I’m not sure Google has much of a market for a $299 media player (with the AppleTV and Roku players being under $100), but it’s noteworthy that the new Google Nexus Q is made in the USA (see picture at left of the bottom of the device, click for a larger view).
See this CNET article: Google shows Apple: We made ours in the U.S.A.: Google is making stuff in the U.S. Will Apple follow suit? Also see this TechCrunch article on this topic.
As the article points out, labor costs in parts of coastal China have risen to $3 to $6 an hour. That means the labor cost disadvantage for the U.S. is far reduced.
Google won’t say where exactly the products are being made in Silicon Valley. The Nexus Q is certainly going to have far lower production volumes than Apple products… since this is a very new product, Google points out the speed advantages of having production located so close to the design team.
There was a time when electronics were made in the U.S. Early computer giants such as HP, Dell, even Atari made their products in the U.S. The promise of cheaper labor lured these companies elsewhere.
Yep, I helped start one of those Dell factories in Austin in 2000 where desktop computers used to be made (labor cost was a VERY low percentage of the total cost).
This is part of an exciting “reshoring” trend that’s being fueled, in many cases, by Lean practices.
The Q’s higher price is a direct result of assembling it in the U.S., says Google.
That’s where Google is wrong. It’s basic economics that prices are set by the market — not by costs. If your product has higher costs built in, customers aren’t automatically going to pay more unless you have a monopoly.
If Google were utilizing Lean thinking, they would realize the math (taught by Toyota in their books by Ohno and Shingo):
- Prices are set by the market.
- If the market price for a device like this is $100, then you have to engineer the total product cost so it can be profitable at that price.
It’s old thinking (in manufacturing, especially the defense business, and in healthcare) that we get to charge “cost plus.” It’s old thinking that you take your costs and add in a profit you feel entitled to… and that’s your price. But that doesn’t work.
The world runs by “Deserved Profit = Market Price – Actual Cost” not “Price = Cost + Desired Profit.”
On another note, I was excited to see on Friday when my first copies of my new book Healthcare Kaizen arrived that the shipping label said they were printed in Michigan, my home state. I have known for a few months that they were going to be printed here. There’s a lot of cost pressure in the publishing industry that is driving printing offshore… as we’ve seen in other industries.
We can only hope that companies look at the “total cost” 0f producing offshore. Labor costs might be lower overseas (and, again, that gap is shrinking), but there’s lots of inventory in the supply chain… and that supply chain is less responsive. If my books were printed in, say, India, then it would have taken a lot longer to react to any unexpected increases in demand. The book would have out of stock more often… which would possibly cost the publisher sales (or delayed them). I’m glad the book is being produced in the U.S.!
I hope Google does well with their domestic production.
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