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Why Products from China are so Cheap

Products from China generally much cheaper compared to many other countries. More importantly, they are so often more cost effective and offer higher value for money than most other countries. This is why China is the largest exporter in the world and is still seen today as 'the world's factory'.

One reason is the economies of scale that manufacturing in such a large country offers. Due to the sheer size of the Chinese market, products can be produced in bulk, achieiving economies of scale and lower manufacturing costs. Another reason is the incredible work ethic of the Chinese people - they are generally willing to work longer hours (as long as they are renumerated for it) and workplace cohesion levels are generally very high due to the collectivist culture.

Furthermore, one also has look at the way factories in China work. Factories generally do not product every component that goes into a product. For example, a hair clip factory would buy the plastic from one company and the spring from another and then assemble it. If an emblem is required, they would buy that from a third factory and stick it on. Therefore many factories basically function like an assembley company and that is a very high level of specializiation and domestic trade that goes into the manufacturing of products in China, resulting in lower costs and economies of scale.

Here are some additional reasons why manufacturing in China is so cheap and cost effective:

Infrastructure - In China, almost every product is produced in a region where their suppliers are all nearby. e.g. electronics in Shenzhen, tiles in Foshan, furniture in Shunde, etc. Having suppliers nearby saves time and cost. Therefore there all these clusters of inter-related suppliers, effectively functioning as clusters of production eco-systems in the same area within a city to maximize production efficiency.

Specialization - Since there is a high level of specialization and each company makes only their range of products, e.g. a spring manufacturer just makes springs, they focus on more volume for the same product product, which gives them leverage to negotiate on raw material costs.

Volume - Related to the previous point, specialization leads to higher volume and higher volume means that factories are able to negotiate for lower prices when obtaining raw material in the production process. Volume also ensures that your machines work more efficiently and that the production process of work is smoother - all these factors bring down the manufacturing costs.

Quality - For better or worse, it is true that some factories are willing to drop the quality or replace components with the cheaper alternatives to save on costs. When comparing prices, one should also compare quality and target the lowest price to quality ratio.

Margins - In the cut-throat Chinese economy, margins are small. Many companies are willing to sell at low / no margins or even at a loss to get a new customer on board or to stay alive and try to see it to the next phase by losing a little but retaining the workers and factory space, etc.

Logistics - China has developed its logistics in a very efficient manner. You can get things cross country in a couple of days or across the city in a couple of hours. Low down-time + higher efficiency = lower costs.

Automation - In many industries, manual labor is being replaced with automation as salaries have been rising and technology has been improving.

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Why Products from China are so Cheap
Why Products from China are so Cheap


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