Out of Control

Just about any kind of interaction with foreigners is enough to get the Lou Dobbs's among us hot and bothered. Pitchfork Lou has compiled a list of "traitorous" companies that make use of offshore outsourcing and countless bumper stickers urge us to "Buy American," often adding an ominous extra prod along the lines of "while there's still time" or "the job you save might be your own."

Leaving aside all the reasons to ignore the "Buy American" imperative, let's say you really do want to buy
stuff made in the good ol' USA. How would you do it?

The buy American crowd probably doesn't care for Toyotas. But what if they're built in Tennessee by Americans? Nothing could be as American as Ford, yet as Adrian and I point out in our 2005 study Offshoring and Public Fear, the guts of a Ford Escort may be more foreign than the guts of a Honda Civic (where 75 percent of parts are made in the USA).

Today we're in the midst of iPhone-mania, and Apple watchers are eager to see if the new gadget will be the next iPod. In a NYT piece Hal P. Varian tries to answer what turns out to be a tough question:

Who makes the Apple iPod? Here’s a hint: It is not Apple. The company outsources the entire manufacture of the device to a number of Asian enterprises, among them Asustek, Inventec Appliances and Foxconn.

But this list of companies isn’t a satisfactory answer either: They only do final assembly. What about the 451 parts that go into the iPod? Where are they made and by whom?

Three researchers at the University of California, Irvine — Greg Linden, Kenneth L. Kraemer and Jason Dedrick — applied some investigative cost accounting to this question, using a report from Portelligent Inc. that examined all the parts that went into the iPod.

Their study, sponsored by the Sloan Foundation, offers a fascinating illustration of the complexity of the global economy, and how difficult it is to understand that complexity by using only conventional trade statistics.

Should we take a $299 video iPod apart and figure out where the most expensive parts come from? Examine the value each nation involved adds to the product? Consider something else?

After walking through some number crunching, Varian gives up--sort of:

Ultimately, there is no simple answer to who makes the iPod or where it is made. The iPod, like many other products, is made in several countries by dozens of companies, with each stage of production contributing a different amount to the final value.

The real value of the iPod doesn’t lie in its parts or even in putting those parts together. The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain.

Those clever folks at Apple figured out how to combine 451 mostly generic parts into a valuable product. They may not make the iPod, but they created it. In the end, that’s what really matters.

Related: Are you driving on a foreign road?