Cost of iPod construction in China vs. US.

[wolfwill23]

Hello,

I'm curious what is the price difference for Apple to build their products in China vs. the US. Is the difference like 30%? 50%? 100%? 500%?

I've researched this quite a bit on line and could not come up with a concrete (or educated ball park) anywhere.

Any help would be appreciated!

Thanks.

 

[Hellhammer]

China's GDP per capita is ~7400 U$ per year while the corresponding number for US is ~47 000 U$. Definitely not the most accurate way to calculate things but labor is a lot more expensive in US than it is in many Asian countries.

 

[oakie]

you'll never find an answer since it's purely hypothetical. the first issue is that manufacturing of that sort and capacity is not available in the US anymore, so calculating labor costs is nigh impossible.

 

[CalBoy]

The big factor that's missing here is how much time it takes to construct an iPod by the typical worker.

The costs might not go up by a lot if each iPod takes very little time to assemble, or it could sky rocket if it takes longer.

My guess is that takes a considerable amount of time (in economic terms, not real terms) to assemble one iPod such that it saves considerable dollars per unit. Even if an iPod were to take 15 minutes aggregate to assemble, the wage differences between a Chinese factory worker and an American (or any developed nation worker) factory worker would make each iPod at least $5-10 more expensive to manufacture.

 

[wolfwill23]

China's GDP per capita is ~7400 U$ per year while the corresponding number for US is ~47 000 U$. Definitely not the most accurate way to calculate things but labor is a lot more expensive in US than it is in many Asian countries.

Thanks for the reply. Understand that labor is much more expensive in the US but I was looking for a ballpark percentage.

Thanks again.

 

[wolfwill23]

The big factor that's missing here is how much time it takes to construct an iPod by the typical worker.

The costs might not go up by a lot if each iPod takes very little time to assemble, or it could sky rocket if it takes longer.

My guess is that takes a considerable amount of time (in economic terms, not real terms) to assemble one iPod such that it saves considerable dollars per unit. Even if an iPod were to take 15 minutes aggregate to assemble, the wage differences between a Chinese factory worker and an American (or any developed nation worker) factory worker would make each iPod at least $5-10 more expensive to manufacture.

$5-$10 more per iPod? Is this a joke? (serious question)

 

[old-wiz]

The cost of labor in the U.S. would be unbelievable.

 

[balamw]

Look at the recent issue of Wired magazine for more info on this topic. http://www.wired.com/magazine/19-03/

I particularly enjoyed this article http://www.wired.com/magazine/2011/02/ff_madeinamerica

In some cases you can actually save money by bringing manufacturing back to Anytown USA.

B

 

[snberk103]

OP, You need to do spend more time onresearch.

In China the range for average factory wages appears to be $200 to $400 per month.

In the US, average factory worker receives $54,000/year. I'll let you do the math.

It's still hypothetical because the US factory worker is generally higher skilled (according to the US Census bureau). A better comparison would be to either take a) workers closer to the minimum wage who are doing simple assembly tasks, or b) higher skilled (higher paid) workers who are overseeing a more automated process.

You also need to account for environmental costs. The cost to a company in the US to mitigate it's air and water effluent is considerably more.

Does that help? Imagine what you can find with more than 5 minutes of googling? 😀

 

[balamw]

You can also get a rough estimate of the labor content of a typical Apple device by looking at one of the iSuppli teardowns and taking away the cost of the Bill Of Materials. What's left is the labor, distribution and marketing costs and profit.

B

 

[wolfwill23]

You need to do some more research.

In China the range for average factory wages appears to be $200 to $400 per month.

In the US, average factory worker receives $54,000/year. I'll let you do the math.

It's still hypothetical because the US factory worker is generally higher skilled (according to the US Census bureau). A better comparison would be to either take a) workers closer to the minimum wage who are doing simple assembly tasks, or b) higher skilled (higher paid) workers who are overseeing a more automated process.

