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Why the same product, different price from the Chinese factory?

ABS road studs

Last week a customer from South America visited our company to talk about the cooperation of road studs. The customer has been living in Guangzhou, China for a year and a half, he asked a question, why is there such a big difference in price for the same product? As he got a quotation from other suppliers was half of ours. I simply mentioned a few of our advantages and material differences during the meeting, but in fact, in China, this price difference is really big because of local national conditions.

So I’m writing this article, based on the view of been working 12 years as a manufacturer (a factory in Zhejiang province), as a perspective of Chinese factories to analyze, these may be just a part of them, maybe not all of them are applicable. I hope it will help you understand a little more about Chinese factories.

1. Currency and purchasing power

As you surely know, because the level of development of each country is different, resulting in different purchasing power of the currency, there is an exchange rate exists, and it’s fluctuating, which involves the political and economic between countries, etc.

Here’s the buying rate for this Monday,  US $1 = CNY 6.4978 (22-March-2021)

exchange rate

1 USD can buy a subway ticket from Pudong Airport to People’s Square (The Bund) in Shanghai.

2. Price system

In China, due to asymmetric information inevitably leads to opaque prices. For example, the common mineral water named Nongfu Mountain Spring can see everywhere in China, mostly, the retail price (MSRP) is RMB 2/bottle in 7-11 stores, supermarkets, etc. But in scenic spots, movie theaters, and other venues, many are at RMB 5, RMB 8, or even RMB 10; why is there such a big difference, because it can sell and demand. In fact, every native Chinese knows this difference exists and lives with it. For example, some people bring water and food to tourist spots, because those are more expensive in scenic spots, and because of that there are many spots where carrying alcoholic beverages is prohibited.

But according to my travel experience, Japan is not like this, once went to Hokkaido travel, there is a very famous local dessert cookie called しろいこいびと, a kind of biscuit, we went to that production plant, in our Chinese concept, the factory direct sales, certainly the price is the most affordable, so we bought a lot, dozens of boxes.

Then we carried so many boxes from Hokkaido to Tokyo, however, we saw this brand at the airport, were very surprised to see that the price was exactly the same as the one we bought at the factory, same package, same quantity. Because in our concept, the merchandise in the airport must be very expensive, and the factory must be the lowest price. Then began to feel upset, after all, carried so heavy boxes all the way, it is better to buy at the airport.

I wonder if it’s the same in Europe? The price is transparent, where the price is the same?

3. The most direct factors, are raw materials, production efficiency, and labor costs.

a. Raw materials, such as PMMA, and ABS used for road studs, if imported the raw material, the price will be very high, there are also some common materials, relatively lower. The different classes of material. That’s why the same product, same dimension, different weight.

b. Production efficiency: now many factories own all- automatic and semi-automatic robot production, such as injection molding with robot hands to pick distinguish lenses, etc., so as to save the cost of labor, and the machine tireless, the probability of error is also very low, 24-hour machine production than human production efficiency is much higher so that the robot factory in the unit of time production efficiency is higher, the robot can produce 10,000 lenses per day, worker maybe 5000-8000 lenses, it’s obvious whose production efficiency is higher. The other part is the production flow, if the process is more perfect, the workers are more professional, then it can improve the production efficiency, the production process needs to keep trying to record the comparison summary, in order to constantly optimize, and make the efficiency higher and higher.

c. Labor cost: We all know that China is big and development is different. Such as Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, etc. Their salary level is higher, so they attract more people to work in these cities, workers in these cities have a higher salary. That is if your factory is in Shanghai, and your factory is in Guizhou province (Western area of China), the price of workers’ wages is different, so there is a difference in cost. At present, the average worker in Shanghai is about RMB 25- RMB 30 per hour, while the backward cities in the west are about RMB 10-RMB 12, this difference is huge.

4. The difference within the enterprise: operation management and profit level

About the operation, if the operation is good, high productivity, people do their best to maximize the strengths of the staff to generate the best revenue; the other is the management fee, most factories have management fees, such as a 300-person factory and a small workshop of 5 people in the factory, their management fees are certainly not the same. The management fee is even up to 35% for a big factory; about profit, related to different sales policies, some companies may have higher profits, some companies are more profitable. But according to my experience, unless it is a monopoly industry, or high-tech industry, or some huge demand products, for the ordinary export products, profits are not very high.

5. Product quality differences

the main factors that affect the quality of road studs are loading ability and photometric (reflection), as it’s a product that is used on highways for road safety. The design (shape) could be a factor, but just a little.

Regarding loading ability, key factors are structural design and materials, high-class material with poor structure, it will be broken easily; Good structure with high-class material ensures qualified products, for plastic ABS road stud, the loading ability can reach 15 tons, and for aluminum road studs, loading ability more than 30Tons.

About the reflective, it’s related to the technical and research, electroforming mold core ensures high reflective, the prismatic lens mold core usually takes a month to make for us. And the better mold, the higher the reflective coefficient. Some reflectors cost quite lower, the reflective may not meet the photometric regulation, and it does not need to take so long time to make the prismatic mold. Our company’s internal requirements about reflective must be more than 1.5~ 2 times to regulations. It’s our core competitiveness.

About the design, if the shape is more likable for markets, could be a part of the reason. As the dimension is limited according to regulation, mostly are about 100mm, in my opinion, this is not an important factor.

6. Brand premium

In fact, this part of the current proportion is not very large, because many factories in China are OEM, these years began to do their own brand, there are many national brands are doing very well, but the brand premium part in addition to a few big brands, most production-oriented factories the brand proportion is still very low. Supplier is just supplier.

7. Sales person’s professional and service.

Everybody wants to buy a product with professional and good service sales, and after-sale service. I believe that many buyers are also willing to pay a little more for this part.

If you have any experience or opinion about factories’ price difference, welcome to leave a comment.

And if you are interested in learning more about the factories in China, please share this post and let me know.

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