Help me understand price ceiling...

[Chris "Anagarika"]

Sal I have seen you repeat this line of thinking over and over through the years and you are wrong. Currency exchange rate of YMB to USD is about 6to 1 but Japanese Yen to Usd is 110 to 1, how do you explain that.

Maybe the Chinese made knives are cheaper because labor and machinery cost are much much lower in China VS Japan, same goes for tax, rent and other fixed cost as well as shipping cost. China has also became the world's manufacture with a huge diversified and very competitive supply chain. These are all factors of why cost is cheaper in China, and it has nothing to do with the exchange rate.

Sal,

While the exchange rate is such, IMHO a more valid comparison will probably consumer price index or cost of living. The Yuan is 1/6th US $ but one bowl of noodle (saw that on the chinese sharpening peddler video, https://www.bladeforums.com/threads/chinese-knife-sharpener.1565953/) is 5 yuan. How much a comparable meal in US? Compared to the average income of middle class officer of each country? Minimum or lowest wages allowed by government?

The comparison of Japanese Yen vs USD is interesting, as what makes Seki knives priced as such.

Not meant to argue, just trying to understand the logic.

 

[RipD]

While the exchange rate is such, IMHO a more valid comparison will probably consumer price index or cost of living. The Yuan is 1/6th US $ but one bowl of noodle (saw that on the chinese sharpening peddler video, https://www.bladeforums.com/threads/chinese-knife-sharpener.1565953/) is 5 yuan.

In no way answering for Sal. I don't think the cost of living is a factor for production, other than wage increases due to inflation. If you calculate a manufacturing cost per item for a location, the price of food in that area generally isn't a factor in manufacturing cost. It's certainly a factor for the worker. This also varies regionally, just as the cost of food and housing is very different in San Francisco vs. Omaha.

Just my take as someone who works for a manufacturing company and has been to China, the Philippines, and other lower-cost labor countries.

 

[Chris "Anagarika"]

In no way answering for Sal. I don't think the cost of living is a factor for production, other than wage increases due to inflation. If you calculate a manufacturing cost per item for a location, the price of food in that area generally isn't a factor in manufacturing cost. It's certainly a factor for the worker. This also varies regionally, just as the cost of food and housing is very different in San Francisco vs. Omaha.

Just my take as someone who works for a manufacturing company and has been to China, the Philippines, and other lower-cost labor countries.

Thanks! Just wondering if workers wages would be part of the manufacturing cost and the wages may be predetermined by local government (minimum at least) and it should allow for a certain standard of living. Probably not a direct correlation but a factor. Taking just 6:1 exchange rate doesn’t apply if it’s US dollar vs japanese yen.

 

[RipD]

Thanks! Just wondering if workers wages would be part of the manufacturing cost and the wages may be predetermined by local government (minimum at least) and it should allow for a certain standard of living. Probably not a direct correlation but a factor. Taking just 6:1 exchange rate doesn’t apply if it’s US dollar va japanese yen.

Yes, up to a point. But my guess is manufacturing worker wages in China are within a range that's not terribly significant. At my company manufacturing is all in one location in China, so I don't have first hand experience in the wage differences. My expectation is that they're all low.

Compare this to a place like Vietnam where wages are (or were) growing at 30% per year. It's hard to keep wages on par with inflation, and your cost model starts going south pretty quickly. Same thing happened in India. It's still a viable place to have people, but the cost advantage isn't the biggest driver for it.

 

[Sal Glesser]

Hi Ganzofan,

I think you might be mistaken. A Japanese "Yen" is one penny. The Japanese money is currently about $1.10 and fluctuates. I think you are mistaken in your understanding of exchange rates. The Chinese are a hard working people, no doubt, but the majority of their success and rise in global mfg, inmy opinion, is the exchange rate.

Perhaps you need to visit China?

sal

 

[RipD]

I'm fascinated how a company the size of Spydero deals with this complexity: materials sourcing, labor issues, trademark issues, tax and trade, and dozens of other things. Also exchange rates that move the wrong way and unexpectedly hurt you financially.

 

[Sal Glesser]

Just lucky I guess.

sal

 

[Ganzofan]

Hi Ganzofan,

I think you might be mistaken. A Japanese "Yen" is one penny. The Japanese money is currently about $1.10 and fluctuates. I think you are mistaken in your understanding of exchange rates. The Chinese are a hard working people, no doubt, but the majority of their success and rise in global mfg, inmy opinion, is the exchange rate.

Perhaps you need to visit China?

sal

Born and lived in China for over a decade.

