Possible production problems for Far East manufactured models?

[rembrow]

Replying to Andy Hayter, again unlikely, as the Austrains newsletter describes disruption to production of their models by the Sanda Kan factory strike and sit in protest, with production facilities from that factory now transferred to another factory, which we have been advised in other threads is one of Kader's facilities. Maybe people should read the Austrains newsletter in full as it makes fascinating reading and gives more detail from a supplier, than we've been given in the UK from Bachmann or Hornby, concerning the issues at the Sanda Kan factory

[byron]

Not always the case that European family run manufacturing businesses are totally successful. The PSA group, owned by the Peugeot family, has just had to recapitalise through selling part of the shares to  a Chinese partner and to the French government, so losing overall ownership/control. Renault were also a family business but that ended in 1945.

 

Most businesses, especially those with a long history were started by individuals and many ran as "family" owned/managed for many years.The post WW2 period caused many changes, which altered things as companies grew, amalgamated and took over other, smaller or less succesful operations.

 

The German model has been more successful than the French or Italian, while the UK got left almost completely behind. There are many reasons for this but as we don't discuss politics on RMweb, we can't really talk about why that happened..

Nothing to do with po-lie-tics really. Just greed.

 

Mike

[Pugsley]

Of course the other factor may be that we have this absolutely crazy economy based on the price of houses, reducing the amount of money that could be invested in manufacturing, but that's another story!

Why take the risk on doing something productive, while you can sit in your magic money box and get richer doing nothing

[ian]

The Austrains Newsletter quotes that the Chinese government wage rise will see wages rise by 100% over five years, with the end result being a wage of $6 per hour. The Bachmann Branchline press conference quoted the wages as rising from £3 to £6 during the 5 year government led wage increase programme.

 

Regardless of which currency is correct (the discrepancy is probably due to someone, somewhere miskeying or misunderstanding and the error not getting picked up before going public) the practical upshot is that the labour costs will double over the period.

[dibber25]

Is it not possible that the 2 companies are using different production facilities with different wage rates?  Both statements could therefore be correct.

I don't recall any mention of currency at the Bachmann press conference. What was actually said was that wages are to go up by 100% over the next 5 years. That's double - it doesn't matter what currency it is in.

CHRIS LEIGH

[rembrow]

I suggest you read Andy Ys brief at the beginning of the 'Why are price increases necessary' quote' From tomorrow through to 1st May 2019 there are wage increases dictated by government which will come into effect roughly at an increase of 20% per annum for those five years meaning that wages will effectively double from around £3/hr to £6/hr ---'

There is a danger in being fooled by percentages, rather than in using the base monetary values, as 100% of £3 is much greater than the dollar to sterling version at 100% of £1.78. So while in both calculations the labour cost element has doubled, in actual money one is £3 while the other is £1.78, just over half. The danger with using percentages to evaluate increased costs is where you then apply that percentage to your sales to recover that increased cost. That goes wrong where your increased costs are only a proportion of your overall costs, therefore to recover that, you do not need the same percentage increase applied to sales. That's a broad analogy, but my point is that the increase in real terms is not that great in the first year, if we avoid falling into the trap of using big percentages. Therefore if the wage costs are equivalent to £1.78, a 20% rise in the first year is only about 37p per hour,  which would mean that 3 hours of labour will only add £1 to the cost of production. I'm drawn to the opinion that a higher proportion of the increased costs are connected with the need to increase profitability due to lower than expected sales and the costs of inheriting the Sanda Kan debt

[The Stationmaster]

I suggest you read Andy Ys brief at the beginning of the 'Why are price increases necessary' quote' From tomorrow through to 1st May 2019 there are wage increases dictated by government which will come into effect roughly at an increase of 20% per annum for those five years meaning that wages will effectively double from around £3/hr to £6/hr ---'

There is a danger in being fooled by percentages, rather than in using the base monetary values, as 100% of £3 is much greater than the dollar to sterling version at 100% of £1.78. So while in both calculations the labour cost element has doubled, in actual money one is £3 while the other is £1.78, just over half. The danger with using percentages to evaluate increased costs is where you then apply that percentage to your sales to recover that increased cost. That goes wrong where your increased costs are only a proportion of your overall costs, therefore to recover that, you do not need the same percentage increase applied to sales. That's a broad analogy, but my point is that the increase in real terms is not that great in the first year, if we avoid falling into the trap of using big percentages. Therefore if the wage costs are equivalent to £1.78, a 20% rise in the first year is only about 37p per hour,  which would mean that 3 hours of labour will only add £1 to the cost of production. I'm drawn to the opinion that a higher proportion of the increased costs are connected with the need to increase profitability due to lower than expected sales and the costs of inheriting the Sanda Kan debt

What Sanda Kan debt?  According to Kader's accounts and commentary they did not take on much in the way of Sanda Kan debt as the banks wrote off most of it.  But they did find themselves taking on debt, to an extent, following the takeover of another company and they paid a large sum to buy out Williams in the USA. 

