Here's one for the community to ponder.
Right now, nearly every e-bike and e-scooter product is made in China, Taiwan, or Singapore (I'll just refer to them as "China" for simplicity). The motors, controllers, and etc are all Chinese. We are setting up a small dealership of e-bikes and add-on kits, and we cannot find any products not made in China (at least, that are even remotely affordable). The only non-China e-bike product I know of is Heinzemann, and their products are really focused on the top-end luxury market, which won't help with widespread adoption.
This situation concerns me for several reasons. One is that I think the US of A are headed for economic conditions that will make it increasingly difficult to buy and import from China, since the dollar is weakening at the same time as inflation is occurring in Asia, and shipping costs are going up due to the increased cost of oil. Plus, China already has over $1 Trillion dollars it is sitting on, and I doubt they will want to keep accumulating those forever, especially when they are loosing value. Also, what if China and the USA get into political disputes, or trade is disrupted for other reasons (e.g. bird flu)?
Can manufacturers the USA take up the slack when it becomes necessary or economically viable? The Chinese have a major head-start in technology, human capital, and equipment capital, and we fall farther and farther behind as our populace increasingly is focused on job skills for the service sector, rather than technology and manufacturing.
So, are we doomed to forever be reliant on the Chinese for this important technology? Or am I missing something?
Morgan
Morgan, yeah. However this situation has been a long time coming - perhaps you've read some of the glowing praise for globalization like The Lexus and the Olive Tree or The World is Flat (no it's not, it's round). Supposedly globalization will make it impossible to have wars in the future because all our economies will be so intermingled that we cannot possibly afford to launch a war against each other. A factoid in The Lexus and the Olive Tree had something to do with the presence of McDonalds in a country and the lack of war in that country. Hmmm
I, too, wonder about this. There is much alarum raised in the U.S. saying China is a bad country that wants to hurt the U.S. so if that's true then it would be a strategically bad move to ship production of products for U.S. consumption to China. If there were a shooting war to erupt between us then that would drastically hamper the U.S. to defend ourselves. At the same time I have coworkers from China, some of my coworkers are in China, and I know just how friendly the Chinese people are to U.S. people. So whatever it is going on is a government level dispute. e.g. I understand that some of the globopoliticomanipulations being done are to attempt to prevent China from getting oil.
But I think there is a different view to this. Prior to globalization the U.S. was the industrial superpower, doing lots of manufacturing. The level of industrialization elsewhere in the world was significantly less. Right? So my thought is it may be best for the health of the global economy for industrialization to be more evenly spread around the world. This would mean helping other countries to industrialize, and to raise the overall average standard of living around the world. There is a huge disparity in standard of living between the U.S. and the rest of the world, and raising the standard elsewhere would mean perhaps lowering the U.S. standard while the rest of the world raises theirs.
I don't know - those are speculations. What I do know is when I visit Cracker Barrel restaurants - that I feel angered. They present a facade of Olde Tyme Americana that looks like handmade crafts made in small villages in the Olde Southe. But every last one of the products Cracker Barrel sells carries a tag reading "made in China" or "made in Costa Rica" or "made in Brazil" or "made in AnywhereButU.S." ... It strikes me as a theft of culture by the management of Cracker Barrel Restaurants.
Oh, and lumping China, Taiwan and Singapore in one pile is a drastically huge oversimplification - what with China and Taiwan at times threatening each other with war. And Singapore is a totally artificial creation of the British Empire, stuck way down at the end of Malaysia, and populated by a mix of Indians, Chinese, Malayasians, and Europeans.
- David Herron, The Long Tail Pipe, davidherron.com, 7gen.com, What is Reiki
Gosh, I have a really dark view of the world, don't I?
- David Herron, The Long Tail Pipe, davidherron.com, 7gen.com, What is Reiki
Hi David,
I agree with much of what you say. I work with (and supervise) a number of Chinese and Taiwanese, and they are great people. There is no negative racial/ethnic intent to my message, though I can see how it might have come across that way.
My message was intended more as a lament about the sorry state of affairs here in the US - that we have outsourced nearly all production and knowledge, and appear to have little such capability left here. That's why I lumped China/Taiwan/Singapore together - not because they are homogenous, but because those are the countries to which we've outsourced much of our production capability.