Sounds like you are one of those who believe in China manipulating currency to gain trade advantage. Easy to speculate your politically view here, which is the dominant view on gun and knife forums. The majority of economists believed that was true when the exchange rate was 8.25 Yuan to -1 USD. At the current exchange rate the consensus of economists is that there is no currency manipulation.

A Japanese Yen is not a cent although its being used like it.

Sal when do you ever see exchange rate calculated using cent denomination? Do you ever see reference of foreign currency exchange rate to the US cent? That should be a clue. Japan has stopped issuing currency in the cent equivalent due to inflation.

Do you see exchange rate calculation using USD to a Schilling? How do you explain the exchange rate from Usd to Zimbabwe dollar? It's $40 Usd to $100 Trillion Zimbabwe Dollar. Do you think Zimbabwe still issue currency in the cent form? Do you know how inflation and hyper inflation works?

You are dead wrong on this and I hope you can just do a quick Google search and get educated on the subject.

 

[Ganzofan]

The Chinese are a hard working people, no doubt, but the majority of their success and rise in global mfg, inmy opinion, is the exchange rate.

sal

And just to expand on this belief a little bit.

You work with manufacturers from around the world, did you know the Chinese manufactures' mark up is only 2-3 percent? Which can easily be whiped out due to currency exchange rate fluctuation. I highly doubt the Japanese, Italians or Golden CO would do that.

The true benefactors of the globalization of the last few decades are the Fortune 500 companies who floats untold Trillian of dollars in profits overseas. Did you know there was a tax holiday done in 2004 for repatriation of overseas profits at low taxes already? It is they who abandoned the American high salary/benefits manufacturing sector in search of more profits.

Do Spyderco only mark up your products at 2-3% profit? I think not.

The Chinese achieved their current huge economy of scale in manufacturing by making low margin profits, exploited their own citizenry for cheap labor, polluted their own environment to hell, exploitation and sold on the cheap their natural resources, seized land and property from its people at no compensation for the development of the infostructures, gave huge tax incentives to foreign manufactures to go there with no restriction on pollution etc...

 

[BD_01]

Born and lived in China for over a decade.
A Japanese Yen is not a cent although its being used like it.

Over the course of the years I lived in Japan the exchange rate varied roughly between 90 & 110 yen:dollar. I don’t know how the economists view it, but as a joe on the street I viewed ¥100 as the equivalent to $1 US.

 

[Ganzofan]

You just unknowingly supported what I said.
by your logic 6 Chinese Yuan is the equivalent of 1 USD which is also what the exchange rate is.

Then what's this business of "their 6 chinese dollar" to 1 USD and it shouldn't be that way because "China is not a third world country" and "China got to where it is by using its currency" Sal was referring to?

Sal are you saying that the Chinese Yuan is artificially depressed at 600% vs USD and should have a 1 Yuan to 1 USD exchange rate? Otherwise that statement makes no sense, which is what I tried to correct in the first place. And if Sal does believe that which his posts seems to indicate, and yet he does business there, the implication is not good.

Bottom line, businesses are in the business of making money, and no one can fault them for that. But when people start pointing fingers with political motives about business decisions and economic woes, then it's just a bunch of excuses. Unfortunately, the masses will believe it.

Over the course of the years I lived in Japan the exchange rate varied roughly between 90 & 110 yen:dollar. I don’t know how the economists view it, but as a joe on the street I viewed ¥100 as the equivalent to $1 US.

 

[RipD]

Just lucky I guess.

Luck? I was complimenting Spyderco and clearly didn't do a good job. Impressed that you deal with globalization as well as you do. I'm guessing hard work and a passion for your products is more a factor than luck. I could be wrong.

 

[Cursum Perficio]

Seems to me Sal was just pointing out that fluctuations in exchange rates have a clear and immediate affect on cost/pricing with OEM manufacturing in another country. Which is true.

It also affects the price of every Spyderco I buy as I don't live in the US, and buy online from US dealers. I bought more a few years ago when the exchange rate was a lot more favorable, than I do now.

I see all quality folding knives as expensive, because where I live they are, due to the exchange rate.

I agree with the OP saying there is value in a maker you know about and know you can rely on, and would add that with Spyderco there is a lot of value in them knowing how to design a very usable and durable tool, not just a piece of pocket jewelry.

I don't see Spyderco as too expensive, relative to other options available to me.

 

[Sal Glesser]

Hi Rip,

I was just being glib. My apologies. We work very hard.