You also need to account for environmental costs. The cost to a company in the US to mitigate it's air and water effluent is considerably more.

Does that help? Imagine what you can find with more than 5 minutes of googling? 😀

Thanks for the input. As I posted in the original question, I was looking for a ballpark percentage. I have found similar stats in my 5 minutes of googling, but can't seem to find specific information about the difference in price between building iPods in China vs. the US.

 

[wolfwill23]

Look at the recent issue of Wired magazine for more info on this topic. http://www.wired.com/magazine/19-03/

I particularly enjoyed this article http://www.wired.com/magazine/2011/02/ff_madeinamerica

In some cases you can actually save money by bringing manufacturing back to Anytown USA.

B

Will check these out. Thanks!

 

[Hellhammer]

but can't seem to find specific information about the difference in price between building iPods in China vs. the US.

That's because iPods are not made in US. You can't find specific information about something that does not exist. All we can do is speculate and workers' wages are a crucial part of that, but even they are not enough to give you any specific numbers or percentages.

 

[wolfwill23]

That's because iPods are not made in US. You can't find specific information about something that does not exist. All we can do is speculate and workers' wages are a crucial part of that, but even they are not enough to give you any specific numbers or percentages.

Got the whole can't find info on something that doesn't exist thing. I was looking for an educated ballpark based on all costs in China vs. all costs in US. Labor is a huge part of this but several other factors play into the figure as well.

Just reaching out to the Mac community to see if there is some biz-whiz who knows the factors and figures and could give an educated ball park.

Thanks!

 

[CalBoy]

$5-$10 more per iPod? Is this a joke? (serious question)

No, not a joke. I'm guesstimating that it would cost $5-10 more per iPod if the labor involved is only 15 minutes per iPod. If you scale up, that means that the cost is $20-40 more per hour per worker, which is on par with the stats that others in thread quoted.

The thing that makes the range so hard to pin down is that there are a lot of insurance costs, regulations, and labor laws to follow in the US (or any other developed country) that makes pinning down an exact number more difficult. Most of these other factors don't exist for large scale buyers like Apple in China so we don't need to factor them in on that end of the equation.

$5-10 per iPod in increased labor is quite a lot. If we assume that an iPod has the same profit margin as Apple's gross margin (for the sake of argument; I realize it's bound to be different), then Apple makes $45 off of a $150 iPod. If you then proceed to subtract this figure by $5-10, you're reducing profit margins down to anywhere from 23-26%.

This is just for 15 minutes of labor. An iPod could take anywhere from 10 minutes to 60 to manufacture, which is what makes this so hard to estimate.

 

[wolfwill23]

No, not a joke. I'm guesstimating that it would cost $5-10 more per iPod if the labor involved is only 15 minutes per iPod. If you scale up, that means that the cost is $20-40 more per hour per worker, which is on par with the stats that others in thread quoted.

The thing that makes the range so hard to pin down is that there are a lot of insurance costs, regulations, and labor laws to follow in the US (or any other developed country) that makes pinning down an exact number more difficult. Most of these other factors don't exist for large scale buyers like Apple in China so we don't need to factor them in on that end of the equation.

$5-10 per iPod in increased labor is quite a lot. If we assume that an iPod has the same profit margin as Apple's gross margin (for the sake of argument; I realize it's bound to be different), then Apple makes $45 off of a $150 iPod. If you then proceed to subtract this figure by $5-10, you're reducing profit margins down to anywhere from 23-26%.

This is just for 15 minutes of labor. An iPod could take anywhere from 10 minutes to 60 to manufacture, which is what makes this so hard to estimate.

This is exactly what I was looking for. Thanks!

EDIT:

This brings me to a question - Is Apple giving all this work to China for $5-$10 an iPod? If so, wouldn't American consumers willingly pay that $5-$10 more in they knew it was made in the US?

 

[CalBoy]

This brings me to a question - Is Apple giving all this work to China for $5-$10 an iPod? If so, wouldn't American consumers willingly pay that $5-$10 more in they knew it was made in the US?

