A Martin guitar, martinguitar.com


Music is a Tradable Product Like Any Other


My father’s favorite Rolling Stones album is Exile on Main St. Its sound is unique in large part because it was recorded in a basement in France in the midst of a drug-induced feud between the band members and the sound engineers. Many important inputs contribute to crafting a band’s signature sound, from its members’ musical influences and personalities, to the individual choice of instruments and the acoustics of the room where an album was recorded.


Music may have some unusual inputs, but it is a product like any other. There are tools for the task from amps and electronics to guitars and gongs that are the result of designers, luthiers, makers, and assemblers. There are engineers, mixers, and marketers along with the performance services of the artists. A huge variety of inputs and processes are required to turn raw pieces of sound into a final product you can hear in your headphones.


Like other products, music is a tradable good with increasingly global value chains that have developed not merely to save production costs, but to serve consumer demand. Consider the journey of guitars.


The Global Value Chain of a Guitar


Perhaps the most famous illustration of how global value chains work is the process of making an iPhone, which is designed in Cupertino, built using components made in many countries particularly in East Asia, and finally assembled in China. The largest value was generated in the United States.


There is no purely American iPhone on the market. If there were, the average consumer would be forced to pay nearly a 20-fold increase in the price of their smartphone for the privilege of “Buying American”. (The Boeing Black is a secure smartphone used by the U.S. government and made entirely in the United States. They cost $15,000-$20,000 each.)


Making a guitar isn’t quite like making a smartphone, but they are similar in a few ways.


Like the iPhone, materials for a guitar are sourced from various places, crafted and assembled according to a design blueprint, and then marketed and distributed to consumers. As such, the cost of labor and the scale of production are some of the largest variables in determining the price of the final product. According to one guitar company executive in an interview with Reverb, differences in labor costs are largely the reason why a guitar that costs $1000 to manufacture in the United States can be made for $400 in Korea, or $100 in China.


But despite these huge cost differences, guitar companies like Gibson and Fender still manufacture their premium models in the United States, because unlike the iPhone which is a mass-marketed commodity, the consumer demand for guitars is more segmented.


In between Jimmy Page or Tony Iommi and your neighborhood garage band is a range of music professionals, semi-professionals, and adult hobbyists whose design preferences and sound requirements are more or less discriminating—and who are able to invest in equipment available at a variety of price points. This partly explains why guitars made in the United States, made in Korea, and made in China can all exist in the same market.


Global Markets Find their Groove


But high quality guitars have never been cheap. In 1959, a brand new Gibson Les Paul may have only cost $300. That may not seem like much, until you consider that the average cost of a new car back then was $2200. Since this time, fueled by new forms of mass media that were helping to create international superstars, demand for guitar models played by famous musicians increased dramatically. With increased demand came increased rates of counterfeiting.


Mass demand and worsening problems with counterfeiting pushed companies to look for ways to produce more affordable versions of their top models, which they were able to do overseas. However, quality was inconsistent in these early experiments. The “budget” version of Fender’s famous Stratocaster produced in Japan in the early 1980s were excellent, but the quality of the Korean models made around the same time was significantly less stellar.


Over the past several decades, these quality gaps have narrowed and instrument manufacturers have adjusted to the learning curve. Gibson’s Epiphone line is made in a dedicated factory in Qingdao, China, and according to Gibson, this has allowed them to focus on quality control while differentiating themselves from their competitors. This ability to shift production to lower-cost jurisdictions while still delivering high-quality products means that musicians just starting out can afford to buy a nice-sounding guitar without committing to the cost of the premium article.


American Guitars Still Rock


Even as guitar production grows in Asia, Asian rock musicians have become a major force driving the market for premium American-made guitars. Fender’s top-shelf guitars are made in California over a laborious one-month process, and the company has been focusing recently on exporting to meet growing demand in China. When Zhang Shouwang of Chinese indie rock sensation Carsick Cars forgot his Gibson guitar in a taxi, he was so distraught that he hired a special taxi detective to find it for him (and happily he did). Takeshi, the bassist-guitarist of legendary Japanese experimental rock band Boris, had his custom doubleneck bass/guitar made by First Act Custom Shop in Massachusetts.


No matter how global guitar production goes, true enthusiasts will always make the pilgrimage to places in America like Martin Guitar in Nazareth, Pennsylvania, which has been making guitars since 1833, because American-made guitars are still a chord above the rest.