Syracuse University School of Information Studies (iSchool) Associate Professor Jason Dedrick was quoted in a New York Times article “Supply Chain for iPhone Highlights Costs in China” concerning how increasing labor costs in China will effect American electronic consumers.
Electronic devices, like the iPhone, are designed in the United States but assembled in China from high-tech components manufactured all over the world. The final product, with assembly cost of $187.61, is shipped back to the United States and is priced at an estimated $600, though AT&T subsidizes the final cost to consumers in exchange for service contracts.
“China makes very little money on these things,” Dedrick said to the newspaper.
The actual labor cost of the phone is estimated to be seven per cent of the assembly cost, thought labor shortages and worker unrest within China may contribute to an increase in labor costs in the future. Also, many of the high-tech components of the iPhone are manufactured in China, even if they are bought from companies located elsewhere. These companies, like Foxconn of the Hon Hai Group of Taiwan, rely on the low labor costs in order to sell the components at a relatively low cost to Apple.
“They’re like Wal-Mart stores,” Dedrick said. “They’re low-margin, high-volume. They survive by being efficient.”
Though the labor increases are unlikely to have a big effect on Apple, due to the company’s high profit margin, companies with lower profit margins, like Hewlett Packard and Foxconn might suffer from the growing labor costs in China. The Times reports that wages have risen by 50 percent since 2005.
Jason Dedrick holds a Ph.D. in Management from the University of California, Irvine, and a Master’s in Pacific International Affairs from the University of California, San Diego. His research interests include the globalization of information technology, the economic and organizational impacts of IT, national IT policy, the offshoring of innovation and knowledge work, and Green IT. Prior to coming to the iSchool, he was senior research fellow at the University of California, Irvine. He is co-director of the Personal Computing Industry Center, sponsored by the Alfred P. Sloan Foundation.