Geography Reference
In-Depth Information
to grow profi ts is to cut costs, and labor (wages, benefi ts,
insurance) makes up a sizable proportion of production
costs. Most multinational corporations have moved the
labor-intensive manufacturing, particularly assembly
activities, to peripheral countries where labor is cheap,
regulations are few, and tax rates are low. The manufac-
turing that remains in the core is usually highly mecha-
nized. Technologically sophisticated manufacturing also
tends to be sited in the core because both the expertise
and the infrastructure are there.
Where to produce or assemble a good is only one
small aspect of decisions made in a commodity chain (see
Chapter 10) for any good produced in an economy based
on fl exible production. A large part of business decision
making today focuses on sourcing, on where to get the
component parts that are eventually assembled. Business
magazines and textbooks discuss nimble sourcing deci-
sions, proving that not only is production fl exible, but the
sourcing is too.
China and other lower wage countries are major
recipients of industrial work that is
outsourced
or moved
offshore
. Each of the steps in commodity production that
used to take place within the confi nes of a single factory is
now often outsourced to suppliers, which focus their pro-
duction and offer cost savings. When outsourced work is
located outside of the country, it is said that it takes place
offshore
.
Research and development activities tend to be con-
centrated in the core, where high levels of education and
access to technology are the norm. The global division of
labor has reshaped the role different economic sectors
play within countries. With mechanized, highly effi cient
agriculture (see Chapter 11) and with the move of manu-
facturing jobs to the semi-periphery and periphery, core
countries now have large labor forces employed in the ter-
tiary (service) sector of the economy.
Supporting the global division of labor are elaborate
trading networks and fi nancial relations. Trade itself is a
tertiary economic activity of considerable importance to
the global economy. Regardless of where goods are pro-
duced, consumption is still concentrated in the core and,
increasingly, among the wealthy and middle classes of the
semi-periphery. Newly industrializing countries of the
semi-periphery send manufactured goods to the core.
Trade fl ows among countries in the periphery are typi-
cally low because, for peripheral countries, the dominant
fl ow of goods consists of exports to the core.
helped families move all goods not “Made in America”
onto the street so the family could visualize how much of
what is in their home is made in the America and how
much is made elsewhere in the world. The ABC World
News crew then, according to their website, “took on the
challenge of trying to fi ll three rooms in a home entirely
with 100 percent American-made products.”
Would an iPod get to stay in the house redesigned by
ABC World News? When you open a new iPod or other
Apple product, a sticker greets you that says “Designed in
California.” “Designed in” instead of “Made in?” The
iPod would not pass the ABC “made in” test, but we
should ask whether it is better for the American economy
for a good to be made in or designed in America. Three
authors asked this exact question in the journal
Communications of the ACM
in 2009. Linden et al. asked
who captures the value in a $299 iPod touch.
Using published sources on computer machinery
and component parts, the authors fi gured out the iPod
supply chain and calculated the value added at each step in
the commodity chain (Fig. 12.10). The components of an
iPod are produced by companies in Japan, Korea, Taiwan,
and China. The most expensive component in the iPod is
the hard drive, which is produced and designed by
Toshiba, a Japanese company. One component that sets
the iPod apart from other MP3 players is the microchip
that controls access to songs and movies on the iPod. The
microchip is housed in a wheel on the iPod classic and
iPod nano and is produced by PortalPlayer, a Californian
company with offi ces in India.
Figure 12.10
Breakdown of the cost of a $299 iPod.
Courtesy of
: Greg
Linden, Kenneth L. Kraemer, and Jason Dedrick. Who captures
value in a global innovation network? The case of Apple's iPod.
Communications of the ACM
, March 2009, vol. 52, 3.
BREAKDOWN OF THE COST OF A $299 IPOD
(30 GB Video iPod, 2005)
Taiwan
margins
$5
Other U.S. margins
$7
Korea margins
$1
Unaccounted inputs
$19
Cost of goods for
top 10 inputs
(includng materials,
components,
direct labor)
$85
Japan
margins
$27
Made in America or Designed in America?
In 2011, ABC World News featured a segment called
“Made in America,” where journalists knocked on doors
and challenged homeowners to look at every item in their
home for the “made in” sticker. The news crew then
Distribution
and retail
$75
Apple margin
$80