Well that depends on the market. When Apple first transitioned to Chinese manufacturing, it wasn't a big issue for Americans. I'm sure $5-10 (or a little more) doesn't seem like a lot for an iPod, but this cost would have to be multiplied across a wide variety of products that consumers buy. Don't think of it as $5-10 for an iPod, think of it as 10% more for every product.

Apple also has more markets than just America. Would Germans want a German-made iPod?

 

[robbieduncan]

Well that depends on the market. When Apple first transitioned to Chinese manufacturing, it wasn't a big issue for Americans. I'm sure $5-10 (or a little more) doesn't seem like a lot for an iPod, but this cost would have to be multiplied across a wide variety of products that consumers buy. Don't think of it as $5-10 for an iPod, think of it as 10% more for every product.

Apple also has more markets than just America. Would Germans want a German-made iPod?

Exactly. About 50% of Apple's sales revenue comes from outside the USA. I have no interest in paying more for my Apple goodies to be made in a different country outside of the UK. China or USA, it's not my economy either way.

 

[Hellhammer]

One of the main reasons why nearly every company has moved production to China is that they have extremely high import fees, thus if you want to sell something to the masses in China (like cars, electronics etc), it will be cheaper to move the production there instead of paying those import fees. Of course labor is much cheaper too but considering that China has so huge population and thus great markets, no company wants to lose a market like that, and that is one of the reasons why they move the production there. This has been China's way to fight against unemployment, woo big companies that can employ tens, even hundreds of thousands of people.

This is what I've heard and read.

 

[wolfwill23]

Well that depends on the market. When Apple first transitioned to Chinese manufacturing, it wasn't a big issue for Americans. I'm sure $5-10 (or a little more) doesn't seem like a lot for an iPod, but this cost would have to be multiplied across a wide variety of products that consumers buy. Don't think of it as $5-10 for an iPod, think of it as 10% more for every product.

Apple also has more markets than just America. Would Germans want a German-made iPod?

As an American, I would happily pay 10% for Apple products if they were made in America.

As for Apple products in other countries, good point.

 

[snberk103]

This brings me to a question - Is Apple giving all this work to China for $5-$10 an iPod? If so, wouldn't American consumers willingly pay that $5-$10 more in they knew it was made in the US?

It's not as easy as that. Land is cheaper in China, so the costs to acquire the land for the factory needs to be accounted for.

Also, you need to account for the overhead costs of the factories. Insurance, power, taxes, pollution clean up, repairs and maintenance, garbage collection, etc etc. In each case the costs will be less (and perhaps considerably less!) in China than in the US. I know that Apple is not paying those costs directly (assuming that they would use the same model in the US as China - purchasing from a supplier instead of owning and managing the factories directly).

Most of the parts that being assembled into the iPods are coming from Asian sources. There is a slight cost savings, I would think, shipping a single assembled product across the Pacific, rather than the dozen or more individual parts. In the case of a single product, there is one customs form to fill out. In the case of a dozen parts, each part needs to be cleared - so a dozen or more clearances. And yes I know, they clear entire shipments at a time - not box by box. But it's the difference between a single plane-load of iPods, vs a dozen shipping containers.

Every time you add a little paperwork (shipping, customs, etc) by the middle-people, you add more than a little cost. Each time someone has an expense, they pass that on with their mark-up.

So, looking at the labour costs to assemble the iPods is just too simplistic. You have to look at the whole thing.

 

[wolfwill23]

It's not as easy as that. Land is cheaper in China, so the costs to acquire the land for the factory needs to be accounted for.

Also, you need to account for the overhead costs of the factories. Insurance, power, taxes, pollution clean up, repairs and maintenance, garbage collection, etc etc. In each case the costs will be less (and perhaps considerably less!) in China than in the US. I know that Apple is not paying those costs directly (assuming that they would use the same model in the US as China - purchasing from a supplier instead of owning and managing the factories directly).