[Horsetan]

Agree 100% Godfrey. Good example is family firm BMW, doing rather well, whereas Austin, Morris, etc etc.  I once knew someone who ran a small company making up-market garden furniture. He just shut the factory down and got the products made in, I think, Malaysia. Tough on his employees but his profits went up. Probably less spending on health and safety in a far eastern factory....  but that became the trend for many businesses here (model railways being no exception).  However, there are people using their skills to produce furniture, craft items etc. by themselves on a small scale and selling via craft fairs, studio outlets and so on so perhaps all is not yet lost.

Dyson also transferred over its production to Malaysia quite a few years ago, with R&D remaining in Britain.

[Ozexpatriate]

The UK market will need a local “Rapido” type company with “smarts”,  flexibility and the ability to see opportunity in change.

I don’t see one right now.

How about Rapido Trains?

[Horsetan]

I thought Rapido was a Eurotrash-type show hosted by Antoine de Caunes?

[Ozexpatriate]

I wouldn't get hung up on whether reported wages will be precisely US$6 or £6. The salient point that is consistent in both accounts, is that wages are doubling. Naturally this will have a direct affect on prices, though as Rembrow says, not necessarily in direct proportion. Nevertheless prices will rise.

EDIT: Chris said essentially what I wanted to say already:

What was actually said was that wages are to go up by 100% over the next 5 years. That's double - it doesn't matter what currency it is in.

 
US$6 is a slightly exaggerated comparison for minimum wage here, but not by much. Federal minimum wage is $7.25 per hour for non-tipped employees but it varies state by state. Some states are lower than this, but only a handful where it can be as low as $5.15 in Wyoming.  Here in Oregon the minimum wage is $9.10 per hour.
 
There's a wikipedia page if anyone is interested.

[tomparryharry]

If the 'rumours' are to be believed then we are in deep doo doos as far as our hobby is concerned. I know it has been said many times before but one day someone will wake and bring back production of British outline to our shores before it is lost. I would rather have fewer models at higher prices than none at all.

 

No deep doo-doo's here.

 

Just a back log of around eighty-odd locomotive & wagon kits to wade through...

 

Ian

[Ozexpatriate]

The counterpoint to all of this is that the flow of models to the US market has resumed.

 

In the last couple of months a number of back-ordered items arrived, including some just this week. Perhaps they were made before the Lunar New Year, but I saw this as a sign of returning health in Chinese model manufacturing.

 

Clearly Kader is having problems, exacerbated by the industrial action at the former Sanda Kan factory in Wanjiang, Dongguan. My guess from the Austrains report is that their supplier is also Kader Manufacturing Services. The "50 day strike" has to refer to the same one as the OP.

[The Stationmaster]

On a point of mathematical exactitude if Chinese wages are raised by 20% per annum over 5 years they will have increased by more than 100% at the fifth year (actually by a total of a fraction in excess of 107%)

[Dunsignalling]

Not always the case that European family run manufacturing businesses are totally successful. The PSA group, owned by the Peugeot family, has just had to recapitalise through selling part of the shares to  a Chinese partner and to the French government, so losing overall ownership/control. Renault were also a family business but that ended in 1945.

 

Most businesses, especially those with a long history were started by individuals and many ran as "family" owned/managed for many years.The post WW2 period caused many changes, which altered things as companies grew, amalgamated and took over other, smaller or less succesful operations.

 

The German model has been more successful than the French or Italian, while the UK got left almost completely behind. There are many reasons for this but as we don't discuss politics on RMweb, we can't really talk about why that happened..

The German business model is not the only force at work here.

 

Most German exports are of up-market products that are only affordable in most other countries because Germany's membership of the Eurozone keeps their prices artificially low. They are, in effect, subsidised by the poorer members of the Eurozone, which ensure the Euro is worth less than any independent currency based purely upon German economic performance would be.

 

If Germany still had the DMark, her products would much more expensive abroad. There is no way (for instance) that sales of 1- and 3-series BMWs could have overtaken Fords in the UK company car market. It is, therefore, not unreasonable for Germany to pay the lion's share of the so-called bail-outs to Greece etc., whose lamentable economies perversely help the German economy to thrive.

 

All this probably does balance out after a fashion but the adoption of a "one-size-fits-all" currency by so many disparate economies was only achieved through some monumental cooking of the books and will not achieve real stability until the individual economies involved become as convergent as they pretended to be at the outset.  

