Thursday, July 19, 2012

Profits

‎"Profits may be the most misconceived subject in economics...To many people, even today, high profits are often attributed to high prices charged by those motivated by 'greed.' In reality, most of the great fortunes in American history have resulted from someone's figuring out how to reduce costs, so as to be able to charge lower prices and gain a mass market for the product." - Thomas Sowell, Basic Economics
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2 comments:

Jim Pemberton said...

I work as a production controller for a US furniture manufacturer in a niche market. So many of our competitors have closed shop in the US and moved overseas. We made the commitment to stay in the US and make it work. We cut costs creatively and improved our quality and response time to our customers. We also broke into foreign markets and our exports are increasing dramatically. Recently, our largest competitor shut their doors because they couldn't compete although they moved production outside the US. They regularly underbid us to try and take business back, but we have managed to keep our prices competitive and far outstrip them on quality. Also, we have won the business of their top independent sales groups. It can be done with such age-old qualities as commitment and hard work.

12:00 PM
RD said...

Before 1974, the year of the first oil shock, it was generally easy to be a domestic firm in the USA. Foreign competition was minimal. Before container shipping, it was uneconomic to ship large quantities of finished goods (as opposed to raw materials) to the USA. While USA quality controls left a good deal to be desired, it was ahead of what foreign firms could do, with the exception of Germany and Sweden.

The problem in recent decades is that many foreign firms employ manufacturing technology that is as good or better as that of the USA. Foreign firms can enjoy massive economies of scale. Other OECD nations can be as sophisticated about quality control as we are. Foreign business schools teach the same texts as USA business schools. Foreign labour can be of high quality, and outside of Japan and the EU, cheaper. Most of all, container shipping has made it economic to ship millions of tons per year of finished goods to the USA.

American firms have to raise their game to stay in business. That takes "commitment and hard work."

5:30 AM

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