxconn is likely to change their business
strategies due to input cost pressures. The case of Foxconn and Apple is
nothing more than the tip of the iceberg as far as the nature of China’s
industrial and trade engagement with the world is concerned.[1]
iPad, sold in retail in the US between $350 and $600 had a very little value
addition in its production stages inside China. Even then, the production
stages involving the Foxconn’s factories are critical for Apple’s success
because it keeps the costs low. Apple’s gross margin from iPads produced in
China is about 54 percent. If the margins were to be same, media research
estimates, the wholly made in the USA iPad would cost the end user nearly
$1140, which is more than double when it is made in China (Thompson, 2011).
Therefore, the case of Foxconn highlights China’s utility in the production
chain. Thomson also cautions that input costs calculation did not involve the
cost of producing metal in the US.
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Figure 6.1 Distribution of Value for iPad, 2010
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Source: Kenneth L.
Kraemer, Greg Linden and Jason Dedrick (2011), Capturing Value in Global
Networks; Apple’s iPad and iPhone, PCIC Paper, 5
This factor
reinforces China’s low value-added position in the global production chains.
China’s attractiveness in the global production chain is because of its
low-cost but high-skilled labour-force and its world-class production
infrastructure facilities. However, it does not do much in terms of the Chinese value addition to the products
that China exports. Figure 5.2 reinforces this idea with reference to iPad’s
approximate price breakdown.
[1] For a detailed account of Foxconn
production system for Apple see Charles Duhigg and David Barboza (2012), “in
China, Human Costs are built into an iPad”, New
York Times, 25 January 2012.
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