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Apple v. Foxconn: The Importance Of Profit Over Turnover And The Low Value Of Manufacturing Jobs

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There's a mildly interesting point to be made from the latest Fortune 500 listings. Foxconn has a higher turnover than one of their major customers, Apple. There's a much more interesting point to be made about their profits though: there's not much money in manufacturing. This has knock on effects and should help to put to rest those endless whines about the loss of manufacturing jobs. They're low value jobs these days, with low pay: the money is all in the design and retailing.

The two interesting numerical points are these

Contract manufacturer Foxconn managed to steal a march on its illustrious partner Apple this week after it was ranked several places higher than the fruity toy maker in the latest Fortune Global 500 rankings, with a whopping $117.5bn (£75.7bn) in revenues.

The Taiwanese giant’s parent company Hon Hai Precision Industry was placed 43rd on the annual list of the world’s biggest companies by revenue. Apple, by contrast, sat in 55th spot with $108.2bn (£69.8bn), climbing an impressive 56 places from last year’s list.

When it comes to profits, however, Apple is the clear winner. It managed to generate $25.9bn (£16.7bn) in profits over the period versus Hon Hai’s $2.8bn (£1.8bn).

As we can see, manufacturing the electronic gew gaws for the world provides a very large turnover. However, there is very little profit there. Given that profit is a measure of the value added in a process we can therefore also say that manufacturing electronic gew gaws is a low value added process.

By contrast, designing and retailing electronic gew gaws seems to be a very high value added process. Some ten times the profit on a lower turnover.

We also know that the wages paid to those in China working for Hon Hai are much lower than those paid to those working for Apple. About one tenth the wages actually.

So, design and retail brings well paid jobs and decent profits: actually manufacturing stuff brings low wages and low profits. All of which has me rather confused: for there is a very large number of people who insist that only by bringing manufacturing back to America can the country be made rich again. Why would low wages and low profits make the country richer? Surely we want the high wage high profit jobs, meaning we should be switching even more out of manufacturing and into design and retail?