Chapter_4_New_Trade_Models

In figure 72 that might be all activities to the left

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In figure 7.2 that might be all activities to the left of the vertical line A. This is referred to as slicing the value chain . Activities to the left of line A are sent abroad because the cost savings from paying lower wages in Foreign are greatest for the less-skilled labor intensive activities.
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23 Effects of Reduced Trade Costs on Outsourcing Lowering trade costs makes it easier to outsource to low- wage countries. The activity cut-off line shifts to B. As a result of outsourcing, the relative demand for skilled workers will rise. This is because the activities still done at Home are more skill-intensive than before. The relative wage of skilled labor will increase due to outsourcing.
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24 Who Makes the iPod? Background Much of the iPod is manufactured abroad, by numerous Asian enterprises. There are 451 parts that go into the iPod. The retail value of the iPod is $299 (2007). Where does it go? © Reuters/CORBIS
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25 Who Makes the iPod? Key findings (in 2007) Retail value of the iPod is $299 (for a 30Gb iPod) Most expensive component: $73 - hard disk from Toshiba, a Japanese-owned company, which manufactures the hard disk in the Philippines and China. Profit margins at each production step are very low; produced in intensely competitive markets. Researchers estimated $163 of the $299 retail is paid to American companies and workers. $80 paid to Apple (e.g., design, IP, support) $75 distribution (e.g., transport/ wholesale/retail) $8 for various domestic components (U.S.-made parts)
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26 Who Makes the iPod? Lessons For many products, there’s no easy answer to the question of who makes it and where is it made. The value in the iPod is in combining inexpensive parts to produce an expensive product. Important to understand and account for the growing role of intermediate products in the export and import flows worldwide.
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