> For a shoe-factory job paying $12 an hour, the actual cost of shoemaking — when adding benefits — grows to $16 an hour, compared with about $3 an hour in China, said Mike Jeppesen, head of global operations at Wolverine Worldwide, which owns brands like Merrell, Sperry and Keds. And that cost quadruples after wholesale and retail markups, he said, ballooning into a $50 price difference between a pair made in the U.S. versus in China.
This strikes me as a naive way to think about pricing (though it's probably consistent with the way finance people think about it). The only reason to charge that same ~4x markup on the additional labor cost is to keep gross margins (as a percentage) unchanged, but that would actually increase profit (as a dollar amount). If you just want to keep the same profit you'd get from offshoring, you can probably increase the price by much less - $13 if demand were perfectly inelastic, somewhat more in practice.
Also, that sentence shifts from cost per hour to cost per pair without an explanation. Is 1 pair/worker/hour a realistic estimate? That seems way lower than I'd expect. Surprisingly I couldn't find a good answer to this in 30 seconds of searching.
After learning how many manufacturers essentially use slave labor for their products, I've stopped buying clothes manufactured outside the US and EU. I'm sure there are better ways to do this, but that's the simplest reliable one - even e.g. Patagonia, which seems to be trying its best to maintain an ethical supply chain in developing countries, has had its share of issues. The price difference hurts a little bit when I actually make a purchase, but clothes are cheap enough to begin with that the difference ends up being a pretty negligible piece of my overall spending, probably something like $100/year on average.
This strikes me as a naive way to think about pricing (though it's probably consistent with the way finance people think about it). The only reason to charge that same ~4x markup on the additional labor cost is to keep gross margins (as a percentage) unchanged, but that would actually increase profit (as a dollar amount). If you just want to keep the same profit you'd get from offshoring, you can probably increase the price by much less - $13 if demand were perfectly inelastic, somewhat more in practice.
Also, that sentence shifts from cost per hour to cost per pair without an explanation. Is 1 pair/worker/hour a realistic estimate? That seems way lower than I'd expect. Surprisingly I couldn't find a good answer to this in 30 seconds of searching.
After learning how many manufacturers essentially use slave labor for their products, I've stopped buying clothes manufactured outside the US and EU. I'm sure there are better ways to do this, but that's the simplest reliable one - even e.g. Patagonia, which seems to be trying its best to maintain an ethical supply chain in developing countries, has had its share of issues. The price difference hurts a little bit when I actually make a purchase, but clothes are cheap enough to begin with that the difference ends up being a pretty negligible piece of my overall spending, probably something like $100/year on average.