Two oak tables, almost identical, side by side in a showroom. One of them is half the price of the other. In both tables, the wood itself came from the U.S.A. For one of the tables, the wood was shipped to China, where the table was made. Then the table was shipped back to the U.S., and sold for half the price of the other table, made in the U.S.A.
I don't understand how that is possible economically. Who can enlighten me?
I don't understand how that is possible economically. Who can enlighten me?
Labor costs.
@PotomacBob
I don't understand how that is possible economically. Who can enlighten me?
Labor costs.
There are other factors. Are both tables mass produced or is the more expensive made in America table hand crafted?
also shipping costs. shipping on a littoral ship is so cheap per ton/km that it's almost laughable.
let's assume the table is very heavy, and heavier still before it was worked on. now that table probably cost more to send to the dock to be put on the ship than the entire journey to China and back again. by a couple of orders of magnitude.
then yes production in China is also cents on the dollar. so all in all the store still likely makes more money on the half price table.
industrialised manufacturing on scale is insane for efficiencies. the ships move at maybe 12-15 Knots. that's pretty slow. it probably costs more in insurance than fuel to take a vessel across the sea, and the amounts they move are ridiculous. globalisation works because of these economies of scale and perhaps the single most important invention to never be patented, the 40ft shipping container.
As an addendum to this it's important to remember that there aren't two tables, there are thousands.
I'm not talking about mass production here, but rather the fact that supply time is irrelevant.
Sure, sending the wood to China, having the table manufactured, sending the table back, and getting it to the store floor takes months while the locally made table takes weeks, but the two tables don't come from the same batch of wood.
The wood for the table from China was sent months ago. The wood from the same batch as the local table will come back as tables months from now. In the meantime we have a steady supply of tables arriving at a slow but steady pace.
I don't understand how that is possible economically. Who can enlighten me?
As Switch Blayde said, it's the labor cost.
I live now in Lebanon again after 32 years in Canada.
In Canada, the minimum wage is $14 an hour. However, a licensed worker like a plumber or Electrician can charge a lot.
Where I lived in Ottawa, the capital, a plumber would start charging the minute he heads to your location and would charge you $150 CAD per hour with a minimum charge of one hour + parts.
So to unclog a toilet for example, it would cost you $150 + taxes, so $170. (I know that you can go buy a snake and fix it yourself for cheaper, but how many people know to use a snake?)
In Lebanon there is no minimum wage and there are no taxes to be added on service. The average salary is around $400 USD per month here, so a 40 hours work week is on average $100 so $2.50 USD per hour.
You get a plumber in lebanon to unclog your toilet, you pay them roughly $5 instead of $170 CAD.
Same for the table. A table would take let's say 10 hours of labour to make. Wood cost $100. US skilled labour would cost something like $400 per table. Chinese Labor would cost $50 per table. Shipping to china back and forth costs $50 and you got a chinese table using american Oak costing $200 in the US, and the same material in the US the table would cost $500 to make.
The same issue makes fixing a lot of things not worth it in North America. Take a blender for example. You purchase it for $100. You use it for few years, the piece of plastic that connects the motor to the blade frays and needs replacement. In the US, you take it to a repair shop, who has rent to pay, taxes to pay etc... He would charge you $75 to install a $0.50 piece of plastic, and you would have your used blender back in somewhat working shape and you don't know if anything else is going to break soon. So you chuck it and you buy a new one that is almost guaranteed to serve you for few years.
In lebanon, fixing a blender is $5 + parts, so $6 to fix a $100 blender. You get it fixed and you use it longer. You can fix it twenty times over before its cost reaches that of a new one.
Just a point of comparison for things between the US and elsewhere that's not in the west, I bought an LED light for over the sink in my basement in Canada, it was 36". It was $24.99 + tax = $28.25 CAD, so roughly $20 USD. Got an electrician to install it (Insurance rules etc etc etc) he charged me $100 to come to my house and install it in few minutes. Total $130 for a light.
In Lebanon I bought the exact same LED, 36" (or 90 cm here) for exactly $3. Installed for $8 USD. The difference is ridiculous.
Likely a combination of things. As others have said, labor costs can be a significant factor. Note this isn't just wages, but also things like regulatory compliance for safety/environmental concerns. That all goes into what the shop charges to turn the raw material into finished work.