 

John   

[Andy Hayter]

Replying to Andy Hayter, again unlikely, as the Austrains newsletter describes disruption to production of their models by the Sanda Kan factory strike and sit in protest, with production facilities from that factory now transferred to another factory, which we have been advised in other threads is one of Kader's facilities. Maybe people should read the Austrains newsletter in full as it makes fascinating reading and gives more detail from a supplier, than we've been given in the UK from Bachmann or Hornby, concerning the issues at the Sanda Kan factory

So what you are saying is that Kader, having taken over Sanda Kan, moved the Bachmann UK production from its own factories to the Sanda Kan factory.  So that both Austrains and Bachmann were then being produced in the same facilities.

 

I have no way of knowing, but it does sound unlikely against a background where for several years Sanda Kan have suffered with its staff being poached by local high tech firms, and where the costs of simply transferring would not be insignificant.

[The Stationmaster]

So what you are saying is that Kader, having taken over Sanda Kan, moved the Bachmann UK production from its own factories to the Sanda Kan factory.  So that both Austrains and Bachmann were then being produced in the same facilities.

 

I have no way of knowing, but it does sound unlikely against a background where for several years Sanda Kan have suffered with its staff being poached by local high tech firms, and where the costs of simply transferring would not be insignificant.

It does indeed seem to have been the case that Kader moved some production from its own factories to a former Sanda Kan factory.  But equally don't overlook the fact that Sanda Kan would seem to have had more than one factory and Kader definitely did have more than one (before taking over Sanda Kan).  Last year Kader closed the former Sana Kan factory which was making  model railways for a number of businesses and according to them they did this as a result of a very steep increase in local taxation although as they are losing money on their model railway business they might well have also decided that concentrating production at fewer (or a single?) site would result in cost savings or higher efficiency.

 

What appears to have happened is that the factory closure prompted the worker occupation and blockade etc which has been mentioned in this thread but that is a presumption on my part.  We have heard numerous reports about workers being poached from Kader by electronics companies and that might also have been a reason (unmentioned by anyone?) for the closure of the former Sanda Kan factory although if other employers were offering better wages to poach Kader workers why would they occupy a factory to prevent its closure?

 

We thus have something of a conflict in the various reports we are getting although some things are very clear  - firstly Kader have closed a former Sanda Kan factory and have stated taht relocating production from it would disrupt supplies, secondly there has been some sort of worker sit-in which we are presuming is the same factory, thirdly Kader have lost workers to other employers.  These things might or might not be connected and we know with absolute certainty is that deliveries of new releases and restocking of British outline models has gone through a period of upheaval and shortage.

[railroadbill]

Dyson also transferred over its production to Malaysia quite a few years ago, with R&D remaining in Britain.

Caused something of an outcry at the time, if I remember correctly.  But it was the trend in the UK.  However, my wife has just bought some baby stuff for our daughter in view of the imminent arrival of new grand daugher,  a cot,  and a thing for changing babies on, etc.  This came flat packed.  While spending much valuable modelling time on assembling it, sorry, I mean while assembling it, I noticed that it was made in Italy with the fittings made in Germany. So there's a bit more European manufacture going on.

 

Nice pieces of kit, but could have bought 3.2 Bachmann DMUs instead - good grief! [N.B. joke]

[robmcg]

....

 

We thus have something of a conflict in the various reports we are getting although some things are very clear  - firstly Kader have closed a former Sanda Kan factory and have stated taht relocating production from it would disrupt supplies, secondly there has been some sort of worker sit-in which we are presuming is the same factory, thirdly Kader have lost workers to other employers.  These things might or might not be connected and we know with absolute certainty is that deliveries of new releases and restocking of British outline models has gone through a period of upheaval and shortage.

 

Wouldn't it be nice to have completely open press in mainland China, writing in English of course!    

 

In the 80s it was clear that NZs economic future would be largely tied to Asia and I learned Japanese for a few years. Perhaps I should have learned Mandarin.  That said, our media and national consciousness is still very US/Euro-cenrtric, and I am undeniably anglophilic... far too much Dickens and Thomas Hardy!

 

But thanks for raising the point about us not really knowing the subtleties of Chinese manufacturing plants, economically and politically.

[byron]

The German business model is not the only force at work here.

 

Most German exports are of up-market products that are only affordable in most other countries because Germany's membership of the Eurozone keeps their prices artificially low. They are, in effect, subsidised by the poorer members of the Eurozone, which ensure the Euro is worth less than any independent currency based purely upon German economic performance would be.

