NYT: Price of electronics might surge

[Maggie Leung]

Originally Posted by BenLee

I don't see the US dramatically moving it's production to other countries in the short term, but probably sometime in the future for sure. There is currently so much infrastructure in China for manufacturing that it wouldn't make immediate sense. Yes, the electronics prices will go up a bit. The consumers will always absorb the costs. But there is still a long way for China to go before it would make financial sense for US companies to manufacture from elsewhere.

Infrastructure is important, but China's demographics are leading to labor shortages. Its population is aging (average age per capita).

[Greg Anos]

The reality is the cheap labor substitution pathway has reached it's end in manufacturing. This is going to cause a wrenching change in corporate profits and behavior.

When the move to China began in the 1980's, the managements saw an endless sea of cheap labor. Now the sea has been used up (so to speak).

The long term result will be a shift from human labor in manufacturing to robot labor. But the shift will be long an painful.

[fjtorres]

Originally Posted by Maggie Leung

Infrastructure is important, but China's demographics are leading to labor shortages. Its population is aging (average age per capita).

Plus their expectations on wages and working conditions are changing.
It's no longer enough to *have* a job; they now aspire to something noticeably better than slave labor conditions. There's more to life than subsistence and as the chinese economy improves so do its citizens' aspirations.
That is the implied deal in the whole cheap-labor "developing nation" economic model; one generation sacrifices so the next won't have to. Well, China is reaching the Next Generation. And they, reasonably, believe they deserve better.
(About time, too.)

The cheap-labor ramp to economic development isn't quite played out yet, but if none of the countries that could reasonably benefit from the emerging opening take advantage, we'll likely see a new wave of automation-based cost-reduction like we saw in the 80's before mainland China opened up.

It's not a given, though; if the world economy softens again (likely, actually) there won't be demand for extra product *or* capital for the automation investment. A bigger (and more proximate) threat than a cheap-labor shortage is a capital shortage.

[Maggie Leung]

Originally Posted by fjtorres

Plus their expectations on wages and working conditions are changing.
It's no longer enough to *have* a job; they now aspire to something noticeably better than slave labor conditions. There's more to life than subsistence and as the chinese economy improves so do its citizens' aspirations.
That is the implied deal in the whole cheap-labor "developing nation" economic model; one generation sacrifices so the next won't have to. Well, China is reaching the Next Generation. And they, reasonably, believe they deserve better.
(About time, too.)

The cheap-labor ramp to economic development isn't quite played out yet, but if none of the countries that could reasonably benefit from the emerging opening take advantage, we'll likely see a new wave of automation-based cost-reduction like we saw in the 80's before mainland China opened up.

It's not a given, though; if the world economy softens again (likely, actually) there won't be demand for extra product *or* capital for the automation investment. A bigger (and more proximate) threat than a cheap-labor shortage is a capital shortage.

Yes. Nothing certain as things develop, but I agree with what you're saying in broad strokes.

As it happens, I expect things to get really ugly with the world economy. I'd really prefer to be wrong about that.

[jasonfedelem]

What the story does not address directly is the Foxconn suicides, and the fact that, according to reports, Foxconn is one of the Chinese manufacturers who (supposedly) treats/pays their employees better than average. There is probably a shift in the demands of workers that is starting that may actually be driving this increase (pure speculation, not an in depth analysis)

[Maggie Leung]

Originally Posted by jasonfedelem

What the story does not address directly is the Foxconn suicides, and the fact that, according to reports, Foxconn is one of the Chinese manufacturers who (supposedly) treats/pays their employees better than average. There is probably a shift in the demands of workers that is starting that may actually be driving this increase (pure speculation, not an in depth analysis)

There is a shift in worker expectations, but I would not draw connections / conclusions with the Foxconn suicides. I'm not an expert, but I follow China labor news, and it seems that many conclusions are based on a lack of understanding, incomplete information and false assumptions. Mix that with suicide and suicide clusters, which even experts say are impossible to really understand, and there's lots of wild speculation.

I'm not saying I know what happened with Foxconn; I'm saying I know enough not to make assumptions about the case.

Just as a spoiled American who's been exposed to factory conditions, I'd say all factory work is bleak at best. If I thought my fate was to spend years or decades doing it, suicide might look appealing. And I'm not the suicidal type, lol.

[HamsterRage]

Except, of course, that all of the prosperity and industrialization in China has occurred in the coastal regions, while there are still the better part of a billion people living in poverty in the interior. They'd be happy for those crappy, underpaid manufacturing jobs.

[Maggie Leung]

Originally Posted by HamsterRage

Except, of course, that all of the prosperity and industrialization in China has occurred in the coastal regions, while there are still the better part of a billion people living in poverty in the interior. They'd be happy for those crappy, underpaid manufacturing jobs.

Yes, the story touched on that. Of course, the coastal areas were chosen because of transportation efficiencies and such.

[jasonfedelem]

Originally Posted by Maggie Leung

There is a shift in worker expectations, but I would not draw connections / conclusions with the Foxconn suicides. I'm not an expert, but I follow China labor news, and it seems that many conclusions are based on a lack of understanding, incomplete information and false assumptions. Mix that with suicide and suicide clusters, which even experts say are impossible to really understand, and there's lots of wild speculation.

I'm not saying I know what happened with Foxconn; I'm saying I know enough not to make assumptions about the case.

Just as a spoiled American who's been exposed to factory conditions, I'd say all factory work is bleak at best. If I thought my fate was to spend years or decades doing it, suicide might look appealing. And I'm not the suicidal type, lol.

Fair enough.

[HansTWN]

Originally Posted by Maggie Leung

Yes, the story touched on that. Of course, the coastal areas were chosen because of transportation efficiencies and such.

