I, Ipod

“Take just one component of the iPod nano, the central microchip provided by the U.S. company PortalPlayer. The core technology of the chip is licensed from British firm ARM and is modified by PortalPlayer’s programmers in California, Washington State, and Hyderabad. PortalPlayer then works with microchip design companies in California that send the finished design to a “foundry” in Taiwan (China) that produces “wafers” (thin metal disks) imprinted with hundreds of thousands of chips. The capital costs of these foundries can be more than $2.5 million. These wafers are then cut up into individual disks and sent elsewhere in Taiwan (China) where each one is tested. The chips are then encased in plastic and readied for assembly by Silicon-Ware in Taiwan (China) and Amkor in the Republic of Korea. The finished microchip is then warehoused in Hong Kong (China) before being transported to mainland China where the iPod is assembled. Working conditions and wages in China are low relative to Western standards and levels. Many workers live in dormitories and work long hours.

It is suggested that overtime is compulsory. Nevertheless, wages are higher than the average of the region in which the assembly plants are located and allow for substantial transfers to rural areas and hence contribute to declining rural poverty. PortalPlayer was only established in 1999 but had revenues in excess of $225 million in 2005. PortalPlayer’s chief executive officer has argued that the outsourcing to countries such as India and Taiwan (China) of “non-critical aspects of your business” has been crucial to the development of the firm and its innovation: “it allows you to become nimbler and spend R&D dollars on core strengths.” Since 2003, soon after the iPod was launched, the share price of Apple, the company that produces and sells the iPod, has risen from just over $6 to over $60. Those who own shares in Apple have benefited from the globalization of the iPod.”

Sources: C. Joseph, “The iPod’s Incredible Journey,” Mail on Sunday, July 15, 2006; “Meet the iPods’s ‘Intel,’” Business Trends 32(4)(April), 2006. Cited in Global Economic Prospects 2007, Box 4.4 Global production and the iPod, p.118.