bigkid posted:Will Ebbert posted:If the difference in cost to make product in the states vs China is so small, then why are they all made in China. Clearly it's a fairly substantial difference or else nobody would've loved production over there. It's not rocket science.
Actually it is, it isn't the simplistic idea people have. When production initially moved to China you were dealing with a country with a lot of people to employ and wanted to become a major player in the world economy, and they had a state run economy (which it still very much is, though a hybrid now), they had a government investing in the infrastructure needed to produce things, rail, roads, airports, container ports, and they had a huge labor force willing to work for very low wages with no benefits (basically the workers kind of lived like day laborers do here in the US, lived in conditions with many people sharing a room, and so forth). And the gap was staggering, you were talking 50c an hour wages and because of no labor laws, working 6,7 days a week, 15 hours a day, compared to a typical wage in the 20 bucks an hour range, plus benefits...and even with the difference in living standards, that wage rate in China is not middle class or even what we would consider working class. Other things help level the cost difference, but it was enough to make a significant difference in cost. The irony was a lot of the companies who went offshore were making money, but being able to slash labor costs that sharply and quickly was a big inducement. There were costs to doing this, quality went out the window in many cases, from what has been published things like the reject rate and doa off the lines is high, and when you have assembly like that your costs downfield go up, too, and that cost made building in China not as cheap as you might think...and this depends on the type of product being made, too, different for a cheap gee gaw and something like an Iphone.
It is a different story these days, China is trying to move upscale and get away from the low wage manufacturing that put them on the map, they want to make their own products higher up the food chain, and the costs have risen there a lot all across the board (from what I have been told by friends who deal with vendors there, things like electric power were once heavily subsidized, these days is market rate, and the cost of materials to a certain extent was subsidized), plus they are having trouble finding people willing to work the kind of jobs we are talking about, so prices have risen, and significantly. It is still cheaper than the US, but for the really low margin items, Chinese factories have been interestingly enough automating, and they also are building factories in places like Vietnam and Africa to take advantage of low wages there, basically for the really low wage stuff the moving wheel is in action again, the same wheel that moved mill jobs from the northeast to the south in the US when labor rates went up, and then went offshore.
The real cost is as others have pointed out, to move back to the US they likely would have to start from square one. It would require modern, heavily automated plants relying on things like CNC machines (in China, things done here on a CNC would be done via old fashined jig and manual cutting kind of thing), but more importantly probably recreating a lot of the tooling, which can be impossible to get out of China (one company decided to move its tooling out of China, they owned it, and mysteriously "it was lost in shipping" from an account I heard at a conference I was at), and that is costly. You can see the rise in costs with how much the trains we buy are going up, but given all the factors, especially for small companies like Lionel and Atlas, it still is cost effective for them given all the other factors. Eventually things like 3D printing, if it does what some think it will do, could bring back manufacturing here or other more efficient technologies, you could have contract manufacturers here building things for small companies, though likely wouldn't not involve a lot of jobs either.
The real question (to me) is technology is taking jobs faster than outsourcing is, and no one has an answer to that one.....
Bigkid,
I work for a big global manufacturing company and we have begun to slowly insource key parts of the business (manufacturing and labor) as we found out it does not make sense to just unilaterly farm it out. We do manufacture in country when possible but we have learned that quality people and products are not a lowest cost commodity.
One can only hope that long term more companies come to the same conclusion we did. The destruction of the American manufacuring has to be one of the biggest tragedies of the last 40 years.
