Goedkoop of op de toegevoegde waarde
Door Richard Kaye
De fout vele mensen maakt bij in dienst nemen van fabrikanten of kopen van producten in China goedkoop moet denken. Laagste kosten-laagste prijs, de korting van de kortingskorting. Er zijn een veel beter alternatief en één geen dat de handelaren momenteel exploiteren.
Laat bijvoorbeeld een paar schoenen nemen. Bijna 50% van alle schoenen die in het UK worden verkocht komen in China voort. Nu omvatten de kosten betrokken bij de productie van een paar schoenen de kosten van materialen, d.w.z. leer, de kosten om te verpakken, de kosten van de lucht… huurtarieven elektrische enz., de arbeidskosten & beheer en natuurlijk de kosten om te verschepen. Nochtans, denk van dit… het arbeidsaspect van de gecombineerde kosten waarschijnlijk minder dan 10% is.
Veronderstel zo £10 per van schoenen waar de loonkosten minder dan £1 zijn. Wat als u de in aanmerking komende loonkosten verdubbelde en mensen aanmoedigde om de tijd bij het produceren van een beduidend betere kwaliteitsproduct tweemaal door te brengen. Veronderstel het vakmanschap en de trotsmensen zouden in hun werk nemen en zouden uw rendement van bestede investering voor dat extra £1 veronderstellen. De meer arbeid u kan aan een Chinees vervaardigd product de meer waarde toevoegen u aan de ogen van de consument kunt toevoegen. China kan nog niet van artisans en fijne vaklieden volledig zijn, maar zal één dag zijn aangezien deze benadering meer overwegend wordt. De bedrijven zullen enord in vaardigheden beginnen te investeren toelatend hun aantal arbeidskrachten om de kwaliteit toe te voegen die de Westelijke consumenten taxeren. China’s reputation as a low cost producer of mass produced products will change to one of a huge labour force of highly skilled quality manufacturers. Western luxury goods producers should beware and take action now and for those of you in highly skilled low volume production jobs, beware also as the move of manufacture of these products is inevitable.
A similar principle can be applied to almost any product currently manufactured in China. However the principle does not apply to western manufactured products where the labour aspect of costs can often be as high as 30%.
So whether buying or manufacturing in China the rule should be go for expensive, better produced, quality goods with a huge amount of added value. This is where your opportunity for profit will come from and is also likely to differentiate you from the many other operators in China who are still thinking Cheap.
Richard Kaye, For Sale in China
March 17th, 2008 at 8:49 pm
Is there a formula you can apply to working out how much to spend on labour?
Is this something that can be taught, or something that can only be learnt?
Would be really interesting to see some real life examples…
Paul
March 18th, 2008 at 5:53 pm
I agree. There’s far too much emphasis on just getting the job done these days. What happened to taking a pride in the workmanship of what we do or own? Would be nice to see things made to last again.
March 18th, 2008 at 10:47 pm
Definitely a different view to take on the whole situation, but I think the idea of products designed cheaply so that they’d break quickly (and for this to be considered acceptable by the general public) is probably one of the biggest success stories of the industry today, spending that extra £1 could mean losing a further £8 in a years time.
However it would be great for a few new players to come in and do things right again.
March 18th, 2008 at 10:49 pm
I guess most of European entrepreneurs expect Chinese labour to be dirt cheap, and most Chinese manufacturers know this is what we expect and fulfill our expectations. I wonder why nobody wants to aim higher…
March 20th, 2008 at 11:05 am
You make a very good point. I think the reason is many years of indoctrination and obedience has led to a propensity to acquiesce to others expectations.
An entrepreneurial spirit is beginning to surface among modern Chinese and this will gather pace quickly. As markets open and Chinese entrepreneurs become aware of the opportunities out there in the wider world, greed and desire, two important commodities in driving success, will prevail, expectations will rise, and this will filter through to the very structure of the current business establishment. The commercial world had better beware because this changing state is only years and not decades away.
March 21st, 2008 at 2:32 pm
Is there a formula you can apply to working out how much to spend on labour? Is this something that can be taught, or something that can only be learnt?
Yes. Absolutely yes! There are several formulas that can be used to calculate labour costs - what they are in terms of business profitability and what they should be to manage the business properly. You can use the same formulas in reverse to calculate a basis for what your labor costs “should be.”
Cost of Labor $
This is the total cost of labor.
Cost of Labor %
Here we divide the COL dollars into gross sales to achieve the COL percentage. Again we want to understand the percentage and total dollar amounts.
Cost of Labor Target of 25% with Variance in %
In this column we take the actual COL percentage against a targeted 25% COL (or goal). The actual COL percentage will change due to many variables such as, vacations, holidays and your shop’s labor efficiency.
Cost of Labor Target of 25% with Variance in $
You will want to understand not only the percentage variance but also the dollar variance. These numbers should be reviewed over a period of time to watch for trends.
March 22nd, 2008 at 3:24 pm
Richard - I am an entrepreneur considering importing goods from China for sale in the UK. You seem to know your stuff (an excellent article) so is there any general advise you can give? I have also seen your website (www.forsaleinchina.co.uk) where you mention the importance of Guanxi. How important is this?
March 25th, 2008 at 12:58 pm
As a Chinese girl, I know the Guanxi is very important. Just for an example, you want to get a special license for exporting wood,then you know some right people in right dept of government, you don’t need to wait ten days to get but several hours. There is a saying in China,You have guanxi, you can make everything go smoothy.
