New Competition for Wal-Mart

[intercst]

From the TMF boards

http://boards.fool.com/Message.asp?mid=22489514

"And that's the next phase of problem for large retailers like Wal-Mart. Large numbers of Chinese factories are setting up warehouses inside U.S., ship their products to the mainland USA, and sell direct to small retailers at low profit margins. Beleive me when I say this: When it comes to entrepreneurship, the Chinese entrepreneurs are second to none. With thousands upon thousands of factories in China making products for export, some smarter ones have figured out that it is to their advantage to set up warehouses in the USA so that they can sell in ever smaller quantities to their U.S. customers. Beleive it or not, the Chinese factories are now selling their products directly on eBay from within U.S. borders. We are an importer of products from China and I now see Chinese suppliers in the U.S. who are selling the same products I am importing, at or slightly above my direct container quantity cost with no minimums. How can the likes of Wal-Mart compete with that?"

---------------

Yes, the Chinese entrepreneurs are coming to eBay. I see more and more of them causing price drops on all sorts of products. The efficient marketplace that is the promise of eBay is becoming more and more a reality.

cheers,

Merhan,

SwapUSA

</snip>

intercst

 

[LEX]

Yes, as we go global we in America become world class peasants.

 

[cute fuzzy bunny]

Theres a lot more to walmarts business than making cheap stuff and putting it on a boat.

 

[unclemick]

Walmart's heart and soul is their software backed by a physical logistics system - second only to the U.S. Military.

Needless to say the guy writing that was recommending Walmart as a buy at the time.

Who knows??

I was reading Harvard Business Review stuff on the decline in American manufacturing back in the last of my working days - circa late 80's.

 

[haha]

I was reading Harvard Business Review stuff on the decline in American manufacturing back in the last of my working days - circa late 80's.

Apparently they were right- it was declining then and it still is declining. I am not of the persuasion that we can have a country of 300 million people cutting grass and hair for one another, refining Saudi and Venezuelan crude, and distributing Chinese manufactured goods.

Most of the tradeable goods we still make are either easily copied, as in software, or illegal to export as in military hardware.

There must be an answer, but I really don't have much feeling for what it might be. One thing is blindingly obvious-with free trade and globalization, we have staked our futures on nothing more than an economic theory.

Mikey

 

[LEX]

I would suggest that globalization is anathema to the American standard of living. Having closed borders and keeping our technical and economic leverage intact is a form of economic arbitrage that few in either the media or washington ever discuss. While there are ceratin elements of trade we should have, it should be at par with our production. I believe its better to be selfish and pro domestic American rather than selling out at the drop of the political hat.

 

[cute fuzzy bunny]

The good news is that within 10 or 15 years of making and selling cheap products and taking half our money away, the good people in china et al will decide they want expensive cars, homes and all the hoo-hah that americans have. Shortly thereafter, their wages will go up, their cost of living with them, and they wont be able to make them cheap anymore.

All problems like this self-solve if you allow them to. Instead we'll probably fart around with tarriffs, trade 'agreements', people not wanting to buy xyz from abc and so forth. Which will simply delay the inevitable.

 

[Marshac]

Shortly thereafter, their wages will go up, their cost of living with them, and they wont be able to make them cheap anymore.

A housemate of mine is actually from China, here on a H1B, and we have discussed trade, globalization, and immigration ad nauseam. From our discussions however, one thing becomes obvious- there are a lot of people in China. If you subscribe to keynesian economic theory, then it becomes clear that with such a massive labor glut, wages are unlikely to trend appreciably higher anytime soon.

Even over the long-term, it's very likely that China will eat their own dogfood... the people want nice cars? Fine, then Chinese companies will build them. Same with almost any other product. They don't need U.S. goods, all they need are U.S. consumers, and without an economy that actually produces real goods, I have my doubts about the long term sustainability of the US economy.

 

[LEX]

The resource (Malthusian) saturation point for a fully developed world economy most likely crosses the line of sustainability in one generation.