 

If Germany still had the DMark, her products would much more expensive abroad. There is no way (for instance) that sales of 1- and 3-series BMWs could have overtaken Fords in the UK company car market. It is, therefore, not unreasonable for Germany to pay the lion's share of the so-called bail-outs to Greece etc., whose lamentable economies perversely help the German economy to thrive.

 

All this probably does balance out after a fashion but the adoption of a "one-size-fits-all" currency by so many disparate economies was only achieved through some monumental cooking of the books and will not achieve real stability until the individual economies involved become as convergent as they pretended to be at the outset.  

 

John   

Do not let facts get in the way of a good moan. Germany has been Europes most succesful exporter since the early 1960's - with the DM as currency. Remember all those VW's beetling along our roads? Did they not manage to sell us a few (sic) diesel motors and transmissions for our broad gauge chums - again with the DM? Could we not buy German model railways in the UK in (at least I did) in the late 1960's.

I am still trying to recall the UK sales of similar products to Germany.

My first vist to Germany was in 1966 and was shocked at the better standard of living there was. All export financed said my Father in Law.

 

Mike

[Mike Storey]

Actually, one of the most worrying things in Europe at the moment is that Germany is faltering a bit. They have moved much of their component manufacture abroad, just like most other countries, except in the high value or very heavy engineering sectors, including, for some bits of the car industry, to.....Britain. The German people have rated themselves currently as ones with the least relative spending power in Europe (hard to believe, I know) but it comes down to the cost of living there, including taxation. Most of these "family owned" businesses are in fact tied heavily into the various domestic banks, in a German version of the Japanese patronage system, and most of those banks now have to significantly increase their capitalisation, to meet new EU rules following the banking crisis. That will inevitably increase the cost of money, and therefore investment. Germany also has one of the worst ageing working population problems in the world. Their economic model worked well for a long time, but no longer has the capacity to do what it once did. You can tell things are bad from here - every summer this area used to be flooded with German holidaymakers. For several years now, a D plate has been as rare as a Great Crested Newt.

 

But this does not answer the question of where will model railway manufacture be done in a few years from now. I suspect the answer may lie in technology changes (as is already happening in high value industries, from ever-improving 3D printing), but I have been optimistic about that before, so will leave that to others who know far more about these things.

[Dunsignalling]

Do not let facts get in the way of a good moan. Germany has been Europes most succesful exporter since the early 1960's - with the DM as currency. Remember all those VW's beetling along our roads? Did they not manage to sell us a few (sic) diesel motors and transmissions for our broad gauge chums - again with the DM? Could we not buy German model railways in the UK in (at least I did) in the late 1960's.

I am still trying to recall the UK sales of similar products to Germany.

My first vist to Germany was in 1966 and was shocked at the better standard of living there was. All export financed said my Father in Law.

 

Mike

It wasn't a moan, just a statement of fact. The Euro has undoubtedly helped export sales of premium German marques to grow, as well as allowing VW to increase their profit margin. Whether it is good for the upmarket brands to be seen in such large numbers is another matter; if they get to be seen as "less special" through being produced in Ford/GM numbers (many of them outside Germany, too) it will be harder to justfy the price differential.    

 

You certainly couldn't have called the old VW Beetle upmarket, a less amenable environment to spend a long trip in would be hard to imagine and the sluggish performance combined with high fuel consumption should have helped sales of the old Moggie Minor no end!

 

I had a (also rear engined) Renault 10 back then that beat both hands down on performance, comfort, handling and (especially), brakes which were discs all round, whilst doing 60% better mpg than the VW and 20% better than the Morris!

 

John

[Jol Wilkinson]

You can tell things are bad from here - every summer this area used to be flooded with German holidaymakers. For several years now, a D plate has been as rare as a Great Crested Newt.

 

Unless they are going somewhere else. We were surprised to find many German tourists in New Zealand when we were there in January of this year. A definite change from our experience a couple of years ago.

[JSpencer]

Looking around at what is available, most items in Bachmanns 2013 catalogue are either not out yet or sold out. Normally one would expect a 1/3 rd of the items for each

 

The remaining 1/3 would be items in stock.

 

However it is now more like 2/5ths sold out, 2/5ths not out and 1/5th in stock and available.

 

Heljan seem to be the only ones currently delivering at the moment.

 

On the other side of the coin, with so much good stuff coming out over the years, are we reaching saturation point? Sure there are many odd items I would love to see in RTR but many are personal to me however. I think I have 90% of what I am after.

[PhilJ W]

Is China concentrating now on building up its domestic market? Since the 2008 crash they must have experienced a drop off of sales to Europe and the USA that it is still only partially recovered from. Doubling salaries is one way of using up spare manufacturing capacity and increasing the domestic market which can be less volatile than the international one.