I realize there are a lot of idealized notions floating around about the increasing globalization and its benefits. But this has all happened before (saying that reminds me of Battlestar Galactica!). The early part of the 20th century saw substantial globalization of trade, with similar pronouncements coming from people. But as the world slipped into depression, that drive to globalization quickly vanished amongst petty bickering, trade wars, and tariffs (e.g. Smoot-Hawley Tariff act in 1930). It wasn't until the 90's that we recovered to the same level of international trade, i.e. 70 years later. I think that as competition for scarce resources becomes more intense, and especially as our economy sinks further into a black hole due to the recent financial mismanagement, there will be strong pressure for protectionism, competition over resources, and etc.
While it is true that our economies are intricately linked, there are also very strong competing interests at play. The US has become a debtor nation - for the past 4-5 years or so, our national net savings have been negative. We are so far into debt that it is putting major pressure on the economy, and hence pressuring the Federal Reserve to do something. They don't have much choice - their only real power is to tighten or loosen the money supply, based on interest rates. If they tightened it right now, there is a major risk of a significant deflationary episode as we had in the great depression. That is not a politically tenable option. The other alternative is to loosen money supply in an attempt to stimulate ongoing consumption, but this leads to inflation (since dollars have to be printed to enlarge the pool of money available for loan from the Fed). It also has the (perhaps necessary) side effect of "inflating away" our debt, i.e. if we repay our debts in future dollars that are worth half their present value, then we've really cut our debt in half. It is clear the fed is choosing the latter option, with an ongoing series of interest rate cuts. While this may be the lesser of the two evils (inflation instead of deflation), there are two substantial problems with it.
First, those to whom we owe money, such as China and Japan, aren't going to be happy about holding increasingly worthless dollars, i.e. seeing our $1.6 trillion debt to them become increasingly worthless. This won't be a good motivator for them to continue selling us stuff so cheaply (or maybe at all). Just imagine how a bank would react if a homeowner was able to print more money to pay off the mortgage. The bank would be none too happy about that. But that's what is going on, in very simplified terms. And the other bad problem with inflating things away is that there is the risk of runaway inflation, as has happened a number of times in the 20th century, including in the Weimar republic in the 20's....
I have seen the romanticized notion that the US can continue to drive the "information economy" even while everything else is outsourced. I agree that we are great at innovating, and still play a leading role. But the problem with that rosy scenario is that it takes capital to turn ideas into products and economic growth. Given the economic problems facing us, that supply of capital, particularly in the US, is likely to continue dwindling. Further, our educational system is doing a poor job of educating students in areas such as mathematics, engineering, and computer science, so our "brain capital" is dwindling too. I am involved in a graduate training program in computational sciences at a top-notch University, and there simply is not a big pool of well-prepared applicants from the USA. Many of the best-prepared applicants are foreign. Our society has become complacent, not realizing the value of working hard and getting educated in these vital fields.
While globalization is leading to higher standards of living for many, and from that perspective is a good thing, I believe the US has sold itself short (very short), and is in for big trouble. I just hope that we wake up in time, and start getting more people educated, and ramping back up so we can actually start making real products again. I think that despite the nice predictions of the globalization advocates, that the upcoming economic troubles will put significant strains on trade relations (originating in political trouble here and abroad for the people in charge leading them to "do something", exactly as occurred leading up to WWII), and that we may find that we are suddenly stuck in a situation where we no longer have cheap access to products from abroad, and no capacity to produce them here, either.
So, the intent of my message was not to cast China (or any other country) in a negative light, but to alert people to our own dire situation. I suppose I even had the faint hope that someone would come up with a message saying "hey, so and so is actually producing nice e-bikes or components here in the USA," thus reducing my concern about this situation.
I'll rephrase the original message this way: can anyone come up with the name of a single manufacturer of components for e-bikes or e-scooters that is doing the majority of their production in the US (or Canada, for that matter), that is producing on a scale that makes their products affordable to the masses? If there is such a manufacturer, I will be relieved, but I am skeptical that anyone will come up with such a manufacturer. Please, someone, prove me wrong. I really would like to be wrong about this!
