Apple Inc.’s Ascendance and Power Dynamics Essay

Introduction

The commercial success of an American technology company, Apple Inc., is predicated on its ability to effectively leverage economies of scale by exploring global commodity chains. The company’s search for higher profits has led to outsourcing practices that have almost entirely moved its manufacturing function to Asian countries. However, despite the destruction of natural barriers to “capital mobility across spaces of uneven development,” which is a positive by-product of Apple Inc.’s cost reduction strategy, the politics of global production have forced foreign contractors to reduce labor standards.¹ Taking into consideration the fact that there is a substantial power asymmetry between links in contemporary commodity chains, contract manufacturers are not capable of resisting the pressure to “cut costs to the bare bones,” thereby exposing their workers to numerous health risks.² In opposition to its professed “ideals of corporate citizenship, environmental, labor, and social responsibility,” which Apple Inc. continuously publishes in its annual statements, the company still engages in the exploitation of the labor of approximately 1.5 million workers in China alone.³ This exploitation is made possible through Apple Inc.’s partnership with the largest contract manufacturer of electronics—Foxconn whose triumph is only paralleled by the rise of another company’s partner Flextronics.

The aim of this paper is to explicate the ascendance of Apple Inc. to a leading position in the market of consumer electronics. The paper will explore the power dynamics of the tech giant’s supply chain by relying on the main components in the framework of global commodity and value chains. It will also discuss the company’s structural relationships with its commodity manufacturers that allow it to transfer massive amounts of value that is being added at the nodes of commodity chains.⁴

iPad

iPad is a highly successful line of tablet computers that was introduced at an Apple Inc.’s press conference in 2010.⁵ Despite the fact that the commodity has a sticker informing buyers that it has been produced in China, its parts come from a variety of Asian countries such as South Korea, Japan, and Taiwan among others. The first generation of the product featured a 9.7-inch screen, 802.11g (Wi-Fi), GPS, and Bluetooth 2.1.⁶ The tablet was powered by the company’s 32-bit system-on-chip (SoC) A4 and was equipped with 256MB of RAM.⁷ The iPad was designed for seamless web-browsing experience and provided its owners with access to their favorite websites without the need to rely on comparatively bulky and inconvenient devices such as laptops. The availability of the web at the fingertips of a user was supported by an impressive 10 hours of battery life.⁸ The owners of the product also used it for reading books, playing video games, and listening to music.

Foxconn

The production of the company’s flagman product is facilitated by the cooperation with Foxconn—a company that employs millions of employees and runs development sites and manufacturing factories across Asia. Due to the fact that the government of China prioritizes the country’s economic development over the advancement of workers’ rights, the production of iPad and other similar consumer electronics is associated with a wide range of human rights abuses.⁹ Numerous Chinese workers’ efforts to oppose exploitive practices of Foxconn have not produced palpable results.¹⁰ In 2010 alone, eighteen factory employees attempted suicide; fourteen of them died.¹¹ The manufacturing contractor responded to the incident by installing safety nets around factory buildings and hiring psychologists. The poor working conditions in the factories that led to the tragedy have not been alleviated. Foxconn employees still suffer from “the long hours, the repetitious tasks on the factory floor, the lack of overtime pay, the crowded dormitory spaces, and the alienation from home.”¹²

As of 2015, Foxconn’s owned approximately 50 percent of the world’s electronics manufacturing market.¹³ The company’s ability to leverage its highly-effective manufacturing process has allowed it to establish long-time relationships with Apple Inc. However, the contractor also sells its services to other high profile companies and produces a wide range of products that include, but are not limited to, computers, automotive electronics, health-care products, and communications equipment.¹⁴ More than 75 percent of Foxconn’s manufacturing and service facilities are located in China, a country that continues to carry the burden of the electronics industry growth.¹⁵ The rest of the company’s subsidiaries are located in more than 200 countries around the world.¹⁶ In order to drive down the cost of production, Foxconn staffs its factories with mostly adolescents and young adults. One of the company’s human resource managers has revealed that almost half of Foxconn’s assembly line workers are between 16 and 24 years of age.¹⁷ Unfortunately, this practice is a part of the national pattern and is also employed by other Chinese manufacturers.

Value Extraction

The global commodity chain (GCC) framework is a valuable tool for exploring the process of fragmented production of commodities and different “forms of economic interactions and power relations between firms and their suppliers.”¹⁸ The framework allows assessing buyer-driven relationships between lead firms and the global laboring class by introducing a concept of commodity chain governance. The concept describes a set of non-market relationships that affect the flow and allocation of resources across the global commodity chain.¹⁹

Every commodity chain can be characterized by the addition of value in the form of supply of materials, production, governance, and overheads. The sales price of a product can be expressed as the total monetized value of the components that are added at each node of a commodity chain and is referred to as the bright value.²⁰ However, in addition to the visible components of value addition, there are also hidden inputs at virtually every nod of a commodity chain. This concealed or dark value is nonetheless embedded in the product and can be captured by a producer as profit. From this vantage point, it is clear why capitalists often transform as much dark value into bright value as possible.