 

[cute fuzzy bunny]

If you subscribe to keynesian economic theory, then it becomes clear that with such a massive labor glut, wages are unlikely to trend appreciably higher anytime soon.

The only problem is that the balance of the population is unskilled, uneducated, and live with broad based multigenerational families away from the areas where manufacturing is done. They cant afford to move/live near where the manufacturing takes place, and usually dont want to move in the first place. There would also be a big problem with a broad range of the population wishing to 'live the good life'. The government there would far prefer the masses remain uneducated distributed farmers than making 'stuff' and then wanting to own 'stuff'.

I've seen a lot of demographics and analytic studies on the 'threat' of china as a manufacturer and the 'opportunity' of china as a consumer. The papers that I thought were well done indicated that there is neither a threat, nor an opportunity...at least not at this time.

The feeling of 'threat' is largely generated by propaganda from companies/individuals who feel directly threatened by chinas abilities. The opportunity proposition is created by people who want you to believe theres something good about to happen so they can sell you something like a mutual fund, a stock, ownership or investment in some 'deal', etc.

Add fox news, stir, serve.

 

[unclemick]

Ok, ok - so someone cough up $16.95 or so - read - 'The World is Flat----' by Thomas L. Friedman and get back to us on how it's really going to work out to everybody's benefit.

P.S. My birthday isn't until July - got Birth of Plenty and Four Pillars out of the last one.

 

[Marshac]

The only problem is that the balance of the population is unskilled, uneducated, and live with broad based multigenerational families away from the areas where manufacturing is done. 

This could also have described much of the US in the not-so-distant past.

 

[cute fuzzy bunny]

Key portion of that post: "past".

Key difference betwixt the two...one country has a government promoting growth and change and an industry of competition and innovation. One country wants nothing to do with change and innovation and suppresses it quite aggressively.

 

[laurence]

Joining the discussion late, but hold on. Some hear are ringing the alarm bell on cheap labor costs in China dampening wages and making us all poorer here. While this is not the whole equation, I'm surprised no one has applied the principle that we all understand, real money vs. nominal money, to this. If I'm only making half the wage I made last year, but my expenses are half, I'm just as wealthy.

The steel industry lobbied for protectionist tarrifs to guard against "dumping". Bush granted, then a couple of years later let expire, these tarrifs. Ends up while it helped the steel industry keep some jobs, it cost more jobs in the auto manufacturing etc. fields.

Where we run into danger is our ballooning deficits. China holds ~25% of our debt. Try telling them not to invade Taiwan now. They just have to offer a few hundred million T-bills on the open market and see how quickly we change our tune.

 

[ESRBob]

Ok, ok - so someone cough up $16.95 or so - read - 'The World is Flat----' by Thomas L. Friedman and get back to us on how it's really going to work out to everybody's benefit.

Still waiting to go by Costco and remember to pick it up, but thumbed through it in the airport bookstore this week---

basically he is saying that we are about to all be in one big economy and there isn't going to be much you can do except figure out how to compete with everybody in the whole world for your living, or find one of a very few foxholes.

paraphrasing here... "When I was a kid, my parents said, 'Eat your vegetables there are people starving in China and India'. Now I tell my kids, 'Do your homework, there are kids in China and India doing theirs as we speak, and they want your job when you graduate'.

 

[Spanky]

paraphrasing here... "When I was a kid, my parents said, 'Eat your vegetables there are people starving in China and India'. Now I tell my kids, 'Do your homework, there are kids in China and India doing theirs as we speak, and they want your job when you graduate'.

I tell my kids that kids in China study a lot harder than you do and they will do better than you will. However, the thought of taking over jobs has not crossed my mind.

 

[haha]

..., or find one of a very few foxholes.

