I have never figured out how the China sellers sell so cheaply. For example, I see products on eBay selling for $1. Surely the eBay fees and the postage together would already be more than that? In fact, some items I purchase is less than the postage cost I see on the item when it arrives.
How Does China Sell So Cheaply?
aaronaldo on 16/10/2015 - 13:03
Comments
why is it subsidised?
Well, because of the same reasons any government would subsidy a particular industry or a whole economy: to give it an advantage.
China relies on exports, that's their economy model.
There needs to be an anonymous "Please state reason for downvoting this post" field. Otherwise we have no choice but to automatically assume it is someone who has an interest to downvote the comment/is personally offended. In this case, I'm guessing it's a Chinese factory owner. A factory that has suicide nets.
As for the comment, well, it's uh, true. Downvoting reality? Come on.
Wow, really downvoted. Weird, I thought there was nothing personal, cheap labour is a fact and shipping subsidy is a very likely suggestion.
I guess it is coming from chinese guys who are not very happy with my answer :)
The postage is subsidized by US through the fact that Aust Post does not charge china post a commercial rate for delivering their mail items within Australia.
This was all agreed to in 1975 in the UN Lima agreement and successive free trade agreements.
Every time you post a parcel inside Australia you subsidise the cheap postage rates to Australia for third world businesses.
Consider the postage you see may well be in HK$ not AUD.
Posting a small packet from the Chinese mainland to Australia costs less than 30c.
Retail prices in Australia are marked up by the factory (in China) the wholesaler, possibly twice if the re is a wholesaler on the China end too. Then by the retailer in Australia.
A friend bought a guitar capo for $40 the other day because she needed one immediately and that was the retail price at her local music store. I bought an identical item from Hong Kong via ebay for $7.
I don't really begrudge the local retailer their mark up. They need to pay rent in AUD, wages in AUD and they probably buy from a wholesaler locally who can ship them a mixed order of all the items they need that week. Paying an employee to spend 15mins looking for a Chinese supplier would cost $6 in labour costs, and a $40 item has $4 in GST.
No demanding trade unions. Workers getting 50c/hr and living in dorms adjacent to the factories. Plus scales of economy. Transportation and shipping is becoming cheaper and more efficient too.
Gok Wan made an interesting doco on "Made in China". Maybe someone can find out if there's somewhere to watch it for free.
And anti-suicide nets around the factory workers accommodation buildings.. That way you don't have to spend on retraining.
Another important factor: relative lack of environmental regulation/lack of enforcement and the cost of degradation to the environment is not factored into the wholesale/retail price. Not that it happens elsewhere anyway. Chinese rivers are as colourful as a rainbow.
No demanding Trade Unions eh?
The same ones who fought the rogue Industrialists,the same ones who allow you to enjoy the wages you enjoy today and the conditions attached to your employment,or do you work for Chinese wages here in Australia.Them uppity workers should stay silent, stay disunited, and continue to serve the interests of us employers obediently, wouldn't you agree?
This has been asked a few times. Postage from china is usually only a few cents, the item itself (say a cable) is 30 cents in bulk, ebay and paypal are 10-15% so 10-15 cents and that leaves 50 cents for your time to pack and post. When filling out hundreds of orders the small margin starts to add up.
You could reverse the question and ask why does Australia sell so expensive? Most of the items we buy say "Made in China" on the package. The China locals can buy their same items even cheaper than eBay eg. at markets where there is more competition.
Other things that haven't yet been mentioned are legislation/regulations which causes Australian manufacturing to be more expensive.
- Workers compensation
- Sick leave, Personal leave, Public holidays
- Compulsory Superannuation
- Union fees
- Delays in production due to strikes, arbitration, collective bargaining agreements …
- Insurance (liability, mortgage insurance, life insurance, income protection, …)
- Higher financing costs (bigger bank loans…)
- Intellectual property rights (copyright, trademark protection, licensing fees)
- Franchising fees, marketing costs.
- Higher legal costs (more frequent litigation, trivial law suits, ambulance chasers)
- Qualifications (eg. receptionist, machine operator, mechanic or welder requires minimum of a TAFE certificate in Australia)
- Occupational health and safety standards (eg. first aid officer training, provision of protective clothing, equipment, buildings, specialised furniture)
- Safety/environmental government inspectors
Compulsory Superannuation
Fun fact: Ever heard the "Chinese people would sell their own mother for a dollar" stereotype? While I'm sure they wouldn't actually do so, it does highlight 1 difference between Australian and Chinese society: the lack of a social welfare/safety net in China (hence their understandably obsessive approach to saving money).
