CE Prices Are Going Up, As Costs In China Rise

Author:
Publish date:

Consumer electronics prices across the board will be going up this year.

(Let me repeat that in italics, so you can re-read it with emphasis.)

Consumer electronics prices across the board will be going up this year.

That’s the word from well-placed sources in the industry who have told me this, but wish to remain anonymous for fear of being the bearer of bad news. (As we all know in consumer electronics, the only time prices go up is when a new technology or format is introduced, or when manufacturers introduce next-generation products with added features)

What’s the reason this time? China.

What’s wrong with China? A “perfect storm” of higher costs that will drive up the price of CE manufacturing there. Here are some of the factors I’ve heard:

  • The exchange rate between the U.S. dollar and the Chinese yuan has gone down since the beginning of the year;
  • Labor costs have increased 15 percent due to new labor laws in China;
  • Raw-material costs, from plastic to electricity to copper and others, are all up. Unlike previously when “one or two components would increase in price,” costs are increasing for all components;
  • The economic downturn has hurt volume;
  • Many Chinese factories lost money last year, and some factories have closed down, causing production delays;
  • There are labor shortages in China, believe it or not, because factories are moving “further and further away from the southern part of the country where many of those factories used to be located;
  • And, of course, higher oil prices have increased shipment costs to the United States.

One industry veteran who has dealt with Chinese manufacturers for years commented, “Since the Chinese new year we have had a literal waterfall of cost increases. There is almost not a single product that we can buy at close to what we paid previously. The increases range from 5 to 15 percent.” This exec said it could get worse if the exchange rate problems deepen.

All of this has resulted in longer lead times. One U.S. marketer noted, “The norm for 60 days on re-ordering ready products has gone to 90 to 120 days. Brand-new products are, of course, another 60 to 90 days on top” of that.

Retailers have begun to get the word from their suppliers and some are said to be “still pretty much in a state of denial, but some of them gratefully acknowledge that they know what is going on and are hearing it from others.”

One manufacturer noted, “The bottom line is that before long we will most likely witness a first in our electronics careers — the actual raising of retail prices! The costs which have to be absorbed are too great not to be spread among all those involved in getting products to market.”

When I asked one top U.S. manufacturing executive if there was an alternative to China in the short term, he noted, “Some have mentioned Vietnam, but we are talking about consumer electronics. China has the infrastructure. There really isn’t an alternative,” at least in the foreseeable future.

Please share your thoughts on this unique industry problem by commenting here or contacting me at ssmith@reedbusiness.com.

Featured

Related Articles