Morgan
As pointed out, to a certain extent much of the transfer of manufacturing industries to china and other developing nations is a natural result of free trade and globalisation. Whats interesting is much of it isn't. China has kept its currency artificially low by buying huge amounts of debt or 'assets' from other western nations. This acts as an unfair price advantage for its exports making it very hard for western manufacturing to compete.
Whats interesting is that the UK and US have given the green light for China to do this, this arrangement is sometimes referred to as 'bretton woods 2'. On the other side of the trade the US and UK banking elites have made huge sums of money by issuing stacks of cheap financial products and encouraging ever higher levels of consumer debt, whilst working class westerners have seen falling real wages.
Its a real mess of a system and one that seems not to be working very well as western assets defalte and western consumers tire of ever increasing levels of debt. Ultimately this will hurt china aswell, its a big artificial mess but if we want to change we'll have to put politicians in power who 1 understand it and 2 are ready to stand up to the financial elites who benefit from it.
check out itulip.com for more info on this stuff.
Yes, definitely ... I've been reading them for a while, and there is some great stuff at itulip. I keep hearing on the radio news that "we may be heading for recession". It's clear from reading the stuff at itulip, that it's already happening, but our media are too asleep to really notice.
Morgan
Why Manufacture in Asia?
There are three good reasons to Manufacture in Asia
First reason, is cost. The cost is typically 1/5th to 1/3rd of what you would pay for the same product being manufactured in Canada or USA. A product that would cost around $20 to make in North America, would cost under $5 in China.
Second reason is new products can be brought to market that otherwise wouldn’t make it. In North America it costs a lot of money to bring a product to market. To make all the parts, the factory has to make molds and other things called tooling. The cost of this tooling might add up to about $50,000 in North America. This cost would deter most inventors from trying a new product. However in China we can make the same tooling for $10,000 or less.
The third reason we should use Asia is because most of the economical benefit from a product made in China stays in North America. This is a message often not understood. Here’s the reality. Usually 80-85% of the money any single product generates stays in North America. For example, let’s say a certain product sold for $100. $50 of that would be the gross profit of the retailer. Another $30 to $35 would be the gross profit of the inventor and wholesaler. This leaves a mere $15 to $20 that actually leaves the country, and even part of that may return because of freight income to the freight forwarders.
So clearly it is good for the country and we as consumers get lower priced goods and most of the money still stays in the country to build our own wealth. That’s why we should manufacture in Asia!
Don Harmon
www.lifebatt.com
Don - I'm not necessarily agreeing or disagreeing - but try putting that on a bumper sticker and driving around Michigan "Buy Asian It's Good for Our Economy". Go on, I dare you! ;-)
I do agree that businesses really have very little option than to take advantage of the cost reductions that China can offer. However, with a complex product such as a vehicle (and maybe with a less complex system such as your batteries) I think having final assembly in the US makes sense. This has nothing to do with patriotism. Instead I just think that one can exert better quality control and respond to the inevitable snafus quickly and with more chance at addressing them pre-sale.
John H. Founder of Current Motor Company - opinions on this site belong to me; not to my employer
Remember: " 'lectric for local. diesel for distance" - JTH, Amp Bros || "No Gas.
Totally agree jd. I look to Detroit to come back strong IF they continue to push clean EV tech. They have been their own worst ememy by trying to ignore what the public wants and what the experts have been saying for so long. As for us - we hope to have a U.S. sub-assembly plant here by 2009 for LiFeBATT Products!
Best,
Don Harmon
www.lifebatt.com
Morgan,
Heinzeman motors and all kits are Not for any high-end market, in Europe they are just normal, standard quality, Eurpean standard. Europeans strongly expect the thing will last, gears 1000s of km, threads will not strip, nothing will wobble, etc.
Quality China versus Heinzeman are like day and night.
Chinese standard we all know.....
Heinzeman is the ONLY brand I would consider beside my TF bearing MADE IN USA sticker.
Miroslaw
CM
Don,
I've been in the plastics manufacturing business and know all about tooling costs, no need to lecture.