April 15th, 2008 at 8:11 pm
Hi Mr Kaye,
I’m the proprietor of a large successful manufacturing company in the North East of the UK. Whilst my business has been running profitable over the last 25 years, I have been continuously and furiously debating with myself whether or not I should source from China and in doing so the years seem to have simply passed by. My margin seems to be under evermore strain in the current climate, which has now become the fuel for my journey to find the truth out about China. There have been three aspects to my solitary perpetual debate. Firstly, I must put to you that I run my business competitively and profitable at the moment. I believe this is down to the experience of the business and calibre of the senior and middle management, with a serious helping hand from a large investment in technology. So I ask myself and you today; why should I go to China when I believe that I can make it happen in the UK? Secondly, I have heard nothing but bad news about the corruption and bribing that is required, not only to break into China, but to continue trading there. This then reinforces my feelings expressed in question 1. So I ask; why should I risk my steady and experienced organisation and enter into what seems to be the underworld of trading. Even if I could be provided with positive responses to the above questions, there is a final question which I then ask; does China have a sell by date and have I missed the boat? Any comments may help towards my quest for the truth about China.
April 16th, 2008 at 6:15 am
Hello Jonathan,
Let me answer your points one by one.
1. This decision must be an economic one. You should investigate the capabilities of Chinese manufacturers and simply compare the landed cost against your own. Some would argue that UK manf gives more flexibility, which of course it does, however one must weigh up the cost of this benefit against the cost of extra stockholding and then possible writedowns. I run a manufacturing business employing 200plus in China yet still maintain a manufacturing prescence in the UK employing 40plus people manufacturing products that are simply too large too import. However some of the components of these products are sub assembled in China.
2. Bribey and corruption exist. If you wish to trade in China it is possible to do it on your own but it will be costly and time consuming. Far better to take advantage of Guanxi and be introduced. This ensures credibilty and opens doors that might not be available to you immediately. It isalso likely you will benefit from betterprices immediately and less likely to be asked for full payment upfront as is the case without introduction. Chinese traders and manufacturers are constantly approached by international traders and often it amounts to nothing so they are therefore rightly sceptical of unknown approache.
3.Chian has got a lot of life in it yet. Average daily assembly labour rates are between £2 and £3 per day. Even if this doubles over the next four years which it probably will then there is still a long way to go before it becomes less beneficial.
The one issue that could hinder China’s growth is the ‘one child policy’. This has produced a generation of ’spoilt’ kids who have been provided for by their parents and grandparents and have no desire to work. If the attitude of this growing class of individuals does not change then China will experience huge problems in the next decade.This should not affect manf business’s as most assemblers and operatives are migrant workers brought into towns from the outlying villages.
If you feel I can help you in your endevours please contact me directly.
Regards,
Richard Kaye.
April 16th, 2008 at 9:53 am
A question for Richard, I have read your For Sale In China articles and note you have both manufacturing units in the UK and in China - has this been difficult for you in relation to your UK employees’ attitudes to their Chinese colleagues? Are your UK people welcoming of this joint manufacturing or are they fearful or resentful for the future?
April 16th, 2008 at 12:52 pm
Jonathan,
You pose an interesting question. I would disagree somewhat with a couple of points mentioned regarding the options for business in China.
First, your current expertise would serve you well in any China-based operation. To be successful in China it is vital that you know your business inside out and you MUST know what you are or are not willing to do / accept.
Entering China is not without risk or expense. You will likely not be profitable there in the first or even the second year, although if you are only sourcing product, you may be able to address costs quickly. You must consider shipping, tariffs and other “soft” costs. Once you factor these in, plus the related time, would it still make sense?
Corruption exists everywhere. China has a tradition of practices which promote gift-giving. In the west, we rightly consider certain types of gifts bribes.
The term “guanxi” which has been frequently mentioned on this board means “relationship;” it does not mean “bribe.” You must have relationships to do business anywhere, not only in China. As with any first meeting (or in matchmaking - business or personal), it is always preferred to be introduced by a trusted friend. You will not be a trusted friend the first time you walk in the door. You must build the relationship.
Buying your way in with bribes only creates an understanding that you are willing to pay bribes. Better to take a longer time to find honest partners that to pour money down a deep well. It may be a surprise to some to know that I have met quite several Chinese businessmen who would not take and would be offended at the offer of a bribe.
Migrant workers are not generally “brought in;” they are looking for opportunities that cannot be found at home. They may be recruited, but the idea that they are unwilling is false. African migrants go to the EU; Mexican migrants go to the US. The key difference is that these groups are often illegally crossing national borders. There are other issues for Chinese migrants … it used to be illegal in China for a Chinese person to leave his / her hometown and go to another city for work. This is an entirely different discussion.
The one-child policy has created a problem for China, but it’s not the source of the problems with youth. I had an interesting conversation with a Canadian who complained of the same issues in Canada and I’ve seen the same in the US. Urban youth do not want to work hard; they want instant success. The problem is exacerbated in China.
One of the advantages China offers is productivity. Once the process is established, the workers trained, and the business rules defined, workers in China can be incredibly productive. That’s not to say workers elsewhere are not productive; only that the Chinese are very quick to do the work. More training may be needed than for workers in other locations and more oversight may be needed.
I recommend you visit China. Take a look around. Then, you can make an informed decision. Relying on someone else’s view or books or TV or whatever sources you have is not the same as relying on your own instincts.
April 16th, 2008 at 4:21 pm
Gill,
People everywhere are afraid of change and my manufacturing business in the UK is no different.
A candid yet practical approach is best so that the workforce understands what the future holds for them. Most people will stay but maintaining motivation levels is often difficult when the long term future is uncertain. I share the economic information with the workforce so they can can understand that it is not feasible to bring in fully assembled some of the products they currently manufacture. But even after all this you still get people complaining that their ‘jobs are going to China’. You cannot halt progress or profit. Profit is what keeps people employed not the other way round.
Richard.