I get it’s the poor pay for labor but what about transportation and materials?
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I’ll take an exemple that is not exact, but easy to understand:
Let’s say a phone takes 10 hours to make by a single person. At 10$/h, it costs 100$ in labor. At 1$/h, it’s 10$ in labor. If you can ship a box containing 1000 of them, that box contains 10k$ of labor instead of 100k$ of labor. Unless that box costs 90k$ or more to ship, you’ve made more money.
You’ll have to pay for materials both ways, so it’s irrelevant.
You already answered your own question. Cheap labor and materials overcome transport costs and any tariffs.
Labor costs can be significant. Also, labor laws protecting workers contribute to the cost as well. In the U.S. if workers work more than 38 hrs per week they get certain benefits. One of those is overtime pay that increases their hourly wage. Cheap labor countries dont have those protections.
So a factory with 100 workers in a cheap labor company might cost a total of a few hundred dollars for a 12 hr work day no matter how many days are worked. In the U.S. that labor cost would be in the thousands for a single day (7.25 x 12 x 100 = 8,500) assuming federal minimum wage, no overtime, and no benefits. Add to any of those and the cost dramatically increases fast. Most states dont use the federal minimum wage anymore either. Some are more than double the federal minimum.
Shipping is cheap. Very cheap. Roughly $1-2/lb. American laborers demand $35/hr. Chinese laborers demand like $15, Bengals demand like $3.
Material and wages are the 2 most expensive things of running a business.
So when you need hundreds of people to run the business a place where the wage is $1 an hour is much better than $15 an hour.
On top of that most of the countries that it’s much cheaper have less regulations for things like pollution or safety.
In the us. OSHA and the EPA and minimum wage laws set the floor in which companies can act.
Boat shipping is really really cheap per ton. Checking the charts and its back down to about $2000 to ship a 40 foot container from Shanghai to the Port of LA which can hold about 30 tons of goods. If you can fit 10,000 small widgets in that container then shipping across the ocean only adds $0.20 to the cost of each widget
So then the question becomes does the cost of labor, the factory building, and taxes out weigh the shipping costs?
Its not just labor that’s cheaper outside of North America, its also building and land costs and taxes associated with them. You need to factor in the cost of the labor that goes into the product but also its share of the support staff (technicians, leaders, operations teams, etc) and its share of the cost of the building that you’re making it in and the annual taxes/upkeep associated with that.
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