360 Economics
Video game blog Kotaku has a post up called "Xbox 360 economics". Unfortunately, it contains very little actual economics.
This also overlooks the rather important fact that a next-gen console is being launched in China at all. Pirated versions of Xbox games can be bought on the streets for about 1/50 their price in the U.S. A lot of Chinese justify piracy by telling me, "Oh, we're poor, we can't afford to pay high prices for the real thing." Most of the time this is bullshit.
China's emerging middle class has large TVs, DVD players, surround-sound stereos, computers and iPods. If a Chinese person can afford the $400 to buy the Xbox 360 hardware, they can afford to pay real money for legitimate software. Microsoft must have a good reason to think that they can beat not only the piracy problem but also the "Oh, we're so poor" mentality that is so prevalent here, in spite of growing evidence to the contrary.
But to think that Microsoft is launching the Xbox first in the United States because all Microsoft's profits eventually go back to the States gets it exactly wrong. The United States gets the 360 first because that's where most of Microsoft's profits come from. Looking at Microsoft's earnings report for the fourth quarter of its 2003 fiscal year, apparently the last report in which they broke out regional revenue figures, we can see that sales were $3 billion in the Americas and $1.7 billion in Europe, the Middle East and Africa. Asia, including Japan, was just $835 million, and I would hazard a guess and say that revenue from China was way less than $100 million.
I'd also love to see where he figures that Flextronics is underpaying its workers in China. If that's the case, I wonder why the workers even stay there. After all, "underpaying" measures someone's salary against what their industry peers make. Given that China's economy has grown at more than 9 percent for the past two years, it's hard to imagine that a) these workers wouldn't realize a raw deal when they saw it and b) wouldn't be able to find work elsewhere for better wages.
The fact of the matter is that, if anything, Western companies tend to overpay local staff in China. For every sweatshop that is found (sweatshops that are usually run by contract factories run by Taiwanese, Hong Kong or South Korean managers), there are a score of clean, well-run, well-paying factories.
Oh, and since Microsoft hasn't announced pricing for China, how does the author figure that Chinese are being "over charged"? That's some amazing accounting skillz, there.
One final point: This author may feel obligated to wait for the 360 out of some twisted sense of gamer solidarity with his oppressed Chinese brothers, but not me.
I have supported the original Xbox since Day 1. I bought a $50 heavy duty voltage converter so I could play the thing in China. When my original machine fell victim to Beijing's thick dust, I bought a second one. I have about 40 games, all of which I bought legitimately because I believe in the right of the developers to profit from their products, and because in terms of hour of entertainment per dollar spent, games are still fantastic deal, even at $50 a pop.
I am the sweet spot of the 360 demographic. I will either pre-order or line up at midnight to get my 360 in November.
You can send your 360 to China, but I've earned mine.
Thank you China for slave-labor wages.Ah, we're off to a great start. Last time I checked, actual slaves don't have wages. Whatever you think of China, its people are not actually slaves.
Workers in Southern China are making dollars a day to assemble 360's right as we speak. However, they won't be able to take out loans to buy the machines until 2006. As previously reported, America will get the console first, then Japan and finally China.Yes, labor in China is cheap. Guess why? No, it's not because Flextronics is using political prisoners to snap together the 360. It's because China's workforce consists of about 800 million people. Instead of making dollars a day working in a clean, modern factory, many of them would be earning pennies a day on the family farm.
This also overlooks the rather important fact that a next-gen console is being launched in China at all. Pirated versions of Xbox games can be bought on the streets for about 1/50 their price in the U.S. A lot of Chinese justify piracy by telling me, "Oh, we're poor, we can't afford to pay high prices for the real thing." Most of the time this is bullshit.
China's emerging middle class has large TVs, DVD players, surround-sound stereos, computers and iPods. If a Chinese person can afford the $400 to buy the Xbox 360 hardware, they can afford to pay real money for legitimate software. Microsoft must have a good reason to think that they can beat not only the piracy problem but also the "Oh, we're so poor" mentality that is so prevalent here, in spite of growing evidence to the contrary.
Rather, America (the biggest economic superpower and where all the profits go) gets the console first. Japan (the second biggest economic superpower on the globe) gets it next. Finally, China (the country that makes the darn thing and has a potentially huge market) gets it last.Wow, Kotaku has a real scoop here! Imagine that: When Microsoft, a company headquartered in the United States, sells an Xbox game, the profit from that game ends up in coffers back in the U.S.! Oh, but there's the little matter that Microsoft has lost $4 billion on the current Xbox. So much for profits.
But to think that Microsoft is launching the Xbox first in the United States because all Microsoft's profits eventually go back to the States gets it exactly wrong. The United States gets the 360 first because that's where most of Microsoft's profits come from. Looking at Microsoft's earnings report for the fourth quarter of its 2003 fiscal year, apparently the last report in which they broke out regional revenue figures, we can see that sales were $3 billion in the Americas and $1.7 billion in Europe, the Middle East and Africa. Asia, including Japan, was just $835 million, and I would hazard a guess and say that revenue from China was way less than $100 million.
Microsoft isn't alone in shipping jobs to China in order to save costs. With all the money they've lost so far on the 'Box, it looks like they need to cut every corner they can. But, if yer gonna underpay and over charge the Chinese, at least give them the honor of being able to buy an Xbox 360 first. We can wait.This guy seems to have forgotten that Microsoft doesn't actually employ anyone who makes the Xbox hardware. That job is handled by Flextronics, a contract manufacturer that has stepped up its presence in China over the past few years, just like every other industrial firm that wants to stay in business.
I'd also love to see where he figures that Flextronics is underpaying its workers in China. If that's the case, I wonder why the workers even stay there. After all, "underpaying" measures someone's salary against what their industry peers make. Given that China's economy has grown at more than 9 percent for the past two years, it's hard to imagine that a) these workers wouldn't realize a raw deal when they saw it and b) wouldn't be able to find work elsewhere for better wages.
The fact of the matter is that, if anything, Western companies tend to overpay local staff in China. For every sweatshop that is found (sweatshops that are usually run by contract factories run by Taiwanese, Hong Kong or South Korean managers), there are a score of clean, well-run, well-paying factories.
Oh, and since Microsoft hasn't announced pricing for China, how does the author figure that Chinese are being "over charged"? That's some amazing accounting skillz, there.
One final point: This author may feel obligated to wait for the 360 out of some twisted sense of gamer solidarity with his oppressed Chinese brothers, but not me.
I have supported the original Xbox since Day 1. I bought a $50 heavy duty voltage converter so I could play the thing in China. When my original machine fell victim to Beijing's thick dust, I bought a second one. I have about 40 games, all of which I bought legitimately because I believe in the right of the developers to profit from their products, and because in terms of hour of entertainment per dollar spent, games are still fantastic deal, even at $50 a pop.
I am the sweet spot of the 360 demographic. I will either pre-order or line up at midnight to get my 360 in November.
You can send your 360 to China, but I've earned mine.
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