Contract manufacturers like Foxconn are being squeezed to the max already. They do make their money (and their profit margins are extremely low) off the assembly only. I have read that only 6.94 USD for every IPad is assembly cost paid to Foxconn. Foxconn are being told by their customers (Apple, Dell, etc.) where to buy what components at what price and just pass these costs on. The ones who place the orders know Foxconn's cost and dictates a price. Wages have increased 50% since 2005 (even before the recent publicity), workers can pick and choose between factories according to wages, working conditions, and hours. That alone keeps wages rising. So the only one who could afford to pay for raises, etc. are the Apples, Dells, and HP's. And all of us, in the end.

But you will be surprised how quickly factories move, in spite of all the obvious problems involved. In 2-3 years 50-80% of the electronics may be gone from Shenzhen. Transportation inefficiencies pale compared to labor costs and local authorities usually work very quickly to remove those inefficiencies when they want to attract new factories to their areas. I have seen it happen before. And that is not a bad thing. Other areas in China and other countries are in desperate need of such jobs which will help to pull these areas out of poverty. Just as they have helped develop the coastal areas in Southern China.

[HamsterRage]

Originally Posted by HansTWN

I have read that only 6.94 USD for every IPad is assembly cost paid to Foxconn.

So doesn't that mean that even if the assembly price doubles, which would be a huge increase, that the cost of an iPad would only go up $6.94? Which would only be 3% on the $200 cost to build the whole iPad.

And during the time it takes for that increase, all the component parts are going drop by a total even higher than that $6.94, won't they?

[brecklundin]

Originally Posted by HamsterRage

So doesn't that mean that even if the assembly price doubles, which would be a huge increase, that the cost of an iPad would only go up $6.94? Which would only be 3% on the $200 cost to build the whole iPad.

And during the time it takes for that increase, all the component parts are going drop by a total even higher than that $6.94, won't they?

This is why it's total BS that it costs too much to mfg products in the US....given a $300+ mark-up over cost, or about 150% of mfg costs, if the labor costs tripled you would hear Steve Jobs whine like the greedy POS he is that they would need to add $200 to the cost of the iPad to cover increased labor costs. Of course it would also extend to phone mfg's, TV mfg's you name to the made in Guadulawhothehllcares countries where workers cannot even get paid well enough to own the very products they make. This is the inherent flaw in our market setup. Yes we need free markets BUT I do not buy into the whole "we are making life everywhere better by taking jobs OUT of your country to some dirt floor factory Quonset hut factory". It's all about the cookie cutter "business majors" we chun out all with the same mindset on how to run a business and what defines a "successful" business. Once upon a time it was enough to take care of your employees, provide for your families and as long as the ROI was in the black people were happy....now everyone has to have year-over-year percentage increases...meaning the rate of increase has to increase every quarter, or whatever period. No longer is it fine to have a 10% ROI it has to grow by xx% over the previous period which by definition is inflationary once you reach market saturation...the rate of increase has to keep raising, which if a spin-doctor way of saying the growth rate needs to keep inflating every period, as in it has an INFLATION RATE which only devalues funds earned during the previous period because the current price has a higher rate of price increase.

Might not have worded that exactly as I wanted but the idea distilled down is the current ideas taught to "business majors" is that inflation is GOOD for The Company and no concern is given to customer retention any longer...hence 2hr waits on hold for customer service while Dave from AT&T is on another Line as Joe from Dell support...

I don't blame those with the jobs, I blame the whole corrupted market system we have devolved into as a planet.

[HansTWN]

That sounds good, Brecklundin. However, I have seen it in every country in Asia I visit and it is the same in the US: young people don't want to work in factories as living standards rise. They prefer service industry jobs, even at lower pay. Additionally there are a host of other regulations that make running factories profitably in "advanced" countries quite difficult. Just as there are so many immigrants in the US because no American wants to do those jobs.

[Maggie Leung]

Originally Posted by HansTWN

But you will be surprised how quickly factories move, in spite of all the obvious problems involved. In 2-3 years 50-80% of the electronics may be gone from Shenzhen. Transportation inefficiencies pale compared to labor costs and local authorities usually work very quickly to remove those inefficiencies when they want to attract new factories to their areas. I have seen it happen before. And that is not a bad thing. Other areas in China and other countries are in desperate need of such jobs which will help to pull these areas out of poverty. Just as they have helped develop the coastal areas in Southern China.

Yes, the story touched on factories moving inland. It's not that moving would be surprising. There will be costs involved, is all. Of course, with Chinese cities competing for jobs, companies might not have to eat all the costs. (Happens all over the world with tax breaks, infrastructure contributions, bonds, cheap loans and such.)

[Maggie Leung]

Originally Posted by HansTWN

That sounds good, Brecklundin. However, I have seen it in every country in Asia I visit and it is the same in the US: young people don't want to work in factories as living standards rise. They prefer service industry jobs, even at lower pay. Additionally there are a host of other regulations that make running factories profitably in "advanced" countries quite difficult. Just as there are so many immigrants in the US because no American wants to do those jobs.

I agree with Brecklundin about some of the negative consequences of shipping away jobs, but also have seen what HansTWN mentions.

My grandmother worked in a garment factory in San Francisco, sewing major-label clothing for $9 to $11 per dozen blouses. Everyone in the street full of garment factories was Asian. That was nearly three decades ago. Nowadays, with the few remaining textile jobs in the U.S., you'll see likewise -- all the workers are first-generation Asian Americans or Latino Americans.

Even decades ago, my grandmother couldn't have reasonably afforded what she sewed. I remember seeing the blouses in stores such as Macy's, each selling for multiples of what my grandmother earned per dozen.