Many products are often cheaper if we buy them in China. Directly from the manufacturer or at online web shops. Why are all those products less expensive than approximately the same items from the US or Europe?
There are four primary reasons for that:
- The labor in China is cheaper
- Large-scale production processes
- The products are of poorer quality
- The currency value compared to the USD is favorable
Will the rest of the world keep buying stuff from China?
Cheap Labor in China
The massive population of China with more than 1.3 billion people creates a cheap product from the human resource. Such is because with that many potential hands the cost of labor can be kept small. That is just a demand and offer issue. However, this significant advantage for the Chinese industry versus other industries is shifting. A few decades ago, labor in China was far cheaper than in other countries. Because of that, merchants from all over the world bought products and materials in China to import those into their own countries.
In fact, many of us think that the situation we just mentioned is still ongoing. Though that is certainly not true, labor in China is still cheaper, but the gap between the rest of world is closing fast.
Large Scale Production
The labor costs are heavily influenced by the number of people in China. Because of that reason, there developed a huge rivalry between the many different producers which offer their products at the lowest possible prices.
Besides the latter, with that many citizens, a manufacturer can sell their products wherever they want. Together with the simplicity to find and hire industrial workers. It is logical that they focus primarily on quantity and not quality.
These two effects, which are heavily related to each other. After all, they are both linked to the large population. Will create a surplus in offering, and therefore the prices will go down.
Poor Quality Materials
As we all know products from China have most of the time a lower quality level than we desire. The reason we still buy those goods, as the items are that cheap. We accept the lesser quality. The value for money was greater than the purchase of a similar product from a regional company.
This phenomenon is changing the last few years drastically, people demand quality nowadays but still for a lower price. Not so much as a few years ago. The overall quality standard is rising, and the gap between cheap or expensive products is getting smaller. So across the whole width, the “value for money” for buying something in China is decreasing.
The Chinese government is realizing this aspect and are focusing more on quality. However, finding the “right” stuff is still a problem for us as a customer. Nevertheless, eventually, only the manufacturers/brands which offer a reasonable quality for the rest of the world will survive.
Last but not least, the value of the Yuan versus the Dollar is opportune for Chinese businesses to export goods to the rest of the world. And on the opposite, they can import goods cheap. China is being accused of manipulating their currency in order to hold that trade position. However, these days this could not be the case anymore. Since there are many regulations for every country, and China is operating within those boundaries.
Those are the main reasons China products are still cheaper than other produced products elsewhere. Will that remain the case? Many Chinese manufacturers see that they are competing in a homogeneous market (many clients, many providers, no real difference between products). Such kind of market is not something wrong, but competing can only be done on quantities.
That is a bit contradictory with the needs and wishes of the western market. Cheap is important, but we want cheap and relative good products. Good value for money, on the right end of the quality side.
Chinese manufacturers and the government are understanding those issues. Moreover, they are heavily working together and try to fulfill major five and ten-year plans to give that perception a remarkable movement. That is something good for us as consumers. They only have to keep using their knowledge about large-scale production and implement the quality/design standards we desire.
What is your opinion about this effect? Is China going to produce more quality products?