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September 29, 2005

China Factor

So my friend lost a half a million dollar worth  deal to some Chinese textile supplier.  Naturally he  is not happy about it and thats not because he has anything against Chinese.  In fact he is all mad against the buyer - supposedly some upscale French department store.  Point is where do you draw the line on the low cost graph.  You can always find someone willing to cut prices in half to build their reference account !

Low cost argument works only so far as the margins can be protected. Margins need volume. So the theory goes.  In a commodity market invariably volume players dominate.  In the software sector India can maintain it's low cost position because of good supply of developers and same applies for Chinese manufacturing strength.  More hands,  more volume and hence more resilience in the discounting game.

So what do you suggest to a friend who is not THAT big yet.  He is a successful small business player and now feeling the low cost pinch.  Only way out is to innovate and get out of the low cost game. Easier said than done in the slow moving garment manufacturing sector.  At least software still allows garage level tinkering !

While listening to his stories I couldn't stop comparing it with whats happening in the software sector.  Where every now and then some new consulting company shows up and is willing to deeply discount the deal.

September 29, 2005 in Dismal science | Permalink

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