Assignment
Low-cost goods rule out Britain 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 mentioned earlier (p. 118) 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 phone 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. Mr Alker points out the human cost of such ‘slave labour'.
Question
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?
3 Can you suggest any implications of this case study for UK government policy towards state aid for incoming electronics (or other) businesses?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.