A point I always try to make with new importers is that the actual product you are buying in China is only a small part of the experience that you’re selling. There is packaging, marketing, product instructions, and so on which are important parts of the product equation, not to mention the logistics and after-purchase support that goes with it. Having just finished reading Martin Jacques When China Rules the World: The End of the Western World and the Birth of a New Global Order (full disclosure, a shameless Amazon affiliate link was inserted there) I was pleased to see my preachings backed up by some hard stats.
…In terms of the total costs of getting a product to market, the proportion represented by manufacturing is very small- around 15% of the final price- with the bulk of costs being creamed off by design, marketing, branding, and so forth, tasks which are still overwhelmingly carried out in the developed world.
Jacques went on to mention a classic example of the iPhone, which is assembled in China, and the fact that the actual value added in China accounts for only 3.6% of the wholesale cost.
It would take some time for me to try and give a reliable figure as to what portion of the value added for our products is added domestically, but I can give a good example of a recent shipment we had come in from China. Below are just the hard costs attributed to this shipment. We use a third party fulfillment company to warehouse, pick, and pack this shipment so it’s a lot easier to directly attribute certain costs to this shipment.
Total Cost: $32,500
Total items: 625 pieces
Product Labeling Stickers for Products: $250
Freight Ningbo to Vancouver (20′ Container): $1620
Freight/Dock Fees Vancouver Port to Warehouse: $1000
Customs Broker Fees: $250
Staff cost to destuff container: $100
Estimated Storage fees for 20′ Container, estimated 3 months to sell : $200/month, $600 total
Estimated Pick & Pack Fees Per Outbound Shipment: $2/item, $1250
The ultimate landed cost per item went from $52 to $62.68. This is only for hard costs directly traceable to this shipment.
If you take into account the customer support costs , marketing/commission costs, returns/warranties, etc. then you can easily add $15 per item on to this number. That makes our total cost $77.68. Assuming our retail price is approximately double that cost, or $155.36, this means the “China portion” of the product cost to the consumer, even for our little company, is only 33%.
There’s no doubt that the “China portion” of the product cost is still a significant portion of the cost, and it’s nowhere like the iPhone in which the China portion is only 3.2% of the cost. And there certainly is value in trying to get the best price you can in China (without sacrificing your relationship with your supplier). However, never lose sight of the fact that a lot more goes into making a chocolate chip cookie than just the chocolate chips!
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