An interesting (to me) socioeconomic phenomenon that I have trouble reconciling

An interesting (to me) socioeconomic phenomenon that I have trouble reconciling

I often order specialized circuit boards directly out of China for a variety of electronics projects that I'm involved with. The example imaged below is a very flexible and efficient power supply. It has a multi-function display, dozens of components and microchips programmed with firmware which required a considerable amount of development. It also comes with mounting hardware and an auxiliary heat sink. These circuit boards are usually made in low volume runs because lets face it, who the heck would want one.

It cost less than $7 including shipping to my door, tax, brokerage and customs fees.

I went to Home Depot yesterday to find a replacement knob for my kitchen sink. It is an extruded piece of plastic of which millions are made each year and it comes with a screw.

$20 plus tax and I had to go get it myself.

A) How is a profit made on these products out of China?
B) Are we being completely screwed by retailers here in North America?

P.S. For a similar circuit board purchased in North America I would expect to pay $80-$200, taxes and all of the costs involved with shipping. Potentially another $45.

a reply to: CraftBuilder

A. Pay your workforce next to nothing.
B. Yes.

Kind Regards
Myselfaswell

P.S. When retailers have sales and reduce prices by 50% they're still making a reasonable profit. Markups are massive.

well China actually subsidizes a lot of its manufacturing in a similar way that our government subsidizes our agriculture industry (specifically corn and soy). The same way we complain about lost jobs and cheap Chinese goods, the third world and developing nations complain about unfair price advantages of subsidized American agriculture as well as the health consequences of being forced to buy GM foods because of the unfair price advantage.

Subsidies in America means cheap food and most people are fed decently.
Subsidies in China means cheap manufacturing any most of their people get to work.

The tradeoff always happens somewhere else though.

Also I noticed a lot of those components can be bought individually at Radio Shack. have you compared also the cost of purchasing those components (likely also made in China) individually at a store like Radio shack to the cost of buying a complete boar from north America?? I imagine it would be slightly less expensive than the complete project, but clearly multitudes more still than the product you had shipped directly from across the Pacific?? I just thought that would be another interesting piece of investigation to add to the puzzle.

Sorry folks, but you can't blame China and 'low wages'

A Policeman in Africa earns $40.00 month. He can cloth his four children, pay the rent, buy the food and pay the bills

Western economy is based on 'charge whatever the market will bear and maximize profits'

It is a false dichotomy and will fail as spectacularly as Communism did, and with similar turmoil

P

I believe small business owners can gain considerable leverage in their respective markets by utilizing international markets! It costs me absolutely nothing to start a drop shipping business and the overhead costs are the yearly web hosting costs.

a reply to: CraftBuilder

In addition, I suspect the Chinese also sell at a loss just as the Japanese did in the seventies to sell cars. Japanese cars are still rather inexpensive - but parts - now that a different matter.

When you can no longer buy these parts elsewhere, then we'll see what happens.

originally posted by: pheonix358
Sorry folks, but you can't blame China and 'low wages'

A Policeman in Africa earns $40.00 month. He can cloth his four children, pay the rent, buy the food and pay the bills

Western economy is based on 'charge whatever the market will bear and maximize profits'

It is a false dichotomy and will fail as spectacularly as Communism did, and with similar turmoil

P

What? Capitalism is perfection and will never ever fail. Haven't you noticed how America is doing better now than at any point in its history?

a reply to: DYepes
Most of the components are fairly specialized and cannot be purchased at places like RadioShack. However there are several component wholesalers that I purchase individual components from on regular basis and I can tell you that after designing dozens of circuit boards over my career that many of the components would cost as much as the entire device did shipped to my door. Also there would be the cost of having the printed circuit board manufactured and the time involved with developing and testing the circuitry and the firmware that runs it. Hundreds of hours of labor. Purchasing the board in low quantities for $200 would be far more cost effective.

a reply to: tavi45

What? Capitalism is perfection and will never ever fail. Haven't you noticed how America is doing better now than at any point in its history?

At first I thought that was sarcasm but then I noticed it was you.

More homeless people than ever before Check!
More people in jail than ever before Check!
More vacant houses than ever before Check!
More people on Govt assistance than ever before Check!
Fighting constant wars all over the world Check!
Abusing the Constitution over and over and over Check!
Police shooting people and pets Check!

Every thing is just dandy Check!

P

originally posted by: pheonix358
a reply to: tavi45

What? Capitalism is perfection and will never ever fail. Haven't you noticed how America is doing better now than at any point in its history?

At first I thought that was sarcasm but then I noticed it was you.

P

I thought it was very clearly sarcasm lol. Apparently this forum is exactly like real life. I'm everybody's enemy. I guess my greatest skill in life is pleasing no one . What reputation do I have in your eyes exactly?

a reply to: tavi45

In that case, my apologies, Sir.

We disagree on some subjects.

I will let you know next time we cross swords lol

P

a reply to: CraftBuilder

It will be when china has a complete monopoly on items such as this that other countries will suddenly feel a sharp price increase and be powerless to do anything about it. Its how you destroy competition in any retail project - you undercut to destroy and then manipulate the price up to where it should be once all competition has gone.

This separation of economies really spun me out a few years ago when I learnt that you could buy watch batteries from China for a few cents each. Try and get one replaced in your watch from a jewellery and $10 - $20 is common.

In terms of working towards a common international currency unit there is a lot of problems. Each nation is trying to balance its imports with exports. How the foreign exchange markets moves can create a lot of problems for different industries in a nation. How nations decide to work together or against each other has a lot of politics tied up in this strange reconciliation.

Keep up your interest in the global economy and eventually a few things start to click. Understanding how a few billion people organize and share their time and resources is not easy.

