Will Ebbert posted:palallin posted:I don't buy the argument that production costs here would be 2 or 3 or 4 times the costs in China: when the production moved FROM here TO China, prices rose; they didn't fall.
Minimum wage in China is about $380USD a month. In the US it's about $1200. Simple math.
Simple math, but with a fundamental flaw, assuming that labor costs are basically the whole cost of a product, it is why simple answers often aren't. While labor costs are often the largest percent cost in a company, that doesn't mean the cost of production is linear like that and the reason for the difference in costs. Depending on the product, labor makes up a percentage of the cost, but not necessarily a big one (for example, on an Iphone, based on an article I read, the biggest cost in the unit is the chip set that runs it, labor was like 15% of the cost), the cost of the chip set was like 170 bucks or so and was something around 60% of the cost of building it.
Too, each manufactured unit has costs associated with it from the cost of the tooling, that is spread over each unit they build and sell, it is factored into the price, as is the cost of shipping, the cost of designing the unit and the tooling, the manufacturing cost (that includes of course labor, but also includes local costs of electricity, cost of space, cost of materials, etc), depreciation is factored into the cost, as if the cost of quality (basically, the cost of bad quality ie the expected cost of repairing the units under warranty, the cost of ones that come to the US DOA, are not even shipped from the factory so cannot be sold, and believe me lionel knows all these numbers). Based on similarly manufactured items, the usually estimates given are around 15-20% more cost if built in the US. Someone analyzed Stanley Tool when they moved to China, and they figured out that on an 11 buck tape measure the difference in price between US made and China was about a buck to a buck fifty (if you notice, not 44 bucks). A 1000 buck engine would likely cost around 1200 if made in the US if those numbers hold up (and I suspect they do). China has now gotten expensive enough that that gap may be even less, plus with China keep in mind the cost of shipping is going up as well as labor rates because of the cost of oil. The other thing is that China is moving upscale, workers they have that can do this kind of work want something better, and for a variety of reasons the unskilled workers from rural areas don't work the way it once did., it is why Chinese factories are moving to places like Vietnam.
The reality is that I doubt a low volume manufacturer like Lionel would move back to the US, even with labor becoming less of a factor, but the claims about labor being too expensive in the US, regulations, etc to make it affordable is not entirely true, and those numbers were from a while ago, today with the cost of chinese labor and the tightness of their labor market, it might be 10% or less difference. To bean counters and stock analysts (and sadly, the people who complain about jobs going overseas, but then want the "walmart" price on everything, are part of this) any cost, especially labor, they can get off the books, the better. What potentially could work is someone like a newfangled version of Sanda Kan, where they do contract work for a number of manufacturers, something like that might have the economies of scale to allow it to work in the US, including using automation, and also would likely have better quality control then the mishmash of factories doing the work now, not to mention reduced shipping rates, the payouts to the Chinese government that are part of almost any business there, being bound by US courts with the contracts, but I doubt after the MTH/Lionel disaster and fears of stealing trade secrets, etc, and just the wariness of the various companies, it would happen.