Another thing is that little American Made sticker they might put on the one made in the U.S.A. It adds some value (not sure how much, and it varies by product) β the seller believes people will spend $x more for a product carrying that label. Or if something is labeled as having been made in a union shop, that might up the perceived value. I'm personally willing to spend more for something made locally as I try to support our community.
All sorts of little things like that figure in. If the companies are large enough they might have economists on hand to model the effects, or they might go to a consultant and have them do it. Or they might do it by-guess-and-by-golly, tweaking prices as they get sales feedback.
Another thing is that little American Made sticker they might put on the one made in the U.S.A.
That sticker can be misleading. When you see the sticker, you think the entire product was made by American companies that employ Americans. That may not be true.
Assume a product has 3 parts, and Company X, a foreign manufacturer, makes all 3 parts. The 3 parts get shipped to the US and assembled at Company X's US facility by the citizens of Company X's country.
The sticker can be applied because that is where the final assembly was done, but no American workers were involved in the production of the product and the production profit went to Company X, not American companies.
That sticker can be misleading. When you see the sticker, you think the entire product was made by American companies that employ Americans. That may not be true.
I agree, nonetheless, for a lot of people it's a selling point. I seem to remember seeing somewhere on the packaging something like, "assembled in the United States from imported parts', but I'm not sure it's a requirement.
I don't recall ever seeing that labeling on a product.
If you haven't seen it, either you aren't in the USA, or you never shop for anything other than food.
It's everywhere. Tools, machinery, cars, clothing, shoes...
In the 23 years I have lived in the USA, I've had 4 cars - a Ford, Chevy, and 2 Nissans. Guess which ones were made in the USA, using US workers? (Hint - not the Ford - Mexico - or Chevy - Canada)
All of these talking about shipping and labor costs are ignoring the fact that furniture tends to have enormous marlkups to begin with. The material input has very little to do with the final price.
All of these talking about shipping and labor costs are ignoring the fact that furniture tends to have enormous marlkups to begin with. The material input has very little to do with the final price.
Indeed.
In the early 2000s a new 'Club' came to our town. It's called 'Direct Buy' and its concept is that you pay a hefty membership cost ($1500 per year at the time and 2 years to start, so $3000 upfront cost) and you get access to manufacturers catalogues and ordering system.
It allows you to order at true factory price. It was very good if you're building or furnishing a house. You pay the factory and the truck that brings it in and a nominal 5% fee for the club.
I subscribed as I had just purchased a house.
I bought a couch and a recliner, italian-made leather that were gorgeous. I had checked the prices at a local furniture store. At the time the furniture store listed the couch at $3800 and the recliner at $2800. If you bought both together you get 10% discount on the pair. So roughly $6000 + taxes. And you had to buy one the colours that they have in their warehouse.
I ordered the exact same make, same model, picked the leather (quality and colour) through the club, got them shipped from Italy, received them 8 weeks later for $2000 total.
Ordered a gorgeous hard cherry wood desk made by Martin furniture, it was listed everywhere at $8000 or more. Got it at the time for $1800 direct from the factory.
I can understand the issue with furniture though, the seller has to buy it, pay for it, warehouse it (it's big pieces usually so needs a lot of room) and it may sit for a long time before it's sold, so fairly high cost until it gets into the consumer's hand.
Also needed to be taken into account, especially reference John's post above about his furniture, is that shops need to pay rates, insurance (fire, public liability etc etc) and staffing costs along with heating and lighting costs, maintenance costs, etc etc. This all needs to be claimed back via a mark up on the items actual cost to make.
This was why internet shops were/are so disruptive as they don't have to pay those costs, so could supply the goods cheaper than that of bricks and mortar establishments.
Obviously, some internet shops sell at parity or just below bricks and mortar because of the increased profit margins for doing so.
This was why internet shops were/are so disruptive as they don't have to pay those costs, so could supply the goods cheaper than that of bricks and mortar establishments.
Really unfair are those customers who want to see the product, discuss alternatives with the seller and then by from an internet shop.
The bricks and mortar establishment has the costs. In a pure economical sense, they should separate the costs for showroom and advice and bill every customer with it as an entry fee or an hourly rate.
The customer then pays separately for showroom/advice and the product. The product price could then be like the price in the internet shop.