Hey Ganzofan,

I guess I must respectfully disagree with you. I am not an economist. I am a designer and a businessman. I do not deal in theories, I deal in dollars and cents, Pounds and Euros, Yen and Yuan, Rand, Rubles, etc. I have been involved in a Global economy and marketing for 40 years. We are involved in more than 60 countries. We buy, and sell, manufacture and create. In my opinion, NOTHING affects the movement of product and funds in and out of a country than dollar valuation. When the Rand and the Ruble are weak, Russians and South Africans purchase less of my product.

When the Yen was 350 to the dollar, back in the 80's, most knife companies were making knives in Japan. The quality was good and the weak Yen gave us a definite competitive edge (pardon the pun). Al Mar introduced me to his maker. I introduced Cold Steel to my maker. Many of the knife companies were born in this time. Al Mar, SOG, Spyderco Kershaw, etc. As Japan got on their feet, the Yen got continually stronger until it actually reach 80/dollar. Then the knife companies moved to Taiwan, because the quality was good and the valuation was more favorable. Of more than 30 OEM knife makers in Japan, less that half dozen exist today. They could not compete because of the valuation.

When the Taiwan product became expensive, most knife companies moved to China. The quality was getting good and the valuation was more favorable. Most knife companies today are making some or all of their knives in China. We also make some knives in China. The market demands the less expensive cost and most of our competitors are doing likewise. We work for the customer (End Line User). In my opinion, at least for the knife industry, I think a 2/1 valuation would be better to help level the playing field.

FYI, 99% of our counterfeits are made in China. They copy our designs, our boxes and our literature. They put Spyderco and USA on the knives. We are forced to spend tens to hundreds of thousands of dollars to try to protect our own hard earned reputation. I guess you think this is honorable, fair and proper as well?

Also, we met the Ganzo team. They came to our booth in Germany. The President, Sales manager and their group. Their behavior was so disrespectful, we had to ask them to leave out booth and forced them to delete the pictures of our prototypes their President took, around the "No Photos Please" sign. I am not a fan.

Respectfully,

sal

 

[Ganzofan]

I knew you had bad experiences with China, there's pro and con to any situation. The counterfeiting I don't agree and I did not talk about that at any point in my post.

I had a feeling you were talking about what the president often repeats in public, that China artificially depress its currency. We can agree to disagree on that as I said, the general consensus of economists disagree with him on this point. Just as the general consensus of scientists disagrees with his position on the existence of global warming.

China's competitive advantage in low cost manufacturing is what I stated in the prior post. Taking the currency debate is taking a narrow and overly simple explanation to a broad and complex problem. If Spyderco can pay it's employees 50 cents an hour, provide no benefits, given tax breaks by the government and allowed to pollute then what's your cost then? What if you can get almost no interest loans from the government and expand your business and achieve huge economy of scale? I have no love for the Chinese goverment but it's an authoritarian government that operates the country as a corporation, thus it's competitive advantage.

Im simply pointing out the way you defined the Yuan VS USD is incorrect, that's all.

FYI, before Japan and Korea had their own written language, both countries used Chinese characters. That's why alot of things are still pronounced the same or very similar, such as cheers in all 3 languages.

In Japan, Kanji (汉字) means Chinese characters and used to comprise about 75% of their language, now it's about 25% since they introduced new writing systems. The Chinese YUAN and Japanese YEN is of the same Chinese character and thus why it's pronounced almost the same 元。This is the same denomination which is also why exchange rates are calculated using this denomination.

FYI, I don't know if you done any shopping at all in China, when I was there last December in Shanghai, at a local supermarket, a small bottle of US brand Pantene Shampoo cost $9 USD, which is Alot more than what I pay here. Everything American cost more than it does in the US. At the exchange rate you suggest that bottle of shampoo would cost $27.

At small apartment in Shanghai around 650 Square feet cost about $800,000 USD currently, at your calculation that would go up to $2.4 million USD.

Hi Rip,

I was just being glib. My apologies. We work very hard.

Hey Ganzofan,

I guess I must respectfully disagree with you. I am not an economist. I am a designer and a businessman. I do not deal in theories, I deal in dollars and cents, Pounds and Euros, Yen and Yuan, Rand, Rubles, etc. I have been involved in a Global economy and marketing for 40 years. We are involved in more than 60 countries. We buy, and sell, manufacture and create. In my opinion, NOTHING affects the movement of product and funds in and out of a country than dollar valuation. When the Rand and the Ruble are weak, Russians and South Africans purchase less of my product.

