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Thread: Externalities and the true cost

  1. #1
    just me duncan drennan's Avatar
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    Externalities and the true cost

    How do you actually figure out the true cost of manufacturing overseas versus manufacturing locally?

    In my industry a lot of people have their products manufactured outside of the country (mainly China) as there is a cost benefit once you go beyond a certain number of units. Printed circuit boards, electronic assembly and plastics can all be done outside locally or elsewhere, but how do you evaluate the true cost of moving your manufacturing overseas?

    Right now I am having a large quantity of PCBs manufactured, and will do larger runs later this year. My local manufacturer (who also import boards if desired) says that you save about 1/3 of the price by having the boards made in China. In this particular case that is around R3/board. That obviously adds up when you start to make 5000 units, but is is really worth it?

    Money exits the economy, and there are many different impacts of that. Our current trade deficit seems to ensure that our currency is volatile, especially in times of global turmoil. We also negatively impact on local jobs by sending the work elsewhere. Local companies have to be competitive, but where is the break even? Are we even able to measure the impact of these transactions?

    My preference is to manufacture locally, as I think that is a more prudent move in the current global economy.

    What do you guys think? How do we measure this? Is there a way to calculate a true comparative price?
    Last edited by duncan drennan; 26-Feb-09 at 09:20 PM.
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    Site Caretaker Dave A's Avatar
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    If it doesn't hurt your competitive edge, why not keep it local for sure. But if it's a global market, you're leaving the door ajar for someone to step in.
    Quote Originally Posted by duncan drennan View Post
    My local manufacturer (who also import boards is desired) says that you save about 1/3 of the price by having the boards made in China.
    Is that after negotiations? Some of the stuff we looked at recently, the price out of China was closer to 30% of what local manufacturers wanted.
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    just me duncan drennan's Avatar
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    Quote Originally Posted by Dave A View Post
    Is that after negotiations? Some of the stuff we looked at recently, the price out of China was closer to 30% of what local manufacturers wanted.
    For printed circuit boards it would depend on the complexity of the board (number of layers, routing density, hole size).
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    Platinum Member Marq's Avatar
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    I think the general answer would be that this is something that Clever Trevor and his gang would have to consider. You are asking how your brick can build the wall that protects the whole country. If your brick crumbles because the glue that holds the wall together is not stable, then what is the point of trying to be loyal to a local cause when you are in survival mode.

    Negative attitude I know and I am also one who would rather support local than overseas. I prefer to think that in the bigger picture the economy will turn in some other area and return the necessary balance that will bring the trade deficit back to 'normal' levels.
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    Gold Member garthu's Avatar
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    I believe the risk is a little high at the moment. At least when you build locally, there are fewer risks to factor in. Overseas involves major factoring of forex and fuel. politics. Move it this month, in 3 months time forex becomes R13-US. Was it worth the effort then and the potential loss as you might have already contracted to the output price??

    I don't believe you should also concern over the effects around you (really self centered i know) but right now, does it work for you financially or not - look after number 1 as no one else will give a stuff.
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