If you’re not high value-adding, you’re adding nothing

Importing

We are all looking for high value-added products even if we don’t want to admit it. I’m not necessarily referring to the transactional products we need every day – food, clothes, etc. Here, price is often the deciding factor. I’m really referring to the meaningful products we value as extensions of ourselves – our phones, our cars, our entertainment systems – these relational products are where we crave high value-add.

If we look at the example of the value created in the production of the iPhone 3G – a product that was assembled in China, but that had many other countries provide input into its manufacture – see Table 1.

iphone 3G costs

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 1: Apple iPhone 3G’s major components and cost drivers - 2009*

While the iPhone is seen as a significant Chinese export to the US, the actual Chinese contribution to the product was only $6.50 or 3.6%. Contributions by other countries like Japan (34%), Germany (17%), Korea (13%) and even the US itself (6%) is higher. So the high value-add here comes from several other countries and not necessarily the country from where the final product is shipped.  

With manufacturing costs rising, China is under pressure to high value-add and will soon pass on the baton of low-cost manufacturing to Mexico or a similar nation. Business in Australia, has been under the same pressures since the GFC where Australia has become more a high-cost competitive environment. The businesses that will do well in this environment are those that recognise the limited value of low-value add activities and to get serious about what particular strategies need to be employed - e.g R&D, innovative supply chains, collaborations – so they can shift to a high value-add offering.


*Yuqing Xing, 10/04/2011, How the iPhone widens the US trade deficit with China.


Steve Bryant

Industry leadership at QMI Solutions

With over 14 years' experience in industry advocacy and in diffusing technologies and best practice to industry, Steve is dedicated to helping SMEs adopt the key elements of global competitiveness to benefit enterprises and the broader economy.


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Phil Khor

Phil Khor, Founder at SavvySME

Wow this is really interesting insight - esp how China even with only 3.6% contribution in this example is trying to move up the food chain to offer higher value add. The question then is are we local businesses ready for such a shift which seems now more critical than ever to remain competitive? If not, what do we need to do?

Ling Lee

Ling Lee, at Digital Marketing and Personal Branding

Thanks for the great article Steve! Makes me think about weighing up the benefits of value adding and non value adding manufacturing processes.

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