[DMcCunney]

Originally Posted by devilsadvocate

No no no, I'm sorry if you (or anyone else) got the impression that this was a protectionist rant because that's not what I meant. Of course everything is offshored these days, it's the only way to stay competitive price-wise (I expect a backlash any minute now but that's a story for another day).

I didn't see your post as a protectionist rant. I was simply pointing out that the issue wasn't a simple one.

Prices still came down in the tech field pretty much across the board as a result of China getting the manufacturing aspect of the business; these same gadgets we as a society have started taking for granted would have cost a mint before offshoring became the rule and not the exception (and might have stayed that way depending on precisely where the offshoring ended up).

Not just the tech field, and the process has been going on for a long time. Ask the International Ladies Garment Workers Union about the exodus of clothing manufacture from the US. And it's happening elsewhere, too.

General Motors spun off it's Delphi Automotive division as a separate company in 1997. In 2005, Delphi's CEO declared Chapter 11 bankruptcy to reorganize struggling US operations. Part of the motive was accounting irregularities that led to the departure of the CFO and other corporate officers, but the largest part was probably labor costs.

Delphi is an independent manufacturer selling parts to auto companies. The auto makers are all trying to reduce costs, and pressuring suppliers for lower prices. Delphi, as a result of union contracts signed in better times, had workers making $60/hour in wages and benefits, and was competing with foreign suppliers whose labor costs were perhaps $10/hour.

It sent shock waves through the industry (and provoked howls of outrage from the United Auto Workers), and had some analysts betting GM might be next to do that, for similar reasons.

The US automakers are struggling to survive in part because they can't afford the salary and benefits costs committed to when times were better. (GM has two workers retired and collecting pensions for every one currently on the job and contributing to the pension fund, and the rest of the US auto industry isn't much better off.)

Then of course offshoring, economies of scale, blah-de-blah-blah, we all know how the rest goes. Prices came down and that explains the majority of the personal-device market proliferation; we don't have a squillion cell phones in the U.S. because they built more but because they cost the consumer less (at least up-front). As a result of prices coming down, however, demand has come up, and production has ramped up accordingly.

Offshoring is only part of that equation. Semi-conductor electronics is a good example of a capital intensive business and economies of scale.

The biggest single component of the cost of an electronic widget is debt service on the financing you got to build the factory that makes it. Things like wafer fabs for chips are fantastically expensive and getting more so. As chips get smaller and process geometries shrink, the gear needed to make them gets exponentially more expensive. More and more, we're seeing electronics outfits going "fabless", and developing designs they contract with someone else to make because owning their own manufacturing capacity is simply too great an expense. Intel, IBM, and Texas Instruments are still big enough to have their own fabs, but even they are doing joint ventures for cost reasons.

The more you make of a widget, the lower the allocated share of overhead you can charge to it, and the cheaper you can price it. This happens regardless of where you actually make it, and offshoring tends to happen later.

Probability dictates that there will be more manufacturing problems as a result but you're right: the public won't tolerate a higher price unless they get what they perceive to be a better deal.

Sure, but it doesn't even mean there will be manufacturing problems. Manufacturing may be spot on, but you've designed to make it cheap. I'm an old time Palm OS user. I've seen lots of complaints over the years about problems with Palm PDAs. No surprise: they're flimsy, because building them robust jacks up the cost to a level the consumer doesn't want to pay.

That better deal is usually an order of magnitude more than the increase in price would reflect, which brings me back to my original point: We expect the retailer/manufacturer to be liable for everything today, even if we do it. If you and I each buy the same hard drive and mine dies right after the warranty runs out, does that mean the retailer/manufacturer is at fault? If that's the case, I see capitalism taking a big hit in courtrooms all over the country. Sure, it's nice when a company takes one for the team and give you a new one, but that's up to the retailer; if you've already gotten what you paid for, you don't get to expect a do-over.

I have similar concerns.

The problem isn't always the product; many times, it's us.

Yes. I get awfully tempted to suggest that some people railing about "greedy corporations" look in a mirror. Wanting something that takes a significant effort on someone else's part free or really cheap is just as much a matter of greed as a company's effort to improve its profit margin.

(Some of the wishful thinking I've seen on ebook pricing comes to mind.)

Everyone has a price. If Brand X is slightly more than Brand Y but the difference is in product name only, we'll consider Brand X. If it's twice as high, probably not. Furthermore, it all hinges on what we as individuals perceive as necessity versus discretionary, or as I like to say: Need a car, want a Corvette.

Mac desktops are a good example: Somewhere between 10% - 15% of the desktop market thought they were paying for something better, and technically they may have been right, but were they "right" enough to justify a 50% price difference? The hardware is the same, the OS is mostly open-source. You and I can do (and have done) that for not only less than an Apple but less than anything at Wal-Mart. We got more (to us, anyway) but paid less. So no, it should never be just about price, unless price is the only difference.

Value is what the customer thinks it is. Yep, you and I can and have done the same sorts of things people do with a Mac for much less. But we know how to, and we have the technical skills. Most of the market for Macs doesn't and doesn't. They want what a Mac can do for the "out of the box", not to build the box, and will pay extra for it. For that matter, I know techs who can do it themselves but adore Macs, because they have other uses for their time, and will trade the extra money to save the time.

Completely agreed. In addition, like I said they'll most likely get the defective Kindle back, fix it, and sell it as a refurb, which would be something like a 90% profit margin.

Possibly, if it's easily repairable. But they'll count it as a win regardless, because they keep the customer happy.
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Dennis