Source: adapted from G. Linden, K.L. Kraemer, and J. Dedrick (2009) “Who Captures Value in a Global Innovation Network? The Case of Apple’s iPod”, Communications of the ACM, March 2009, Vol. 52, No. 3, pp. 140-144.
Breakdown of a $299 iPod US Retail Price, 2005
The iPod, a popular digital music player, is a relevant example of a global distribution of production and differences in the capture of added value. About a third (35%) of its retail price is related to its components, which includes labor. The two most expensive components being the hard drive and the liquid crystal display unit. If components and foreign suppliers margin are considered, the factory costs of the iPod is about $144. The designer and retailer, Apple, captures a significant 27% of the total value (more than half of the factory cost), while distribution and retail capture an equivalent value. About 13% of the value is accounted by the margin of the major component suppliers, particularly Japanese (hard drive and LCD). The product is assembled in China, but this involves limited value capture (a few dollars), mostly in terms of wages as the great majority of the components are provided by Japanese, American, Taiwanese and Korean suppliers. Therefore, in spite of a highly globalized product, a great share of the added value remains captured by the United States in terms of R&D, design, distribution and retailing.