Wednesday, August 16, 2006 1:12:05 PM
China and exported deflation
Very true Zeev, however, don't underestimate the ameliorating impact of the rest of southeast Asia. I been talking recently with a company shifting a good portion of its manufacturing from China to Vietnam.
China is not the last open chair in the game of musical chairs, if you will. Not to say rising wages in China aren't a pressure point, but there is a natural process that will mute that.
Also, keep in mind that Chinese manufacturing is, at this point, quite "inefficient" relative to manufacturing in more developed economies. Even as Chinese wages will be moving up, greater manufacturing efficiencies will be exerting pressure in the opposite direction on manufactured goods' unit costs.
Finally, there's one BIG factor that doesn't get talked about much ... there's "deflation" yet to come on the margin side (which is a major portion of final cost). Take, for example, the sneaker market. True, factory wages in China are rising. BUT, not only is manufacturing efficiency more than offsetting that, but ALSO we have efficient markets stepping in to "challenge" the gross margin of the Nikes of the world.
To see this in action, check out two news events this week: Shaquille O'Neil signing a big deal with a Chinese branded company, and most importantly, Stephon Marbury's new "Starbury" sneaker line. I guarantee you, the new Starbury One has generated a sizable amount of stomach acid out in Oregon at the Nike HQ. $14.99 and Marbury's going to wear standard production shoes on the court next season in the NBA. I would say the average price of the average pair of high tops sold in the U.S. next year will be considerably lower than it will be this year or last!
http://www.nydailynews.com/front/story/443907p-373823c.html
http://www.starbury.com/
Very true Zeev, however, don't underestimate the ameliorating impact of the rest of southeast Asia. I been talking recently with a company shifting a good portion of its manufacturing from China to Vietnam.
China is not the last open chair in the game of musical chairs, if you will. Not to say rising wages in China aren't a pressure point, but there is a natural process that will mute that.
Also, keep in mind that Chinese manufacturing is, at this point, quite "inefficient" relative to manufacturing in more developed economies. Even as Chinese wages will be moving up, greater manufacturing efficiencies will be exerting pressure in the opposite direction on manufactured goods' unit costs.
Finally, there's one BIG factor that doesn't get talked about much ... there's "deflation" yet to come on the margin side (which is a major portion of final cost). Take, for example, the sneaker market. True, factory wages in China are rising. BUT, not only is manufacturing efficiency more than offsetting that, but ALSO we have efficient markets stepping in to "challenge" the gross margin of the Nikes of the world.
To see this in action, check out two news events this week: Shaquille O'Neil signing a big deal with a Chinese branded company, and most importantly, Stephon Marbury's new "Starbury" sneaker line. I guarantee you, the new Starbury One has generated a sizable amount of stomach acid out in Oregon at the Nike HQ. $14.99 and Marbury's going to wear standard production shoes on the court next season in the NBA. I would say the average price of the average pair of high tops sold in the U.S. next year will be considerably lower than it will be this year or last!
http://www.nydailynews.com/front/story/443907p-373823c.html
http://www.starbury.com/
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