[threadbear]

I'm not selling anything, I'm just trying to get a feel for what's happening in the retailing world. I recently shopped at Ikea's kitchen department and note that the next retailing step is pretty much to give it to you free, or pay you to take it away. Very low low prices. There has to be some major suffering going on in the production and distribution line up to and including the meatballs. It makes it really tough to shop. I'd love to get some stuff I really need there, like salad spoons (haven't owned a pair for over 5 years), but I feel so guilty.

Then the various dollar stores. How do you produce a stainless steel steak knife in China and ship it to Canada for 33 cents a knife? Are their workers forced to work 22 hours a day and eat soylent green (the rendered remains of the previous crew, that dropped dead from exhaustion?) I've got some serious questions about what is going on here.

[MrBill]

I know it is crazy. Here are some factors that I feel contribute to that 33 cent steak knife delivered to your local shop.

1 - over capacity in China where they are making jobs not steak knives
2 - China is not covering their long-term cost of capital
3 - state banks beholden to party bosses are making lending decisions based on the need to create jobs not allocate capital to where it will earn a decent return
4 - mines are also not covering their cost of capital and competition is keeping them from passing along all their costs
5 - mines are not recovering the costs of cleaning up their mines after they close, instead they declare bankruptcy and move on leaving the cost of clean-up to others (usually the government)
6 - even where governments know the mines are polluting they are fearful of losing jobs, especially in the developing world
7 - efficient supply chain management has cut much of the waste of transport from the system (a genuine benefit if you will).
8 - stores in Canada and elsewhere see demand stagnating and they are trying to cover their short-term, variable costs by offering low priced goods, even at the expense of long-term profitability
9 - yes, China does have a lot of underemployed labor so this keeps labor costs for the most part very low
10 - competition from other developing countries means that everyone is striving to be 'the low cost producer'


Just my own ideas in any case. Those 33 cent steak knives will likely start to turn black in a year and lose their edge the first time they hit the side of the plate, but they are cheap.

[falser]

If there's one thing I've learned is that paying extra for quality goods is always worth it, especially things you use on a regular basis. Cheap stuff from Asia is worth exactly what you pay for it. I'd feel guilty buying cheap knives only because I know a year from now I'd have to buy another set because the old ones aren't sharp anymore. Do you know how hard it is to find good silverware these days, such as spoons that don't bend in half when scooping ice cream? I inherited old silverware from my grandmother and it's 10X better than any I've seen in any store at any price. It's like these days as long as it looks useable and survives shipping it'll sell.

[Doly]

I have got some cheap cutlery from pound shops (4 spoons or 4 forks for a pound, that sort of thing). My impression was that they were made by putting pressure on sheets of steel, rather than by filling moulds. If you have a machine that manages to churn out a lot more cutlery than the traditional mould-filling method, the costs of labour become increasingly irrelevant.

[MacG]

$this->bbcode_second_pass_quote('falser', 'I') inherited old silverware from my grandmother and it's 10X better than any I've seen in any store at any price. It's like these days as long as it looks useable and survives shipping it'll sell.

[cube]

$this->bbcode_second_pass_quote('threadbear', '.')........
How do you produce a stainless steel steak knife in China and ship it to Canada for 33 cents a knife?
.........

[MrBill]

$this->bbcode_second_pass_quote('', 'T')here's a marketing strategy called (razor's edge??? - popularized by the shaving industry.) which states that if you sell one product dirt cheap but have it tie into another that's sold expensive then you'll make your money there.

[donshan]

I looked up the price of type 304 stainless steel (18%Cr, 8%Ni) commonly used in cutlery. The price was $2909 per metric tonne, or $0.0029 per gram. I weighed one of our high quality steak knives and it weighed 37 grams, but at least half of this was the handle. Thus the stainless steel is about (37/2)* 0.0029 = $0.0536; about 5 cents US.

However the following article says China is starting to use the cheaper 200 series stainless steels.

http://www.engineeringtalk.com/news/mep/mep167.html

"China has also been using much larger volumes of low-nickel 200 series products to substitute more expensive 300 grades; although there now has been some retracing of steps."

However this quick analysis shows the steel costs are small. MrBill rightly shows many other factors involved in being able to sell a 33 cent "stainless steel" steak knife.

We have had our knives for years- there is a great deal that goes into quality.

"Whenever something seems too good to be true, it probably is"!

[Byron100]

$this->bbcode_second_pass_quote('', 's')ell an inkjet printer cheap == sell the inkjet cartridges super pricey
sell the electric razor cheap == sell the replacement blades thru the nose
sell computers for cheap == sell software and tech support for $$$

[MrBill]

$this->bbcode_second_pass_quote('', 'B')ill, I think you mean "loss leader"...

[rogerhb]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('', 'T')here's a marketing strategy called (razor's edge??? - popularized by the shaving industry.) which states that if you sell one product dirt cheap but have it tie into another that's sold expensive then you'll make your money there.

