Saturday, 25 February 2012

iPad revenue - where does it go?

A recent article in the Economist (January 21, 2012) indicates that the country in which an innovation is borne is indeed rewarded financially, which must be for the benefit of that country, even when the product is assembled cheaply abroad.  The country hosting the assembling in a low wage economy, like China, often gets only a small part of the retail price: most goes to the country in which the product is conceived and developed.

This is illustrated by the iPad (figures are from the Personal Industry Industry Centre), worldwide sales of which must by now (Feb 2012) be around 60 million units since launch.

  • 30% of the retail price goes to workers and shareholders in Apple in the USA
  • 17% goes to retailers, distributors and others in the USA

So 47% goes to the originating country on R&D, product design, software development and marketing. Of the rest:
  • 31% pays for materials
  • 9% goes to South Korean and Taiwanese companies who make the display and memory chips; e.g.  Samsung and LG
  • 11% is spent on factors of production in other countries, excluding China
  • 2% goes on Chinese labour

The Economist article states that even a 20% increase in the value of the Chinese currency, the yuan, would add only 1% to the price of an iPad. This percentage will not be so low for assembly in a higher wage economy; but even if it is 10% instead of 1% it suggests that the highest reward would go to the risk taking and innovating country.

This applies to both developing and developed economies.  Each individual nation needs to have a healthy mix of product origination and product assembly in order to contribute substantially towards tax revenue to finance its social services and defence and employ enough people to stimulate the local economies (satellite industries, shops and leisure facilities etc.). Healthy added-value businesses not only employ scientists and technologists but administrative, marketing and personnel staff. 

The scope for new value-creating enterprises is enormous, given the problems facing the world and requiring both products and services to solve them. In a previous posting I suggest some ideas for businesses in the robotics area and some of these (e.g. robotic ships for scavenging marine waste) would require heavy engineering in the same country that the innovation occurred, thereby increasing the benefit of the invented technology to that country.

Author, 2077 AD