Apple's financial success: The precariousness of power exercised in global value chains

Abstract

This working paper is about the Apple Inc Business Model and how, in a financialized world, the success of this business model is represented in the form of what we term financial 'point values'. Our argument is that there is a tendency to promote specific point valuation multiples as measures of success but these values, by their nature, do not reveal the contingent and variable nature of power relations exercised in and along global supply chains. Firms like Apple, exploit resources and capabilities to 'create value' but also exercise power to recalibrate relations with suppliers in the value chain to secure 'value capture', for financial transformation. Value capture is an active ingredient that can help inform our understanding of the fragility of the Apple business model and frame a critical argument about the precarious nature and sustainability of Apple's huge profit margins.

Throughput accounting and performance of a manufacturing company under stochastic demand and scrap rates

“…For example, Apple is a well-known for high throughput products, but rarely discounts these, and offers only a limited amount of product variants (Kahney, 2008;Haslam et al, 2013). It is probably like this so that technical and other consumer preference characteristics enable this to happen in the markets.…”

“…It is probably like this so that technical and other consumer preference characteristics enable this to happen in the markets. Some authors doubt the ability of Apple to increase the amount of products tremendously as it does not have its own production (Haslam et al, 2013). Also, steep price discounts seldom help, if other competitiveness dimensions such as environmental sustainability, level of operating expenses, service, quality, delivery accuracy and product performance do not match that of other companies (Harris, 2007).…”

The Dynamics of the Outsourcing Relationship

“…The relationship between the two corresponded to that depicted in the upper right-hand quadrant of Table 2. Apple was the focal firm in the global value chains for its products, and the power relationship between Apple and Foxconn was heavily skewed in favor of the US firm (Bergvall-Ka˚reborn & Howcroft, 2013;Froud, Johal, Leaver, & Williams, 2012;Haslam, Tsitianis, Andersson, & Yin, 2013;Heracleous, 2013;Lazonick, Mazzucato, & Tulum, 2013;Montgomerie & Roscoe, 2013). Apple was thus able to move progressively from simply purchasing components from Foxconn, to outsourcing the manufacture and assembly of many of its products to the Taiwanese firm whilst still retaining control over the value chain, and crucially capturing most of the added value from the value chains (Jacobides, Knudsen, & Augier, 2006).…”

Beyond NAFTA with Three Countries: The Impact of Global Value Chains on an Outdated Trade Agreement

“…Relationships between Foxconn and Apple are considered similar to those of a subcontractor of the apparel sector that only performs activities "cut, make, trim" (Froud et al, 2012: p. 20). Haslam et al (2013) add that Apple contracts make up towards 50% of Foxconn's revenues. This strong dependence makes Foxconn more vulnerable than other suppliers, such as Samsung which has a very different relationship with Apple.…”

“…According to ZDNet Asia Report, 5.2 million of 9.7 inch Retina displays were shipped to Apple in the first quarter of 2014, a significant increase compared to 2013 8 . To quote Haslam et al (2013) on relative power of Samsung: The power that Apple has over its global supply chain is variable and contingent rather than uniform in nature, and we refer to these relationships to argue that Apple's financial transformation is commendable, yet precarious.…”