Apple Inc. leverages the process of the appropriation of dark value in order to substantially reduce the prices of its products, thereby attracting more potential consumers than its rivals in the market. According to Clelland (2014), a company’s ability to “control ‘mark-downs’ in the costs of inputs” or monopsony hinges on its degree of monopoly.²¹ The less monopolistic organization is, the higher degree of monopsony power buyers have. Apple Inc. secures its high level of monopoly by utilizing economies of scale, effective research and development (R&D), and innovative marketing efforts. Furthermore, the company focuses on securing a dominant hierarchical position in the market by regularly reducing the cost of its products through externalization of “the least profitable elements of production and circulation to suppliers and distributors who face more intense competition.”²² The relationships of companies with their contractors are based on unequal exchange, which is predicated on the asymmetry of market power. The sole purpose of commodity chain governance in the modern economy is to maximize the companies’ ability to capture dark value.

Apple Inc.’s Degrees of Monopoly

Apple Inc.’s massive profits from selling products are predicated on its distribution of visible surplus. According to Clelland (2014), the company extracts 45 percent of bright value in the commodity chain of one of its flagman products—iPad.²³ This approach to the flow of bright value allows recognizing that by widening the margin between the costs of manufacturing the product and its sale price, Apple Inc. secures high degrees of monopoly for itself. In real terms, this margin amounts to $224 on each iPad, which is the reflection of the tech giant’s input cost reduction practices. The company further increases its profits by distributing consumer electronics through its own chain of distribution. Substantial inequalities that come as the result of Apple Inc. having a high degree of monopoly in this particular commodity chain are evident in the difference between gross profit margins (GPMs) of Tier 1 and 2 manufacturers of the iPad and the tech giant, which does not directly participate in the process of production. For example, suppliers headquartered in Korea, Taiwan, and the United States receive only 8 to 10 percent of the factory price of the iPad.²⁴ Chinese manufacturers that are responsible for approximately 75 percent of direct labor costs associated with the production of the commodity are able to corner only 2 percent of the total Apple Inc.’s GPM.²⁵

Conclusion

The paper showed that the ascendance of Apple Inc. to a leading position in the market of consumer electronics has been possible because of its ability to extract dark value at every nod of its supply chains. The company’s long-lasting relationships with Foxconn have led to the exploitation of Chinese workers who are forced to endure poor working conditions, reduced wages, the crowded dormitory spaces; therefore, it is necessary to rethink globalization in Asia.

Bibliography

Apple History. “iPad.”Apple History. 2017. Web.

Chan, Jenny, Ngai Pun, and Mark Selden. “The Politics of Global Production: Apple, Foxconn and China’s New Working Class.” New Technology, Work and Employment 28, no. 2 (2013): 100-115.

Chan, Jenny. “A Suicide Survivor: The Life of a Chinese Worker.” New Technology, Work and Employment 28, no. 2 (2013): 84-99.

Chan, Jenny, Ngai Pun, and Mark Selden. “Apple’s iPad City: Subcontracting Exploitation to China.” In Handbook of the International Political Economy of Production, edited by Kees van der Pijl, 76-97. London: Edward Elgar Publishing, 2015.

Clelland, Donald. “The Core of the Apple: Dark Value and Degrees of Monopoly in Global Commodity Chains.” Journal of World-Systems Research 20, no. 1 (2014): 82-87.

Kraemer, Kenneth, Greg Linden, and Jason Dedrick. “Capturing Value in Global Networks: Apple’s iPad and iPhone.” Journal of World-Systems Research 14, no. 1 (2011): 64-73.

Litzinger, Ralph. “The Labor Question in China: Apple and Beyond.” South Atlantic Quarterly 112, no. 1 (2013): 172-178.

Selwyn, Benjamin. “Commodity Chains, Creative Destruction and Global Inequality: A Class Analysis.” Journal of Economic Geography 12, no. 1 (2014): 1-22.

Footnotes

1. Jenny Chan, Ngai Pun, and Mark Selden, “The Politics of Global Production: Apple, Foxconn, and China’s New Working Class,” New Technology, Work and Employment 28, no. 2 (2013): 112.
2. Ibid.
3. Donald Clelland, “The Core of the Apple: Dark Value and Degrees of Monopoly in Global Commodity Chains,” Journal of World-Systems Research 20, no. 1 (2014): 84.
4. Kenneth Kraemer, Greg Linden, and Jason Dedrick, “Capturing Value in Global Networks: Apple’s iPad and iPhone,” Journal of World-Systems Research 14, no. 1 (2011): 68.
5. Apple History, “iPad,” Apple History, Web.
6. Ibid.
7. Ibid.
8. Ibid.
9. Jenny Chan, Ngai Pun, and Mark Selden, “Apple’s iPad City: Subcontracting Exploitation to China,” in Handbook of the International Political Economy of Production, ed. Kees van der Pijl (London: Edward Elgar Publishing, 2015), 78.
10. Ralf, Litzinger, “The Labor Question in China: Apple and Beyond.” South Atlantic Quarterly 112, no. 1 (2013): 173.
11. Jenny Chan, “A Suicide Survivor: The Life of a Chinese Worker,” New Technology, Work and Employment 28, no. 2 (2013): 86.
12. Ibid., 173
13. Ibid.
14. Ibid.
15. Jenny Chan, Ngai Pun, and Mark Selden, “Apple’s iPad City,” 79-80.
16. Ibid.
17. Ibid.
18. Benjamin Selwyn, “Commodity Chains, Creative Destruction, and Global Inequality: A Class Analysis,” Journal of Economic Geography 12, no. 1 (2014): 4.
19. Ibid.
20. Clelland, “The Core of the Apple,” 84.
21. Clelland, “The Core of the Apple,” 84.
22. Ibid.
23. Clelland, “The Core of the Apple,” 85.
24. Ibid.
25. Ibid.