1. "Build our own wealth". You mean dollars? Increasingly, dollars have been becoming and will continue to become worthless over the coming years as the world moves away from them as the reserve currency and into anything else that is a better store of value (gold? oil? euro?). There's no wealth building there. The personal savings rate in the USA is negative (since 2005). The country is now a debtor nation - our spending outstrips our GDP, and has for several years now. We are in hock to China, Japan, etc. They are now buying off our assets with the loaned money (the latest is big banks) - and I don't blame them. It's better to own a piece of a business than a bunch of dollars sinking in value. (Have a look at this or this if you don't believe me (you may need to refresh the browser to get the charts to show). Also check out how poorly the DJIA has done compared to gold here - mainly due to the sinking dollar value). No, gold and euro haven't appreciated, the dollar has been sinking.
Why? Leads to point #2:
2. One large reason that it is so "cheap" to do business in China is the dollar peg for the yuan. It keeps the yuan artificially low. Great for the consumer, you say? Well, great as long as the consumer still has a job to support the spending for all the cheap stuff from China. Increasingly the only jobs to be had are at Wal Mart, McDonalds, and etc. The driver for the spending over the last 5 years was the housing bubble, and the enormous infusion of cash from "equity debt" that caused. So we (the proverbial) mortgaged our houses to buy all that cheap stuff from China, and now our houses are becoming worthless too (worse than worthless, foreclosed, e.g. here or here). Yes, this is "great" news for the US, isn't is? Now, if China let the Yuan float to its natural value, and if they lowered trade barriers to our companies, it suddenly wouldn't be so "cheap" to do business there. Probably still cheaper than the US, for a while, but things would eventually equalize. It seems funny to see someone arguing that this is a good thing for the US consumer, since the (average) US consumer is headed for a very tough times, with skyrocketing oil prices, shrinking dollar, rising unemployment, large debt, and so on.
3.
(I'm surprised that usatracey hasn't chimed in on this regarding the reliance of your model on fatcat middlemen). I understand the argument just fine. But I don't agree with your version of "reality," especially the part about "we should". The kind of markups you're talking about just don't exist in most businesses. By your model, you're essentially saying that of the price of a $2000 LifeBatt, only about $400 is going to Asia. If you can truly sustain a model like that with acceptable sales, more power to you. But no other business I know of operates on anywhere near that kind of markup. You're talking about a 500% markup over the wholesale cost.
But, regardless, it doesn't really matter. The problem is in the money velocity. When the dollar leaves for asia, it loses velocity. It is often not spent on further US based goods or services. It may be spent to buy our capital assets (such as banks), but that does not produce significant further economic activity here, it just reduces our net assets as a country. So, whether the portion going to asia is 80% or a paltry 20% as you speculate, it is negative velocity for the economic activity of those dollars. So far, there are around $1.7 trillion such dollars sitting in banks in China and Japan not doing much for our economy. Your argument is sort of like the initial reaction to the Titanic hitting an iceberg - "it's only a minor breach". Minor breaches add up, and will ultimately sink the dollar and our economy (it has started, but the pundits don't realize how bad it might get, yet).
I'm all for doing manufacturing wherever it can be done most efficiently and cost effectively. But I'm not for artificial systems that stack the deck against my own country competing on a level playing field. If our value system truly is "cheap at all costs", we will get what we pay for. And it won't be long now before we get it, in spades.
Morgan
Hi Miroslaw,
You make an excellent point. The issue is, that most consumers in the US have been trained to go for low cost and quantity over long life and durability. That makes it hard to sell such an item "to the masses" because many people just cannot overcome the sticker shock to see "value".
Not that I'm unwilling to try. Someone else pointed out in private email that the BionX is made mostly in Canada. There is a price premium for those as well, but I hear the quality is very good. So I may be exploring that route, for the few farsighted customers who buy for value rather than just cheap upfront cost.
Regards,
Morgan
I realize in this thread how gloom and doom I sound. I don't feel that way, however. I think it is great that I have a chance to do something about it, by building and establishing an ebike business - and I am greatly encouraged that many others are doing something about it too. Problems open up opportunities, and this is actually an exciting time. While in the near term future "rebalancing" of an out of whack trade system and US (perhaps world) economy may cause a lot of pain, in the end if we come out with a more balanced system it will be good for all.
So, instead of further writing about it here, I'm going to get back to the hard work of doing something about it. It's been great, thanks for all the interesting discussion!
Morgan