Tuesday, February 16, 2010

The Great Chinese liquidation sale

The Great Chinese liquidation sale:

I take the train to work occasionally. Those that have been to Mumbai realize that the 1 million + a day carrier of people, the Mumbai suburban train network, as stinky and dirty as it maybe, is the lifeline of the city. . Fortunately, my train commute is very convenient. At a convenient time and against traffic, so, the words 'rush hour' don't really apply to my case. I recently took the train and when I got off at my destination station decided to not take the walk over-bridge and instead walk on the street parallel to the train station. This street used to be filled with small mom & pop type stores owned by people who have lived and worked there for ages. Instead I saw a very different sight. It was littered with little makeshift stalls selling tons and tons of crap. It was like entering a large clothes store on a liquidation day sale. One gets so overwhelmed for the first few minutes it takes a closer second look to decipher the objects on sale. And what a close guess that was. Ladies and Gentleman it was the great Chinese liquidation show. I walked towards a stall that displayed a multitude of watches and a few day-to-day use items. There was a box full of nail cutters and I was immediately reminded of the fact that we needed one for our home. So, I went on to enquire how much one cost. To my surprise the nail cutter, made of stainless steel cost Rs. 5.00 (US $0.10). It was so ridiculously cheap that bargaining was out of question although I'm sure if I'd bought two or more I would have scratched some off its already rock bottom price. I started to wonder how they would be able to afford selling something like a nail cutter for so cheap. Hailing from the industry I know steel prices have not dropped. Plus the fabrication costs and the transport/ logistics expense. So, how come the cost per unit was so low. After strolling through this street-side marketplace and picking up a charger for my phone and some other tidbits I retired in my office. I kept the nail cutter on my table and watched it closely. Suddenly, I realised it was made in China. Lo! that was the reason it was so cheap. I decided to investigate further. I asked some people who knew about imports from China (myself being one) and realized that every year China basically just dumps tons and tons of material into India. These are usually surpluses or out-of-style items or unwanted items or rejects. Container lots of these items are shipped from China every day and these containers are purchased by weight by poor countries like India. So, by now I was pretty sure that my nail cutter had made the journey from China to India in the same manner. It was just a weight 50 gms. If you put that into the equation it made sense. Bulk rolled stainless steel would be Rs. 150/ Kg~ 1000 gms. The nail cutter must weigh about 50 gms which implied Rs. 7.5 for the piece. Factor in the liquidation price (under invoiced) and you soon arrive at the figure of Rs. 2-3 per piece which meant that the guy was selling at a 100% margin ! Interestingly enough, every train station in Mumbai has such markets. Unfortunately, the fact that not a single Indian nail cutter manufacturer is alive and kicking today is testimony to the fact that this dumping of goods into the Indian market is going to be harmful to the Indian manufacturing sector. The Indian government took some measures to avoid this from happening. They introduced the anti-dumping duty or penalty. This meant that if any country was liquidating its stock by selling it below manufacturing price then they would be liable to pay a penalty that would make their business model un-viable. Unfortunately, this duty or penalty has not deterred the Chinese manufacturers that are desperate to dispose off their excesses. Apparently, they make so much money off the items sold in the west that this loss or hit is just a small cost of doing business. Any small percentage of the price recovered by liquidation despite the penalties is a bonus. Its quite amazing how China does business. These incidents took a rather serious and dangerous turn when a ship containing Chinese drugs was caught off the eastern coast of India. These drugs were brought into India under coal packaged to conceal them. There was no brand name and they were packed in bulk in bags and drums. I'm wondering how many of these drugs have made it by the system thus far and how many of them have showed up at my chemist as authentic looking counterfeits. Upon further enquiry I also learnt that many shipments from China containing these items are illegally disposed. There is no record of them. The whole transaction is done in cash. The containers (the physical containers) carrying this material are in such bad shape that they're also up for disposal to the buyer. These containers are used as steel or for making steel cabins which are makeshift offices for small companies. Very very interesting things happening around here.

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