Higher legal costs (more frequent litigation, trivial law suits, ambulance chasers)
Isn't the "good Samaritan" principle non-existent there? Multiple times it has happened where people have been run over by cars, suffering in pain/dying but every driver who drives past them refuses to stop to assist them and ignores them, because of the chance that the victim (the injured person) would, by some bizarro logic, would sue the first person that attempts to help them.
Legislation / regulations imposed / bought upon the Australian people by successive governments on both sides of politics who signed away our future prosperity and our treasured and hard fought for and won way of life, and all of our rights to the UN and its global mandate to destroy the self sufficiency of western nations such as Australia through imposition of most of what you've outlined above.
This short amateur documentary explains it very well
Main Reason: Postage in Australia is too expensive, that led you to think that the cost is high. However, it doesn't cost much to post from China or other Asian countries to Australia. Also consider the exchange rate, they are still making money from the cheap deals you mentioned.
Postage in Australia is too expensive
In an absolute sense or relative sense? Expensive or "expensive"?
Compare Australia Post with United States Post. One is making a profit, one is making a loss.
You have the option to move to China and work under their conditions.
Australia post does not get subsidies from our Govt.
Well, imagine if you earned $1 to $5 a day in China.
Things are going to be a lot cheaper for you.
No wonder Bonds moved their production to China. They don't have to pay Australians $25 an hour + entitlements.
Mumbles has it mostly covered…
Most employees in a lot of these online sites, eBay stores, aliexpress, alibaba… infact most Chinese people in general earn a very small amount compared to us. Usually around $2000 US each year. Labour is very cheap in China and its very easy to land a job.
When it comes to devices like phones and tablets, they're sold at a price close to what it costs for them to manufacturer. XiaoMi follows this business model and will sell ~2,000 units at a time when a new phone is released and could be making $10 USD for each phone sold. That $10 could be enough to pay 10 workers for a day. This is why when I post deals for phones and tablets I can never really go $10-$30 any lower as there would be no profit being made.
As for shipping. Sellers are able to purchase 100+ sachets for $1 USD and the mail services like China Mail, Singapore Post etc are also very slow, so that's why they provide free shipping.
"I can never really go $10-$30 any lower as there would be no profit being made." - The Chinese resellers are often making more than the manufacturer. For example, given you have used Xiaomi above, the Xiaomi Redmi Note 2 was US$124.99 advertised by Xiaomi. The resellers would be getting a better rate than this as 799RMB was to the public. GearBest are currently selling the phone for 169 - 179 USD. That's about 40% there. So about your statement that you can't go $10-30 lower as there would be no profit being made … You still sticking to that story?
That's not entirely true. The price XiaoMi sells to consumers and the price they sell to resellers is completely different. A lot of phone manufacturers like Ulefone and Elephone for example control the price for resellers. There are also factors of paying staff and some sites will even include the fee of sideloading GApps, setting to English etc. into the final price.
But let's go for your example. If Geekbuying is paying $124.99 for the Redmi Standard and selling it for 169.85, then the final price after a $30 discount is $139.85. That leaves a profit of $14.86. They obviously can sell at that price, but the amount of profit is still quite low.
It's pretty simple to understand. These sites are a business and need to make a decent amount of profit to stay ahead. It's just like here in Australia. A lot of retailers here don't sell close to cost price for that very reason. The amount of doctor surgeries and medical centres that have closed because they only bulk bill is pretty high.
So basically you're say that the resellers could, in fact, sell far cheaper and by doing so would be emulating the profit strategies of the manufacturers themselves?
Given they are based in China like the manufacturers, surely they would share the same economic environment. That is to say that purchasing at 124.99 and selling at 139.85 gives a margin per sale of 14.86 which would roughly pan out to the profit made by the manufacturer. The difference being that the manufacturer has to do a damn sight more than the reseller.
Also "A lot of retailers here don't sell close to cost price for that very reason". The key word being retailer. We aren't looking at retailers.
*just for the record … You will not convince me that resellers pay more than what the manufacturers sells for as it would be a ludicrous business decision and I don't think they're stupid enough to roll with it.
@kywst: So you want every company to sell at near manufacturing price? I'll go tell Gerry that. No? I didn't think so. Everyone is out there to make a profit. Some more than others.
Geekbuying is both a retailer and a reseller. Some products they're the official channel, while others like XiaoMi they're a reseller. I don't know the exact amounts Geekbuying would be paying for XiaoMi products. It's more of a hypothesis on what you're saying and what I know about other manufacturers. MINIX being an example of exactly that. If GB was to do a $10 coupon on a MINIX product without their permission, they would lose the right to sell MINIX devices. The price is fixed.
