MobileRead Forums - View Single Post - What would you pay for a gadget made under better conditions?

fjtorres · 02-11-2012, 08:48 AM

As to the question of how much more an ethically-built product would cost, well it turns out THE ECONOMIST took a look at the iPAD cost structure recently:
http://www.economist.com/node/21543174

It turns out the Chinese labor that Foxconn provides isn't much of a cost driver. The cost breakdown looks like this:
31% - cost of materials
30% - Apple profit
15% - distribution and retail
7% - South Korean (Note: Display and memory, mostly)
6% - Other
5% - Non-chinese labor
2% - Taiwan
2% - US
2% - Chinese labor

So, I'm thinking improving labor conditions wouldn't add much to the cost of the US$500 iPAD, since only $10 go into that category.

That is half the story.
The other half is the *actual* labor rates that make that 2% assembly labor cost possible.
http://www.ventureoutsource.com/cont...tion-costs-ems
Chinese electronics assembly labor rates run around US$1.50 an hour by now ($1.36 in 2008) which undercuts even the phillipines (at $1.66 an hour) to say nothing of Japan ($27.80) South Korea ($15) and Taiwan ($8.68). Never mind the US or Europe.
(German labor costs for 2008 ran US$46.50 an hour of which 35% were hidden "social costs"--taxes!)
http://www.spiegel.de/international/...549003,00.html
The US (2009) ran about $33 an hour, excluding taxes which add an extra 40% burden.
http://www.bls.gov/fls/chartbook/section3.htm#chart3.1
(Hey! Bing has its uses!)

Get the idea? Needless to say, chinese labor doesn't carry the "social charges" and taxes that burden western manufacturing.

Excluding those self-imposed competitiveness handicaps, it all comes down to essentially a twenty-fold (2000%) labor cost increase for "manufactured in my country" gear vs chinese assembly. Simple math says that raising labor costs from $10 per iPAD by 20, to $200 would raise the total product price by 38%, to $690.
That iPAD still looking good?

Now, a more realistic scenario would be South Korea labor rate (US$15) which yields a $600 iPAD, or even a Taiwanese labor rate, which yields about a 10% increase to $550.

However, since Apple clears 30% gross (25% net) on that iPad (US$150), keeping the price at $500 and "eating" the higher labor might be an option--except this *is* Apple we're talking about.
That's not how they roll; not now, not ever. (The original Macintosh listed at US$2500, discounted to $1000 for students, and cost $300 to manufacture, in 1984 dollars. At a US factory. High margins are baked into the Apple DNA so don't expect that to change, NYT bad-mouthing or not.)

Bottom line: you don't have to boost prices 50% to sell an iPAD built without sweatshop labor, a modest 10% could do the trick.

Of course, this only applies to the iPAD and Apple since their margins are gigantic by design. Other vendors that live off more reasonable margins are passing on the labor savings to the consumer.

One would expect that the labor going into a Nook or a Kindle 4 won't be much less than the labor needed to assemble an iPAD and a $50 labor cost increase on those products would in fact lead to a 50% price increase. And $200 would simply be out of question; it would kill the product.

So the survey isn't out of line with that 50% bogey.
Apple *can* easily pay higher assembly labor costs because their customers are already paying more than enough to cover it; other products, though, can't sustain their current price points without sweatshop labor so we *are* looking at two different ethical propositions.

Consumers of non-Apple products *are* benefitting from sweatshop labor and we should ponder the human cost of our toys.

But Apple consumers simply need to ponder why they support a company that exploits such practices when the numbers say they *don't* have to.

Either way, the onus is on the consumer.
Cause Apple is what they always have been.
"Trust scorpions to be scorpions."

02-11-2012, 08:48 AM	#18
fjtorres Grand Sorcerer Posts: 11,732 Karma: 128354696 Join Date: May 2009 Location: 26 kly from Sgr A* Device: T100TA,PW2,PRS-T1,KT,FireHD 8.9,K2, PB360,BeBook One,Axim51v,TC1000	As to the question of how much more an ethically-built product would cost, well it turns out THE ECONOMIST took a look at the iPAD cost structure recently: http://www.economist.com/node/21543174 It turns out the Chinese labor that Foxconn provides isn't much of a cost driver. The cost breakdown looks like this: 31% - cost of materials 30% - Apple profit 15% - distribution and retail 7% - South Korean (Note: Display and memory, mostly) 6% - Other 5% - Non-chinese labor 2% - Taiwan 2% - US 2% - Chinese labor So, I'm thinking improving labor conditions wouldn't add much to the cost of the US$500 iPAD, since only $10 go into that category. That is half the story. The other half is the actual labor rates that make that 2% assembly labor cost possible. http://www.ventureoutsource.com/cont...tion-costs-ems Chinese electronics assembly labor rates run around US$1.50 an hour by now ($1.36 in 2008) which undercuts even the phillipines (at $1.66 an hour) to say nothing of Japan ($27.80) South Korea ($15) and Taiwan ($8.68). Never mind the US or Europe. (German labor costs for 2008 ran US$46.50 an hour of which 35% were hidden "social costs"--taxes!) http://www.spiegel.de/international/...549003,00.html The US (2009) ran about $33 an hour, excluding taxes which add an extra 40% burden. http://www.bls.gov/fls/chartbook/section3.htm#chart3.1 (Hey! Bing has its uses!) Get the idea? Needless to say, chinese labor doesn't carry the "social charges" and taxes that burden western manufacturing. Excluding those self-imposed competitiveness handicaps, it all comes down to essentially a twenty-fold (2000%) labor cost increase for "manufactured in my country" gear vs chinese assembly. Simple math says that raising labor costs from $10 per iPAD by 20, to $200 would raise the total product price by 38%, to $690. That iPAD still looking good? Now, a more realistic scenario would be South Korea labor rate (US$15) which yields a $600 iPAD, or even a Taiwanese labor rate, which yields about a 10% increase to $550. However, since Apple clears 30% gross (25% net) on that iPad (US$150), keeping the price at $500 and "eating" the higher labor might be an option--except this is Apple we're talking about. That's not how they roll; not now, not ever. (The original Macintosh listed at US$2500, discounted to $1000 for students, and cost $300 to manufacture, in 1984 dollars. At a US factory. High margins are baked into the Apple DNA so don't expect that to change, NYT bad-mouthing or not.) Bottom line: you don't have to boost prices 50% to sell an iPAD built without sweatshop labor, a modest 10% could do the trick. Of course, this only applies to the iPAD and Apple since their margins are gigantic by design. Other vendors that live off more reasonable margins are passing on the labor savings to the consumer. One would expect that the labor going into a Nook or a Kindle 4 won't be much less than the labor needed to assemble an iPAD and a $50 labor cost increase on those products would in fact lead to a 50% price increase. And $200 would simply be out of question; it would kill the product. So the survey isn't out of line with that 50% bogey. Apple can easily pay higher assembly labor costs because their customers are already paying more than enough to cover it; other products, though, can't sustain their current price points without sweatshop labor so we are looking at two different ethical propositions. Consumers of non-Apple products are benefitting from sweatshop labor and we should ponder the human cost of our toys. But Apple consumers simply need to ponder why they support a company that exploits such practices when the numbers say they don't have to. Either way, the onus is on the consumer. Cause Apple is what they always have been. "Trust scorpions to be scorpions." Last edited by fjtorres; 02-11-2012 at 08:56 AM.