Losing jobs overseas The falling price of consumer electronics has buoyed demand for items from…

Losing jobs overseas

The falling price of consumer electronics has buoyed demand
for items from microwave ovens to flat-screen televisions, filling our living
rooms with games consoles and DVD players. But lower price tags and margins
also make it uneconomic to manufacture these goods in high-cost countries such
as Britain. Prices fall as volume production ramps up, enabling big
manufacturers to take advantage of economies of scale. The cost of silicon
chips, for example, has reduced steadily even though the power of such chips
has risen greatly. David Alker, senior industry analyst at
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Losing jobs overseas

The falling price of consumer electronics has buoyed demand
for items from microwave ovens to flat-screen televisions, filling our living
rooms with games consoles and DVD players. But lower price tags and margins
also make it uneconomic to manufacture these goods in high-cost countries such
as Britain. Prices fall as volume production ramps up, enabling big
manufacturers to take advantage of economies of scale. The cost of silicon
chips, for example, has reduced steadily even though the power of such chips
has risen greatly. David Alker, senior industry analyst at SRI Consulting
Business Intelligence, said: ‘The retail cost does not reflect the actual cost
of consumer electronics. A digital camera that sold for £300 a few years ago
retails for £100 now, but the actual cost of production is identical. It’s just
that prices were higher at first in order to recoup the research and
development costs.’ The electronics industry has always relied on a small
proportion of early adopters, the people who must have new gadgets as they
arrive, in order to defray the high initial costs until demand ramps up. At
this point other manufacturers pile in with similar products, bringing down
prices. This pattern is far from unique to the electronics industry: it can be
seen in every piece of new technology, from light bulbs to cars. New technology
also causes disruption for suppliers of the old products. The Samsung plant
which closed in Teesdale in the late 1990s was planning to make fax machines at
a time when few were predicting the rapid rise of e-mail. Saturation in certain
key markets also plays a part in lowering margins, as PC makers and mobile
manufacturers have found to their cost. But the most significant factor
bringing down costs is the entry of manufacturers based in eastern Europe and
China, where labour is much cheaper. Source: Economics for Business and
Management, Griffiths and Wall (FT/Prentice Hall, 2005)

 Questions

 1 Why are electronic businesses in general coming under
increased pressure to reduce costs?

 2 What particular problems are facing electronics
businesses located in Britain?

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