@Clear: they are an e-tailer, not a retailer. Their overheads are significantly lower than that of a retailer. The above was based on your false statement that there is not enough profit to reduce prices. Clearly we have showed that resellers could sell cheaper while still maintaining a healthy profit. I don't want every company selling at near cost but when I see e-tailers making more than manufacturers for doing nothing but a little customer service and shipping … Something isn't right.
@kywst: How would you even know if GB is just an 'e-tailer'? You'd be surprised at how many China sites have physical locations, or own several other businesses/sites.
In the case of XiaoMi there is enough profit to be made by having a discount of $10-30, but there are still a lot of other phones and tablets where it's not profitable to have discounts over $20.
@Clear: I know this because the local population would be using a local provider such as taobao … They are e-tailers. Not retailers. I personally think some of these e-tailers are great and use them regularly. You're not going to try and tell me that GB or any of the others have physical shop fronts intended for domestic customers? Don't be silly or pedantic either … GB is just like Harvey Norman?
Also, I agree with your last statement. There are a few products that can't be further reduced but I'd say that this is an exception to the rule. We haven't even touched on how resellers actually pay for stock etc…
@kywst: Have you been to China before? The streets are filled with shops big and small selling all kinds of phones for the same price you'd get from taobao. A lot of these e-tailers are all owned by a single company and operate both domestic and overseas. A local example of a business operating both as an e-tailer and a retail store would be Shopping Express. Their online store is Futu Online that operates on eBay. Another example would be Wireless 1 that has Sydneytech as it's online store.
In terms of profit. A retail shop is far cheaper than a website like Geekbuying. GB in this case have to pay for their Shenzhen office, Shenzhen Warehouses, European Warehouses, Hong Kong Warehouse etc and all of the staff to manage them. Each country has their own rules on minimum pay, benefits etc too. Far more expensive than a brick and mortar store that would pay for a handful of staff and the building lease.
If you're interested. This video shows a section of the GB office. That's their marketing department and about a third of their customer service. Also includes a part of the Shenzhen warehouse and Quality Control department. Both the buildings and staff all need to be paid there, along with food, electricity etc.
@Clear: so a retailer has less overheads than an e-tailer is your proposition. I think we are done here as that in itself is a ludicrous statement. You go from talking about an e-tailer with a potential market the size of the internet to a single shopfront in a saturated domestic market. Your logic is not sound.
That's actually a good video to post. Hopefully some people here view it and understand how operation works; alleviating some concerns. That video, however, shows that those people are capable of serving a potential market orders of magnitude larger than a retail storefront's market.
You seem to be asserting things that contradict your initial position or could be equally used against your position.
For light items it's probably cheaper on-line than buying it from a random store in urban China. When I was in China I struggled to find non-perishable items marked at less than $1 AUD equiv (~4.65 Chinese yuan) in general. But I never encountered Officeworks or MSY equivalents.
规模经济
Like what coles and woolies do.
One week they'll sell you a bargain on coke cans.
So they rise the price of petrol to make the money back.
They sell one product cheap then another more expensive.I am surprised that no one has mentioned this yet.
Those companies that you are seeing on the eBay are selling at mass as well (they are not just selling for Australians).
So when they calculate for the profit margin, they can have smaller profit margin than Australian resellers because of the market size difference (Australia isn't exactly a big market, looking at the population).Though another thing that would come into this is smaller variable costs like utility fees, postage and labour cost.
That said, even before Beijing Olympic I've been hearing about many compnies thinking about moving out of China because China labour market have become more strict (no way enough to compete with Australia, but enough for other countries to look attractive).It's not China selling cheaply it's the other way round. Everything in Australia is massively overpriced!
When you buy from Ebay/online you buy almost directly from the source. It gets drop shipped to you direct from massive warehouse. It elude all the import cost, charges and process that an Australian channel goods has to go through. Hence why the retail stores hates grey import products.
Finally, there are thousands of online sellers competing for business. The cheapest always move the highest number of sales, that a fact. If you fail to do so you lose sales and you flop. So low pricing is key to success.
Ever noticed how the item from eBay China takes 3weeks but is cheap as chips? The shipping goes out at low priority and eventually makes its way to Oz along the way. It may go via a very unorthodox route but that's the way it goes in international freight business. China Post does get govt subsidy. They system is similar in telecoms where sending party pays and no termination charge is ever collected
What about the $1 8pin USB charging cables (and other items like phone screen protectors etc) shipped and sold within Aus? Postage is 70c, and padded bag/plastic satchel, eBay and Paypal Fees. I doubt those local sellers make any money right? (else they're laundering).
Yep I've also wondered, how do some aussies sell $1 items with free postage?
I am pretty sure that shipping is subsidised by the chinese government. The rest comes from cheap labour.