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  1. #1
    M.P.S.E /AES/SMPTE member Sir Terrence the Terrible's Avatar
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    The end is near for "cheap" Chinese products

    I knew this day would be coming, but it came a lot sooner than I thought. The day of cheap products made in China may be over. It seems that a series of strikes and factory shut downs initiated by employees demanding higher wages and better working conditions is sweeping China and chasing out some manufacturers and causing other to rethink their plans. Some tax preferences that China gave manufacturers to move to China expired in 2008, and with rising wage combined with shipping costs(and time) it is starting to get more expensive to do business there than in the US. Several manufacturers have already come back to the US. Another issue is the exchange rate - as China has slowly allowed its currency to rise along with the dollar, and this has increased the cost of doing there business as well. European countries that do business in China are apparently following their American counterparts in reaccessing the viability of doing business in China because of cost increases. While Chinese workers still get just a fraction of the pay of the American worker, the cost advantage between China and America is quickly shrinking which could lead some companies to move their operation back to the states. Some Chinese manufacturers in an effort to keep business in China are moving further inland where labor remains very cheap and plentiful, but that may have some logistical issues to over come being so far away from ports.

    In discussing this with my best friends yesterday, I am under no illusion that manufacturering will return to the US en mass. I think American companies will go to Vietnam, Mexico, India, Russia, though I think they are running out of cheap labor world wide. Certainly not many other countries have a cheap labor force the size of China, India certainly does not(they have a large workforce, but they are not that cheap anymore), and with corruption in Russia so rampant, Russia would also be a difficult choice. It seems to me that Mexico would be the natural beneficiary of any change in manufacturing location, at least when it comes to American Companies.

    If this continues, this is going to curb China's amazing economic growth or at least dramatically slow it down. Another big issue happening in China is the country is on the verge of a real estate bust. It seems that China severely over built leading up to the Olympics, and some of its largest(and visually striking) building remain empty in Beijing and several other major cities. What is worse is a housing boom has driven prices up in Beijing to a point where only the very wealthiest can afford anything there.

    It looks like China is suffering from some major growing pains that are going to affect its future for years to come.
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  2. #2
    Musicaholic Forums Moderator ForeverAutumn's Avatar
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    I can't say that I'm surprised to read this. And I won't be sorry to see manufacturuing of many items leave China. Some of the recent problems caused by their lack of safety regulations such as lead in paint on children's toys, and the pet food incidents, have led to me avoid purchasing any items made in China if there is an alternative. Even a more expensive alternative.

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    Interesting, a couple days ago I was listening to an Emotiva podcast and they were saying the factory that made the drivers for their speakers closed down due to the labor thing but I didn't realize how large the problem was. They since found another manufacturer. I agree, unfortunately U.S. companies aren't going to be in a rush to open manufacturing here but will find another place to exploit. The further downside is China was the place for so long bringing another labor force up to skill will take a long time and QC will suffer for a while, how long depends on who the force is and their learning curve. What about Pakistan or Afghanistan? Or,... Iraq?

  4. #4
    Loving This kexodusc's Avatar
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    It'll be interesting to see how this plays out. If factories start closing and jobs ship out, the unemployment rate will go up and one would expect the labor market to lower its demands back down again...

    There's a downside to this for North America - a lot of industries are hoping to export to Chinese consumers, it's a huge untapped market. There'll be some pain at home if economy in China suffers too long.

    To put this in perspective, half of China's factories could close up and they'd still be one of the largest exporters to the US. Don't expect to stop seeing the made in China label anytime soon.

    You have to think eventually we'll have exhausted underprivileged countries to exploit for cheap labor and eventually workers will just get paid fair. What then?

  5. #5
    Shostakovich fan Feanor's Avatar
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    It's part of the great leveling process which will see wages rise in countries like China. People as old as me will remember that right after WWII Japan and even Germany had low wages and their goods were considered "cheap" but long since they became high-price sources. As you suggest, the cheapest goods will increasingly come from the likes of Vietnam, Bagladesh, and eventually African countries. (Mexico is probably too expensive already to take up slack from China.)

    However, like Kex, I think we will see relatively cheap Chinese goods for a long time to come, just not as cheap nor the cheapest stuff. Keep in mind that the domestic market in China is so huge that on account of its size foreign penetration there will necessarily be slow. This will tend to sustain China's compeditiveness for a long time.

    Increasingly Chinese goods will be tending more "up-market". We can expect to see the emergence of "prestige" Chinese brands that will displace many well-regarded US and western brands -- and/or western brands will be bought by Chinese interests and manufacture shifted to China -- think Quad.

  6. #6
    M.P.S.E /AES/SMPTE member Sir Terrence the Terrible's Avatar
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    Quote Originally Posted by kexodusc
    It'll be interesting to see how this plays out. If factories start closing and jobs ship out, the unemployment rate will go up and one would expect the labor market to lower its demands back down again...
    In China, I would expect more revolts against the government. That is what usually happens when factories start closing, and folks start becoming unemployed. Folks turn their anger towards the government there because that is the controller of all things China.

