A new working paper, exploring themes recently explored in the CRESC Apple Business Model workshop:

Apple Business Model: Financialization across the Pacific

CRESC Working Paper Series No.111

Julie Froud, Sukhdev Johal, Adam Leaver, Karel Williams
April 2012

ABSTRACT

This paper argues that thirty years ago, favourable cost conditions built productive power in Asia, whereas now US financial power drives and benefits from favourable conditions in China as well as the USA. It considers the changing business models within the complexities of a globalised and financialized world since the 1970s and combines the literatures on financialization and on global supply chains to present an alternative view of the dual pressures and its outcomes. It then adds a temporal dimension through the use of macro evidence on cost ratios and labour share of value added in low wage Asia to compare new entrants into the industrial world order since the 1970s. A third section presents a case study which deconstruct Apple Inc.’s financial success and its trans-Pacific relations with its handset supplier Foxconn International Holdings (FIH). The paper concludes by observing that the rise of the post national corporate player changes the alignment between large corporate interests and the US economy where Apple hoards its cash surplus and the success for the stockholders does not align with the broader needs of the US economy and society.

KEYWORDS: Apple Inc., Business Model, Financialization, Foxconn, Globalisation, iPhone, Value Added.

“There are two types of companies: those that work hard to charge customers more, and those that work hard to charge customers less. Both approaches can work. We are firmly in the second camp.”
Jeff Bezos, letter to customers Amazon Website, 28/9/11

The quotation above is by Amazon CEO Jeff Bezos on the day when Amazon launched the Kindle Fire as a low cost competitor to Apple’s iPad. The implication is that the two products represented competing company business models with different implications for the consumer: according to Bezos, Amazon represents cost reduction and Apple represents cost recovery. Older strategy texts, like those of Porter from the 1980s, assumed that supply chains would reflect the generic strategies and positioning of lead firms, so that cost leaders like Amazon would have very different supply chains to a value-adding differentiator like Apple. But we now live in a different world whose complications are nicely illustrated by Amazon and Apple. Both firms have business models which in financial terms lever multiple revenue streams from hardware devices and software products while in organisational terms they both cross sectors, chains and national boundaries and interestingly share an infrastructure of componentry and assembly. Hon Hai’s Chinese based subsidiaries such as Foxconn are the assemblers of choice for Apple, Amazon and all the other Western firms producing hand held smart devices at various price points from nearly generic componentry.

This paper represents a preliminary attempt to engage with some of the changing business model complexities of this new globalised, financialized world created since the 1970s. This new world is explored in two ways: first, discursively, by bringing together the two distinct literatures on financialization and on global supply chains; and second, empirically by presenting some macro evidence on cost ratios and labour share of value added in low wage Asia before then adding a case study of Apple Inc. and its relation to its supplier Foxconn International Holdings (FIH). The article which presents this argument is organised in a relatively straightforward way into four successive sections: the first two cover literatures and the evidence on macro aggregates and the second two provide illustrative case study material on the problems of a handset assembler FIH before turning to deconstruct Apple’s success. But the argument about Asian low wage manufacturing and its relation to Western firms is a complex one. The future of our world is now uncertain because of rolling financial crisis, but, if we look back before 2007, then the new post 1970s world was always an experiment and work in progress with a changing logic. By bringing the literatures together and laying out new empirics, we bring out the differences between then and now because the entrance of the Japanese in the 1970s and the Koreans in the 1980s into the world trading sphere is in many important ways different from the entrance of the Chinese in the 2000s.

Download the rest of the paper here http://www.cresc.ac.uk/publications/apple-business-model-financialization-across-the-pacific

Acknowledgements

Photograph by Plastic People, used under a Creative Commons license.