When the Yen was 350 to the dollar, back in the 80's, most knife companies were making knives in Japan. The quality was good and the weak Yen gave us a definite competitive edge (pardon the pun). Al Mar introduced me to his maker. I introduced Cold Steel to my maker. Many of the knife companies were born in this time. Al Mar, SOG, Spyderco Kershaw, etc. As Japan got on their feet, the Yen got continually stronger until it actually reach 80/dollar. Then the knife companies moved to Taiwan, because the quality was good and the valuation was more favorable. Of more than 30 OEM knife makers in Japan, less that half dozen exist today. They could not compete because of the valuation.

When the Taiwan product became expensive, most knife companies moved to China. The quality was getting good and the valuation was more favorable. Most knife companies today are making some or all of their knives in China. We also make some knives in China. The market demands the less expensive cost and most of our competitors are doing likewise. We work for the customer (End Line User). In my opinion, at least for the knife industry, I think a 2/1 valuation would be better to help level the playing field.

FYI, 99% of our counterfeits are made in China. They copy our designs, our boxes and our literature. They put Spyderco and USA on the knives. We are forced to spend tens to hundreds of thousands of dollars to try to protect our own hard earned reputation. I guess you think this is honorable, fair and proper as well?

Also, we met the Ganzo team. They came to our booth in Germany. The President, Sales manager and their group. Their behavior was so disrespectful, we had to ask them to leave out booth and forced them to delete the pictures of our prototypes their President took, around the "No Photos Please" sign. I am not a fan.

Respectfully,

sal

 

[Sal Glesser]

Hi Ganzo fan. As I said, I respectfully disagree. And I will also add that I do not agree with the current economists, and I don't think that giving the government my hard earned dollars is going to stop the climate. It is what it is. Your appeals to authority also don't impress me. Perhaps I know more about the economies of the knife industry than any economist.

I have been to China many times over the past 20 years. All over China. I have also been all over Japan and I also understand Kanji, hiragana and Katakana. I have been to many places all over the world. I have seen more Ferrari's and Maseratti's in a small hotel in Guilin than in all of Denver. Please don't lecture me on wages. Perhaps I know far more about costs in China than you do. Respectfully,

sal

 

[sharp_edge]

Intersting debating. G Ganzofan you are right that in your discussion in this thread by far I have not seen your support for countfeits or clones. I guess the Spyderco owner said that because of your name?

 

[Ganzofan]

You are one of the ultimate authorities on knives of course.

This goes back to my original point, I just simply can't understand why the head of such a successful company would make such simple mistake in reference to Yuan vs USD, I have seen you make this reference from when the exchange rate was 7 Yuan to 1 USD. Which was the reason why I brought up the Yen in the first place. Everything else was chatter that came about after the fact.

Whether if you believe the Yuan is artificially depressed or not and it doesn't matter if you've run an international company for 50 years. None of this change the fact that your reference to the Yuan and Yen is wrong. That's not anyone opionion it's a fact.

Yuan, Yen, USD are of the same and equivalent denomination, what's different is the exchange rate. I don't understand why you can't admit to this fact.

Hi Ganzo fan. As I said, I respectfully disagree. And I will also add that I do not agree with the current economists, and I don't think that giving the government my hard earned dollars is going to stop the climate. It is what it is. Your appeals to authority also don't impress me. Perhaps I know more about the economies of the knife industry than any economist.

I have been to China many times over the past 20 years. All over China. I have also been all over Japan and I also understand Kanji, hiragana and Katakana. I have been to many places all over the world. I have seen more Ferrari's and Maseratti's in a small hotel in Guilin than in all of Denver. Please don't lecture me on wages. Perhaps I know far more about costs in China than you do. Respectfully,

sal

 

[Ganzofan]

On the side note of Japan, during it's economic miracle from the 60s through the 80s came to a halting end in the 90s and has been stagnant for almost 3 decades.

Sal, as you mentioned, the Yen to USD exchange rate was 360 Yen to 1 USD in the early 1970s. Then US was not able to compete and stepped up political pressure for the Yen to rise in value resulting in 80 Yen to 1 USD in 1995.

This revaluation of currency is what caused Japan's economy to go down the toilet. Japanese know it, we know it and the Chinese know it. Therefore China will never succumb to any pressure to devalue it's currency to any drastic degree as not to repeat Japan's mistake.

 

[Stays Sharp]

How about we help the struggling dealers some more and decrease MAP by 5% every year?

You guys just don't understand the importance of distribution. 35% MAP is not cutting it. Should be 25% by now honestly.