As for why China is so cheep? China already has about a Trillion $US, maybe it values its manufacturing capabilities, industrial improvement, employment options and foreign relations more than a few bucks. There is also a lot of reports of embedded spyware associated to other cheep electronics. If your only value is money then yes it is cheep.

a reply to: CraftBuilder

A. It's a combination of maximized production capacity of Chinese factories and extremely low wages to its workers.

On the first point of maximized production capacity: In cost accounting, the goal is to maximize to the full operational capacity of a factory in order to maximize the profitability of that factory. For example, if a factory was capable of making 70,000 pens but was only going to sell 50,000 pens, that factory would still make those 70,000 pens. The remaining pens might get sold at a discount or put to other uses and anything over that 50k pens that gets sold is yet more profit. It's actually a pretty complex calculation and this is a simplified explanation but the gist is simple--manufacture to the maximum capacity.

In China, the factories aren't run by brands but basically companies whose sole purpose is to manufacture for others. If you walked into a shoe factory in Japan, what you would most likely see would be that NIke shoes were being built next to Adidas and New Balance. In other words, they're running at maximum but with the buyer (the brand itself) has already ordered X number of shoes to be built. So maximized production and profitability for every shoe built. As in the pen example, the factory would be making 70,000+ pens for multiple companies and offloading all 70,000+ pens in purchasing agreements at the agreed upon price.

Couple that with low wages (partly due to low cost of living) and well, the costs to produce any product is going to be substantially reduced in comparison. Now before anybody starts screaming that we should do what China does here, I'd like to point out that many of the factories in China double as living residences for the workers. Foxconn is not just a factory but also a residence and every aspect of the workers life tends to be in that factory. Be careful what you wish for.

B: Mark-up. The price of that knob is including the overhead to operate the retail establishment (and trust me, just the electricity bills in such a store can be huge). Utilities, maintenance of the facilities, workers' pay, management pay and etc all get tucked into the cost of every product sold on the floor. Plus they have to make a profit otherwise, what's the point? However, that's just the last point of mark up because the manufacturing company that sold to the retail unit most likely marked up the cost of the product themselves as they needed to make a profit, too. So mark up at the vendor level, mark up at the retail level, and ta da!--you have a $20 knob.

If you think that $20 knob is bad, I believe it costs about $13-14 to make a pair of Nike's that may sell for $150 or more and that's a shoe that is being built right alongside cheaper variants of sneakers. Yet, people still buy Nike because of the swoosh and designs. Nike is associated with a certain level of luxury and clout so people pay more for that swoosh on their foot. It says something about them.

It's just that what it says about them is going to be different depending on who you are. Most people would think "awesome". I see "sucker".

If it moves tax it, if it keeps moving regulate it, if it stops moving subsidize it.

That has been the US economic model for too long. All those cycles mean increased cost to you or did you think that businesses actually pay those taxes are eat the costs of those regulations? And those things are cumulative into your pocketbook from the manufacturer, through the distributor, to the retailer.

How much do you suppose the government at various levels actually soaks us for in the end?

I still can't over $20 for a sink knob. Especially when the cheapest complete new faucet with similar handles at Home Depot online is about $17 - $3 less for the whole thing. Seriously, that's 2 knobs plus extra parts for less money. I think I would just get a lump of something and carve myself a replacement and call it "artistic" and "trendy" to anyone that questioned my creativity.

It is exactly as someone above said - the knob was priced at the maximum price the store believes consumers are willing to pay. It doesn't make a difference that the knob probably cost the store 50¢. If someone who needs a plastic knob is willing to part with an average hour's wage salary for it, then they will take their wages, gladly. A Home Depot employee would have to work 2 hours to earn that knob.

yea as far as shoes go I like to wear Lugz boots. So the cost of the rarely exceeds $80. Although it has been some time since I bought a pair. lately I just buy the shoes at Wal-Mart. I may spend like $12 for a pair of tennis shoes I use for work. But lately they have been having some nice looking kicks for under $20. Discount outets like Ross, Bealls, TJ max and DD's just to name a few always have great prices on name brand shoes and clothes.

Having been at Wal-Mart for going on my eleventh year now, I kind of had to laugh during the 08 recession as people were still paying hundreds of dollars for ipod touches at the time and the shoe stores in the mall were still selling out of $200+ jordans and timberlands.

Only in America can the poor still afford to waste hundreds of dollars on a single piece of electronics or brand name shoes during an economic recession.

a reply to: DYepes

The thing is, the poor can't afford it. There are people that will rack up credit cards, skimp on food quality, put off medical care, and blow off more necessary expenses so that they can be "seen" with the right monograms on their purses, the right fruit logo on their phones, or the right swoosh on their shoes. And then they wonder why they can't pay the electric bill. They "feel" poor if they don't buy these things because it's visible to their peers. They "feel" rich if they can show them off to others. It doesn't matter if they bounced two checks yesterday as long as they can look the part.

If only common sense was cool and trendy.

Well I suppose you are right. I have to accept a little bit of responsibility as I rake in dozens of shoppers a week to sign up for a Wal-Mart credit card so they can buy the awesomest gadgets we have (which doesn't say much as its walmart) that I just finished hyping up for them. Whatever I usually get free stuff from management for being the number one guy to get people to sign up for cards. Plus the added sales and profits go to the stores quarterly bonuses which helps out every quarter.

It is not my responsibility to keep people from making stupid financial decisions. Although I have made it a habit of convincing people against buying tablets for their infant and toddler children, with pretty good success mind you. In fact Sunday I convinced a seventeen year old girl not to purchase a tablet for her eleven month old. Her sister thanked me. We all agreed that this teenage mother still in high school had better things to do with her resources than risk a childs mental and social health with a gadget before she can even walk.