First it’s important to understand that the “Cost
structures are simply the identification of how costs associated with the
production of a good or service is distributed throughout the process. While
some think of a cost structure as referring only to the finances
utilized in the production process, a true cost structure will also
take into consideration the use of all types of resources along the way. This
can include costs such as labor and utilities, as well as back end costs like
sales and marketing expenses[1]”.
COST STRUCTURE IN CHINA
The cost structure made in china is not different by
the rest of the world but the main differences are in the numbers. While the
rest of the countries which have establish labor regulation in the International
Labor Organization (ILO) China haven’t done it yet, as a result many companies
in the country pay low wages to their workers without any social contribution,
turning the labor cost really slow comparing to other country.
In the study “The
Economics of the China Price[2]” show how “the available data on wages and
compensation in China is scant and of poor quality. Many enterprises regularly
underreport data to avoid taxation and payments to social insurance and often
keep two sets of books for “management accounts” and “tax accounts[3].”
This study show how slow is the wages in china that
allows Chinas companies offer a low price product. While in the U.S the average
hourly compensation is USD$23.17 in china the average is USD $0.57. There is no
doubt this low compensation to workers would allow anyone to product any
product at a very low price.
While in any country worldwide the cost structure the
highest values are raw material and labor cost, in China the labor costs are
lower and adding the high amount of raw material subsidies by the government to
local producers makes china unbeatable to compete with prices.
This cost structure enable local producer makes an
incredible amount of products to sell it in the international market, causing with
this a huge impact in the global economy. It’s also important to say that
exporters in china are highly benefit by the control made to the currency
exchange by the government, this control made to the national currency also
makes the products offers by the exporters stay at low prices.
COST STRUCTURE IN COLOMBIA
In Colombia the components that highly affect the cost
structure are the labor cost, and transportation.
The high cost of the labor force affect directly the
price of the products that Colombia export and sell inside the country. It’s
important to know that in this country wages are low in comparison to the other
Latin American countries but the cost of the social contributions makes the
labor price goes up and reduce the competitive of the country.
In the other hand the lack of a modern road structure,
the transportation component makes the products go high and adding that in
Colombia they have the 4th highest price per gallon in the continent the scene
is not the best. Another factor that affects directly the cost
structure is the low access and high interest paid by the enterprises to get a loan,
making the most important productive factor the capital, be more expensive therefore causing an
increase in the productive chain.
In Colombia the products made by the exporters may be
a little bit more expensive than in other countries but the quality of the
product, clearly talks by itself making people prefer quality rather than
price.
Also it’s important to recognize that the high tariff
applied for some raw material increase the price of some products inside the
country and the lack of subsidies from the government is really low.
ANALYSIS
Meanwhile the excess of available labor force in China
continues, the labor component in the cost structure will be low in comparison
to other countries. Also with the high
amount of products they easily reach economies of scale making then be non
reachable for competition in the world
In the other side, there is Colombia, a country which
doesn’t have the same level of labor force but with a huge potential to produce
raw materials which help reducing the final price of the products.
In Colombia the cost structure of product is really
affected by the lack of a modern infrastructure that helps the country move the
merchandise faster from the producers to
the ports which makes the product be more expensive and lose competitiveness in
from of other countries products.
In contrast China counts with bigger roads and
multimodal transportation methods that helps the producers move the merchandise
easily in the country and outside it , this facility makes the product even
more competitive.
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