Dentist, surgeon, GP, cop, fireman, teacher, litigator, FBI or CIA, soldier, sailor, airman... It has to be something that cannot easily be exported, so there has to be either a hands-on or a security angle. It also has to be difficult enough, or require good enough language skills, or have educational barriers to entry so that uneducated immigrants can't do it.

mikey

 

[cute fuzzy bunny]

One of my old standby lines was "presuming the other guy will fail is not a plan".

That having been said, besides the info I've perused that says china is no threat nor much of an opportunity at this time (until significant governmental and cultural change takes place...oh...sometime in the next century or two), exporting jobs turns out to not be much of a panacea either.

For all but a very limited selection of job categories, you get what you pay for. We did a bunch of outsourcing to a variety of asian and central/south american countries. On a good day, we got almost exactly what we paid for. People worked at a slower pace. The work wasnt as good. Nobody will work overtime or 'harder/faster/smarter' without more money. Turnover and training were hideous. Writing serious code and doing heavy duty hardware design were the only places where we saw any price/performance equivalences and there still wasnt an advantage...just parity.

Thats before you measure the customer satisfaction component. A few companies tried out call centers in other countries and pulled them back. A lot didnt, but those are the ones that look at the cost component, dont look at or arent smart enough to look at the price/production equation, and lets face it, most companies dont give a crap about customer satisfaction.

In short, high quality, low cost, consistent workforces outside the US dont really exist.

I'm not saying theres nothing to worry about. What I'm saying is that I wouldnt craft an entire lifelong career strategy around china taking away our entire economy or half of our jobs getting sucked out of the country. Its not gonna happen.

 

[Eagle43]

You know that Flat Earth book somebody was talking about. Mr. Friedman traces his Dell Computer parts. Check it out.

http://www.guardian.co.uk/online/story/0,3605,1464876,00.html

Just one little quote: · If Wal-Mart was a country, it would now be China's eighth-biggest trading partner, ahead of Russia, Australia and Canada

 

[Nords]

Walmart's heart and soul is their software backed by a physical logistics system - second only to the U.S. Military.

The military's may be bigger-- I'm not sure that it is-- but they'd sell their logistician's souls for Wal-Mart's tracking & distribution system.

You should've seen the flail for AA batteries during GWII. Determined not to have them die during a mission, everyone with a GPS was replacing their "used" batteries just about daily. That caught the supply system flatfooted and MILSPEC battery companies were way too small to respond to the "crisis".

I'm sure Wal-Mart would have hardly noticed the surge...

 

[cute fuzzy bunny]

Wal mart would have done a "jiffy lube" and suggested the batteries be replaced twice a day just to be sure...

 

[Nords]

... at which point the military would've gone for three and the submariners would've done it four times per day.

 

[BUM]

Until recently I competed with Chinese manufacturers. Pretty much a stereotypical story. World Class engineering and space age quality up against gut-bucket junk with high reject rates. Chinese pricing was barely above actual material cost. So here a big time USA manufacturer bought 12 million (high end speaker) components for a 55% lower price than the modern industry has seen.

No sour grapes on my part just a wake up call. The Chinese aren't worried about profits now. They'll be happy to break even or lose money for a very long time...while western manufacturers go belly up. What can we make that they can't make AND SHIP here for half price?

 

[cute fuzzy bunny]

The tools and service people to repair all that crap when it breaks.

As I mentioned, my much maligned GE refrigerator was actually built in the far east for GE.

That worked out great for the US service economy

I paid $800 for the refrigerator, GE paid for 11 service calls and $1400 retail in parts, and its still the same busted piece of crap.

As far as losing money to get customers...hmmm...I heard that somewhere else recently...maybe 5 years ago? Something about eyeballs?

Reminds me of the south park underwear stealing gnomes' business plan:

1 - steal underwear
2 -
3 - Profit!

In this case:

1 - Make junk, sell it cheap
2 -
3 - World dominance!

 

[Marshac]

Reminds me of the south park underwear stealing gnomes' business plan:

1 - steal underwear
2 -
3 - Profit!

I would have never guessed that you watched south park!