HM.
HM.
In a pure economical sense, they should separate the costs for showroom and advice and bill every customer with it as an entry fee or an hourly rate.
The customer then pays separately for showroom/advice and the product. The product price could then be like the price in the internet shop.
Interesting idea, unfortunately it will never work in the current world. The best way would be if the show/advice part was a separate company from the one doing the actual sales IF the show/advice company can be kept honest and not influenced/bribed to favor one brand/seller over the other. If the advice part isn't too expensive it might even result in higher quality products because it could point to products not tainted by planned obsolescence.
Once upon a time in the not so distant past I worked for a corporation founded and headquartered in San Antonio.
The founder was an doctor that was frustrated by his inability to help patients with breathing issues. The patients often had slow recoveries (or not at all) because of fluid in the lungs that was not easily removable.
So he got some engineers together and designed a bed that helped⦠a lot! Patient recovery rates soared.
The company was very successful, going from a few tens of millions earnings to over 4 billion/year when I left.
But⦠there is always a dark side.
The founders and initial private investors wanted more money, so the company went public on the stock exchange.
Then it went back private for a few years. Then public again. Private again. Public again.
Ethical? Hmmm. Legal? Oh yeah!
Around 2004 through 2006 the US tax laws changed and it was very financially rewarding for the company to ship 80% of its manufacturing to Ireland.
Several hundred family wage jobs were closed in San Antonio and shipped to Ireland.
Then, other production went to Puerto Rico.
Then local to many cities in the US, Canada and Europe, service facilities were closed and consolidated. Again, many family wage jobs disappeared.
Again, a public company and it was bought in 2011 by a private investment firm from Europe. An 8 billion dollar purchase IIRC.
More consolidation. More jobs lost.
Then, the private equity firm sold off segments of the business. More jobs gone.
Then, about 5 years ago the remainder, the core profit center was sold to 3M in Minneapolis. Again, spin offs and more people were out of work.
Last I looked, a couple years ago, most manufacturing is still off shore.
Capitalism at its finest. No corporate responsibility beyond maximum income for the investors.
All this ties in perfectly when it's cheaper to ship raw materials to China, Viet Nam, India and ship back a finished product to maximize profits.
A quick point.
Remember this is NOT a new concept. In the 1800s in San Francisco, you could drop your laundry off at the Chinese Laundry. They would ship your clothes to CHINA by clipper ships, where it was cleaned and back, in a couple of weeks, cheaper than it could be done on site.
And to go back even further, the reason why so many British birds have the colour "rust" in their name was because there was no distinct word for the colour orange.
The word orange entered the English language (late Middle English) in the 14th century from the fruit of the same name. Specifically, orange comes from the French orenge which came from the Arabic nΔranj.
This means that in the 14th century it was profitable to ship oranges from the Arabic peninsula to Britain in such quantity that the name of them became a common enough word to enter the vernacular.
I'm sure there are older examples, but this is the one I know relative dates for. Trade between different cultures goes back as far as someone thought "I wonder what's on the other side of that hill" and someone always finds a way to make it profitable.
I'm sure there are older examples, but this is the one I know relative dates for. Trade between different cultures goes back as far as someone thought "I wonder what's on the other side of that hill"
There are the ancient trade routes for amber from the Baltic to the Mediterranean which where used probably as early as 2500 BCE for supplying tin from the Ore Mountains (at the border of later Saxonia and Bohemia) northwards to Scandinavia and southwards to Greece and Persia.
Tin from Cornwall/Devon was traded somewhat later to the eastern Mediterranean:
Evidence of direct tin trade between Europe and the Eastern Mediterranean has been demonstrated through the analysis of tin ingots dated to the 13th-12th centuries BC from sites in Israel, Turkey and modern-day Greece; tin ingots from Israel, for example, have been found to share chemical composition with tin from Cornwall and Devon (Great Britain).
Tin deposits were few and small in the eastern Mediterranean and the Near East. The earliest bronzes there were arsenic bronzes.
Tin bronze was superior to arsenic bronze in that the alloying process could be more easily controlled, and the resulting alloy was stronger and easier to cast. Also, unlike those of arsenic, metallic tin and fumes from tin refining are not toxic.
So tin was in high demand β for weapons and other goods β and traded over very far distances.
HM.