China gets only a nibble of Apple’s profits

That Apple Inc. avails of cheaper working conditions in China to build its products is well-known. What is less known is that China receives nearly nothing from this deal. Although China assembles 100% of Apple’s iPhones, it receives only 1.8% of the profits from its sales.

The United Nations Development Programme’s Human Development Report, 2014, shows data—perhaps for the first time—of the exact break-up of the profits from the sale of the iPhone. Apple, naturally, pockets a cool 58.5% of the profits from the sale of iPhone. To put this figure in perspective, by the end of 2011, Apple’s revenue from just iPhone was more than Microsoft’s entire revenue.

Coming to the share of profits that goes to the labour that works on the iPhone, we see that while labour receives a total of 5.3% of profits, Chinese labour only receives 1.8%. This is despite the fact that the entire assembly of the iPhone happens in China, often in working conditions that have driven workers to suicide.

The second-largest chunk (21.9%) of the iPhone’s profits goes to the cost of materials. This just highlights the relative importance Apple places on its hardware and the labour that assembles it.

A significant portion of the rest of the profits is divided between the US, the European Union, South Korea and Japan (together accounting for 8.7% of the profits). Companies from these countries—Samsung, LG, Toshiba and Qualcomm, to name a few—build iPhone’s hardware, from the flash memory to the gorilla glass and almost everything in between.

There are two companies in China that handle the iPhone’s assembly—Foxconn and Pegatron, with Foxconn being the primary partner. While the amount Apple parts with to pay Foxconn and Pegatron is a minuscule portion of the profits of the iPhone, Apple’s business reportedly accounts for 40% of Foxconn’s revenues.

Now that’s an unequal partnership.