“Most products have a much higher labor component than 1%. Even among highly automated mass produced items labor costs are still usually much much higher than 1%. Your product is an exception. It is not the norm.”
True and in the case I listed that cost is just under 10% of the production cost in the US, and that includes 10-12 direct labor heads.
“And typically U.S. Labor is much higher than 3x Chinese labor.”
Not true. Fully fringed “simple manufacturing” labor in the US ranges between $21-23 per hour, specifically in your state it is closer to the $21 range in Vonore, but is a little over the $23 rate in Nashville. The fully fringed rate in China for the same operations is $7 USD, which may vary as currency rates change.
“Remind me not to have you negotiate labor costs for me.”
No problem, however I would love to be across the table from you!
According to a special study by the U.S. BLS. Bureau of Labor Stats - Manufacturing in China China's manufacturing wage for 2008 was $1.36. And reports were estimating that wages were rising 20% a year.
The following information published by China and which is more recent, shows monthly compensation for 2011 ranging from $216 to $513 a month, excluding Hong kong and Macau. So conservatively estimating that Chinese only work 40 hours a week (and we know that's not true) then $216/mo equates to $216/(40hrs/wk * 4.3wks/month) = $1.25 per hour. So a range of $216/mo to $513/mo equates to $1.25/hr to $2.98/hr. And we know those are overstated because they work more than 40hrs a week.
Hey, but I'm sure the Chinese quoted you $7 an hour. LOL Is it too late to renegotiate?
If that's true then the total labor cost in the U.S. for your product must be 10% * $41 = $4.10. If the difference in labor is 3x to 1x then assuming equal productivity I would have expected to see a labor difference of $4.10(3x) - $1.36(1x) = $2.54 not $0.80.
An $0.80 cent difference implies that you are having to hire ($4.10-0.80)/$1.36 nearly 3 times the number of Chinese to do the same job as workers in the U.S. That's a huge productivity gap. How do you explain that? Are you not providing the same tools as in the U.S.?