to The New York Times, increases in the labor costs
of manufacturing in China may lead to price increases in the U.S. and
abroad.The issue of Chinese workers' wages has been brought
into the media spotlight following a string
of deaths of workers at Foxconn's facility that manufactures
the iPad and iPhone. Most of the deaths were suicides, but at
least one worker has reportedly died
of exhaustion after being forced to work long
hours.Foxconn, which manufactures numerous computer
motherboards and much of the world's top electronics -- including
Nokia cell phones, iPads, iPods, iPhones, and motherboards for gaming
consoles (the Wii, Xbox 360, and PS3) -- responded by offering
employees up to a 30 percent raise, plus an additional
performance-based raise.Those raise increase the average
plant worker's salary to 2,000 renminbi (China's currency) — about
$300 USD. Those increases, combined with appreciation of the
renminbi currency may have a ripple effect resulting in rising
manufacturing costs for a variety of retail products, including
clothing and electronics.Dong Tao, an economist at Credit
Suisse, "For a long time, China has been the anchor of global
disinflation. But this may be the beginning of the end of an
era."In the short term, these cost increases remain
relatively small compared to corporate profit margins. For
example, the new Foxconn wages are estimated to raise the cost of
labor on the base model iPad by roughly 0.7 percent of the unit's
cost, or approximately
$3.50. Apple makes approximately $200 in profit per iPad
sold, though. And while much of that profit goes to Apple's
design and engineering costs, the company still is stockpiling cash
each quarter.The ripple effect is already being witnessed.
Honda announced it will also raise its average pay at one of its
southern China plants to $300 USD. And Beijing announced that
the minimum wage would be bumped 20 percent to 960 renminbi, or about
$140 USD.As costs rise, some predict manufacturers will bump
their prices. A $50 price increase on the iPad, justified by
improved Chinese worker conditions, would both make the company look
good in the eyes of some and increase its profit
margins. Such increases, while distasteful to some, may soon
become reality.Ultimately, whatever the ramifications, the
salary increases in China are long needed. A long-standing
shortage of jobs versus job-hunters has caused wages to sink
dangerously low over the last decade. Workers in the country
have found it hard to support their families and pay for proper
medical care. Now that wages are rising employees may finally
be able to afford the essentials.Some manufacturers will
likely flee to cheaper countries -- Bangladesh or Vietnam -- but
others will likely remain in China. After all, wherever they
go, companies will eventually face these same issues. As
Marshall W. Meyer, a China specialist at the Wharton School at the
University of Pennsylvania, comments, "There is no way out."
quote: "What the market will bear" has nothing to do with your manufacturing costs.
quote: Are you clueless? Items like this have a minimum price below which no profit can be made. Unless you are willing to gain market share at the cost of profit, all sales must be above that point to make a product economically viable. As such, increased cost of construction leads directly to higher cost of sale. Simple market economics.
quote: I note: The reverse is NOT true; if lowering price does not lead to an increase in sales, the justification of lowering prices due to lowering cost of production is not there. [Hence, the fatal flaw of Supply Side Economics, and why it DOESNT WORK!]
quote: Can you post some examples of situations where lowering the price does not increase sales?
quote: Hence, the fatal flaw of Supply Side Economics, and why it DOESNT WORK!
quote: he problem here is that Apple is trying to tie the price increase to the wage increase.