If you look at purchasing from a purely economic standpoint, and know anything about “gains of trade”, you’d think if the Chinese can produce aluminum extrusions cheaper than North Americans, than they will win the market.  Red flags and worrysome feelings of American slipping away aside, in a “free market” that’s what you’re supposed to do.

But when it comes to Aluminum Extrusions the Chinese will never be competitive.  Why?  Two reasons:  Eight weeks & Low labor to material costs.

Eight Weeks: That’s how long it takes to ship something from China.  Not to mention, if you’re ordering in enough quantities large enough for you to start looking at outsourcing you’re talking about tonnage, which will result in significant freight costs.   So, if you’re ordering Chinese extrusions, be prepared to weight four months to get your parts and good luck with any re-work.

Low Labor to Material Costs: What this means is that your labor to material costs of your total order and related COGS is low.  The Chinese offer competitive labor prices ($1-2/hr) which has grabbed the world’s attention and many labor intensive manufacturing segments have flourished in China (furniture, injection molding, etc).  But with aluminum extrusions labor goes into the die, post-processing and handling.  That’s it.  It’s not enough of a gain to offset the shipping costs.  Unless…

How they Cheat the Market

If you want to gain a foothold in the ALX market and don’t have any competitive advantage what do you do?  You get the Chinese government to subsidize the cost of aluminum!  Boom, instant competitive advantage.   Accept the largest cost of aluminum is electricity which costs the same just about everywhere (14% of the power produced in the US goes to aluminum production).  So the Chinese, post subsidy have no real competitive advantage.  Right now what they have is someone’s brother-in-law in the government doing a favor for an extruder of aluminum pipes.   North American operations are up in arms.  Which they should be (see previous post about Chinese anti-competitive behavior).  If the brother-in-law had taken economics and knew anything about aluminum production and aluminum extrusion, he might think twice about trying to manipulate the market.   哎呀！