[RacerJace]

The subject of cheap Chinese products flooding the market is an interesting one, be it a very concerning one given the assault on the consumer’s perception of price/value in the western culture developed parts world.

But firstly regarding the materials:

The really cheap nasty knives coming out of China are the cheapest grade of 409 ferritic stainless steel (easy to identify check with a magnet – as it is magnetic, dull and soft). 420 is the typical steak knife grade, and at the high end the best quality knives are made from the 440 martensitic grade (both are also magnetic but respectively able to retain a better edge – i.e. better hardenability). The austenitic stainless steels (not magnetic) are more commonly used for cutlery (but not steak knives where a durable edge is required). 304 is common but 316 is the standard for surgical instruments and the food industry (as it is highly corrosion resistant and less likely to harbour germs).

The economics:

In general, steel prices in China are falling due to a rise in their inventories (overshoot) and they may be (if not already) start to severely discount the use of it to balance the growth rate and consumption.

Labour in China is another thing all together… It’s been quoted (within the auto industry, where I work) that an estimated 100,000 PER DAY ! of people in China are leaving rural villages for the city life and contributing to the big machine (manufacturing). Many of these people are working for food and accommodation only and may be lucky to get US$1 per month after an initial period of free labour (often up to six months).

So the 33 cent steak knife is probably made up of mostly discounted materials cost, almost no labour cost and some shipping. If the quality of the 33 cent knife catches up to the higher end products on the market – including German, Swiss and Japanese knife makers who pride themselves on their quality at a premium – then as with many other products flooding the market, the perception of value will be utterly destroyed and will build even more dependence on a false debt driven consumerist economy. (Please excuse the slight rant at the end there).

[MrBill]

$this->bbcode_second_pass_quote('', 'L')abour in China is another thing all together… It’s been quoted (within the auto industry, where I work) that an estimated 100,000 PER DAY ! of people in China are leaving rural villages for the city life and contributing to the big machine (manufacturing). Many of these people are working for food and accommodation only and may be lucky to get US$1 per month after an initial period of free labour (often up to six months).

[hanrahan]

I assume that most here are North Americans so I must state that I come from The Land Down-under.

If you guys feel you're economy is being raped by Chinese Mandrin slave masters, spare a thought for others. The Yuan is pegged to the US$, but most other currencies, particularly Aus, Can and SA (who have a mining based economy) have increased 50% vis a vis the US$. Ergo, we are amazed at the dirt cheap prices we pay for manufactured products. We buy products (such as the knives) at prices at which Australian manufacturers would be hard pressed to sell the packaging.

We are entering summer and this time last year I bought a pedistal fan for $20. My mates and I discussed whether we would actually clean the fan when it became dirty after 1,000hrs or simply dump it. Well, this year I could replace it for $15.

Get used to it. These prices are not loss litres (joke). They are what the market can supply them at. You want 20 containers? No probs! Want fries with that?

ps. The "Chinese Mandrin slavemasters" line was NOT a throw-away line. Yanks are experiencing their second great failure in slavery. IMHO of course.

[RacerJace]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('', 'L')abour in China is another thing all together… It’s been quoted (within the auto industry, where I work) that an estimated 100,000 PER DAY ! of people in China are leaving rural villages for the city life and contributing to the big machine (manufacturing). Many of these people are working for food and accommodation only and may be lucky to get US$1 per month after an initial period of free labour (often up to six months).

[Ranglepung]

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('threadbear', '.')........
How do you produce a stainless steel steak knife in China and ship it to Canada for 33 cents a knife?
.........

[MrBill]

Yes, I know how it is. It is hard to produce a statistic if you came across it weeks or months ago. But, I try not to exagerate my claims just because it might give my detractors more ammunition to refute my underlying point. Put a fact in doubt and it undermines the whole argument.

My point being consistantly that China is super-competitive, and a threat to jobs worldwide, but some of that competitiveness comes not from mixing high technology with massive amounts of cheap labor, but also from not fully accounting for their real or true costs of production whether it is access to cheap capital, not paying-off bad debts or failing to account for environmental degradation and clean-up. However, the jobs lost overseas to Chinese competition are real and some of them are due to playing by a different set of rules.

Globalization brings benefits, but their are winners as well as losers. I am a big critic of jobs lost due to unfair competition coming from China. I don't think I will change any consumers' mind when it comes to the check-out cashier, but I at least try to raise the awareness of the subject. Why? Because as we have been offshoring production to China, they have been offshoring their environmental degradation, resource depletion and pollution to other countries from which they buy and to which they send pollution. These true costs also have to be considered, not just the price of cheap steak knives.

[Doly]

$this->bbcode_second_pass_quote('MrBill', 'T')hese true costs also have to be considered, not just the price of cheap steak knives.

[MrBill]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', 'T')hese true costs also have to be considered, not just the price of cheap steak knives.