Most of the parts that being assembled into the iPods are coming from Asian sources. There is a slight cost savings, I would think, shipping a single assembled product across the Pacific, rather than the dozen or more individual parts. In the case of a single product, there is one customs form to fill out. In the case of a dozen parts, each part needs to be cleared - so a dozen or more clearances. And yes I know, they clear entire shipments at a time - not box by box. But it's the difference between a single plane-load of iPods, vs a dozen shipping containers.

Every time you add a little paperwork (shipping, customs, etc) by the middle-people, you add more than a little cost. Each time someone has an expense, they pass that on with their mark-up.

So, looking at the labour costs to assemble the iPods is just too simplistic. You have to look at the whole thing.

Given all of these costs, what do you think that does to our $5-$10 more per iPod guess-timate?

 

[balamw]

So, looking at the labour costs to assemble the iPods is just too simplistic. You have to look at the whole thing.

I fully agree.

That whole picture includes many other intangibles like oversight and quality, which were the issues faced by the headphone manufacturer mentioned in the Wired piece I linked to (Sleek Audio).

If Apple concluded it was in their shareholders' interest to move some assembly and manufacturing away from China, I'm sure they would.

B

 

[snberk103]

Given all of these costs, what do you think that does to our $5-$10 more per iPod guess-timate?

No idea. Without knowing how long it takes to assemble the iPod we don't know the actual labour costs. Without knowing any of the overhead costs, we don't know what it costs Foxconn to just own the factory.

Also, consider that nobody making these things wants their competition to know the numbers that you are looking for.

Also, don't forget to account for the R&D costs. These things don't just spring from the minds of JI and SJ fully formed. There are some very well paid engineers in California that are designing the products. Not just the products that are released, but all those products that never see the light of day. Those costs are also paid for from the sold iPods. Also the research labs in Cupertino, with all of those associated overhead costs.

But wait, there's more. Once a design is finalized, the people who make the thing have to figure out a) what parts they need to source, b) what shape those parts have take in order to fit inside the case, c) in what order, and how, those parts are put into the iPod, d) perhaps custom tools need to be built, e) assembly lines have to be created (the right bins with the right parts at the correct places), f) workers need to be trained, g) etc etc

The first iPod that comes off the line has cost Apple and Foxconn tens of $Millions. Every other iPod that comes off the line not only needs to be built at a profit, it also needs to partially pay off the costs of that first iPod. Eventually Apple hopes to sell enough iPods that they are (finally) turning a profit.

Hope you get a good mark on your essay ... 😉

 

[wolfwill23]

No idea. Without knowing how long it takes to assemble the iPod we don't know the actual labour costs. Without knowing any of the overhead costs, we don't know what it costs Foxconn to just own the factory.

Also, consider that nobody making these things wants their competition to know the numbers that you are looking for.

Also, don't forget to account for the R&D costs. These things don't just spring from the minds of JI and SJ fully formed. There are some very well paid engineers in California that are designing the products. Not just the products that are released, but all those products that never see the light of day. Those costs are also paid for from the sold iPods. Also the research labs in Cupertino, with all of those associated overhead costs.

But wait, there's more. Once a design is finalized, the people who make the thing have to figure out a) what parts they need to source, b) what shape those parts have take in order to fit inside the case, c) in what order, and how, those parts are put into the iPod, d) perhaps custom tools need to be built, e) assembly lines have to be created (the right bins with the right parts at the correct places), f) workers need to be trained, g) etc etc

The first iPod that comes off the line has cost Apple and Foxconn tens of $Millions. Every other iPod that comes off the line not only needs to be built at a profit, it also needs to partially pay off the costs of that first iPod. Eventually Apple hopes to sell enough iPods that they are (finally) turning a profit.

Hope you get a good mark on your essay ... 😉

Thanks for the great replies. I'm not so much interested in to what the costs are in R&D but rather just the apples to apples of building them in China vs. building them in the US.

Also, film, not essay. 🙂