    There's a downside to this for North America - a lot of industries are hoping to export to Chinese consumers, it's a huge untapped market. There'll be some pain at home if economy in China suffers too long.
    There is two ways of looking at this. China's workforce could continue to prosper in many areas raising income of perhaps a smaller segment that could still afford American made items. Some American industries will always remain in China as long as their are people to sell to. The car industry is one of them. Ford and GM both have factories that make cars specifically for the Chinese market, and no matter what, it is still more profitable to manufacture cars for that market right there. Same with software companies, and internet related companies.

    The second scenario could involve China convincing foreign companies to make items specifically priced and made solely for the Chinese market. That way more people no matter what their income can afford to buy a wide variety of products. This approach could be very costly for any company - as the benefit of having a cheap labor market is to better able yourself to ship cheap products to many countries all made from a single or similarly tooled facility with low labor costs. For this size market, some Companies may see this as a profitable, and some may not.

    To put this in perspective, half of China's factories could close up and they'd still be one of the largest exporters to the US. Don't expect to stop seeing the made in China label anytime soon.
    At face value you are correct. However when the price of that product aligns with products available from other countries, there could be a serious dilution in the amount of products we see from China. Variety especially if the cost is close or similar is high on any consumer's wish list. If the cost is really close to what you can get from an American made product, then there is much more market erosion, and more variety. Made in America is a very popular marketing badge in America.

    You have to think eventually we'll have exhausted underprivileged countries to exploit for cheap labor and eventually workers will just get paid fair. What then?
    You find out what I have found out a long time ago. You can chase cheap all you want to, but in the end you expend precious resources and energy in manufacturing costs and training in the long run. Cheap labor is finite. What is cheap today is cost ineffective tomorrow. You end up building factories everywhere just to get cost savings that only last a decade or so, and then have to start all over. This is a direct result of companies not investing in their futures, but having to get high ROI to investors.

    Every since NAFTA was enforced, American companies have moved manufacturing from the US to Mexico to Asian countries - mostly to China. Ladies and Gents, that has only been sixteen years ago. While this has taken place, QC has suffered in ways that defy imagination. No matter where they have gone, in a decade that labor force's demands have made it unprofitable to do business in that country. You get short term gains, but long term losses.

    This is just a thought. With so many Americans unemployed for long periods of time, it may lower the average workers expectations of pay and benefits, and ultimately make it more profitable to do manufacturing here. Housing is becoming cheaper everywhere, and so is everything else as fewer people have money to purchase anything overly expensive these days. Housing is already becoming cheaper to buy(but not to maintain though), and many expect further erosion on the price of housing in the future.

    I personally see a future where all past business practices are blown to bits. Americans will get poorer, and the world will get richer, and business will have to figure out a way to grow their business with this new reality. A uncertain future is certainly ahead of us.
    Sir Terrence

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  7. #7
    Shostakovich fan Feanor's Avatar
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    Quote Originally Posted by Sir Terrence the Terrible
    ...

    I personally see a future where all past business practices are blown to bits. Americans will get poorer, and the world will get richer, and business will have to figure out a way to grow their business with this new reality. A uncertain future is certainly ahead of us.
    Haven't I been saying this for years? A little credit where it's due, please!

    With 1.3 billion Chinese + 1 billion Indians all earning less than 10 on the dollar vs. North Americans, there is a lot of downside for us here.

  8. #8
    Class of the clown GMichael's Avatar
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    There is plenty of cheap labor available in the Philippines. When we met, my wife was working at a nice university and making $20 a week. Their opinion of the Chinese people is that they are rich in comparison to themselves. But they have a problem with corruption. Money entering their country for a company start up gets tapped into by too many corrupt politicians. While I was there in 2001 we stayed at one of their most prestigious hotels for a few nights (still only $40 a night). One morning we went to their restaurant for breakfast. These two guys at the next table were totally depressed. Turns out that they own several manufacturing plants in Europe are were hoping to open another in the Philippines. They had sent the equivalent of $1,000,000 for start up. They ended up only getting $100,000 of it. They were giving up and heading home the next day.

    It will all even out one day. Or at least level out more than it has been. The Chinese people deserve their chance for a better life. While their economy increases, ours will fall a little.
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    Quote Originally Posted by Mr Peabody
    What about Pakistan or Afghanistan? Or,... Iraq?
    I think that their entire educated workforce is already tied up making bombs.

  10. #10
    Shostakovich fan Feanor's Avatar
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    Quote Originally Posted by Hyfi
    I think that their entire educated workforce is already tied up making bombs.
    And that wouldn't be many people. NATO troops are have the problem of training Afgan soldiers and police that so many are illiterate hence written manuals are useless.

  11. #11
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    Who knows, all things being cyclic, the U.S. might wind up being the cheap exploitable work force. It was the American southeast when I was a kid...from what I've been told, they ain't doing so hot. Makes for a strong armed forces I guess.
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    That brings about a coincidental recent happening, a friend of mine became deeply depressed, called the suicide hotline and reached one of those Pakistanie call centers, when they assistor heard my friend was suicidal they asked if he could drive a truck.

  13. #13
    Class of the clown GMichael's Avatar
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    Quote Originally Posted by Mr Peabody
    That brings about a coincidental recent happening, a friend of mine became deeply depressed, called the suicide hotline and reached one of those Pakistanie call centers, when they assistor heard my friend was suicidal they asked if he could drive a truck.
    Ba..dum bump.. tiiiish......
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