Why has the price of the 0.5-yuan nail clipper from Yiwu surged 50 times here?

How much does a pair of nail clippers sell for in China, and how much does it cost in the United States?

Last month, I led a team of Chinese entrepreneurs to participate in the "PPE US Station 26 Innovation Hero Journey" organized by the NoteMan PPE (Politics, Economics and Philosophy) Academy.

A Chinese professor of economics at Stanford University, who has a deep understanding of China's economy and US economic models, gave a full-day lecture on the US economy and market. When talking about the differences between the Chinese and US economies and markets, he cited a very small example.

He once took American students to Yiwu and bought a box of 12 nail clippers for about 6 RMB, which is an average of 50 cents per piece.

The exact same pair of nail clippers costs several dollars in the United States.

This contrast is enough to make entrepreneurs stop and think: we are all meeting the demand for nail trimming, why is the price gap so large in different markets? Which links are the profits left in? Can Chinese enterprises get closer to consumers?

Sometimes, it is not that our capabilities are not strong enough, but that we have not made a careful comparison: where can the same capabilities generate different values?

What this lesson made me rethink is not just "how to sell products to the United States", but how Chinese entrepreneurs should lay out their careers.

Today, I will share part of what this professor shared with you, hoping it will inspire you.

I. Market economy does not mean full competition

The biggest impact of this US economics lesson on me is that I re-understood two terms: full competition and insufficient competition.

When talking about the US economy, we tend to think of technology, capital, and consumption power first. But the professor gave us another observation entry: don't just look at whether a country is a market economy, but also look at how full the competition is in the business you are preparing to enter.

What is a market economy?

According to the professor's explanation, several basic elements are: property rights, free transactions, individuals and enterprises pursuing their own interests, and prices determined by supply and demand.

Enterprises hope to make more money, and consumers hope to buy what they want with less money.

If an industry has good profits, new enterprises will enter and want to get a share of the pie. You lower the price a little, I lower it a little more; you add services, I provide more services. Products can be substituted, customers can choose, and enterprises must continuously improve efficiency.

Full competition will benefit consumers, but it will not necessarily leave more profits for enterprises.

Competition will squeeze profits thinner and thinner, and eventually approach zero. What is said here is not that enterprises cannot even cover the costs of wages, raw materials and capital, but that it is difficult to obtain high excess profits for a long time only with products that others can also provide.

For Chinese entrepreneurs, this process is not unfamiliar, and we usually describe it with one word: involution.

In the sense of whether the competition is full, the professor put forward a clear judgment: China is more like a market economy than the United States. Many markets in the United States are concentrated in the hands of a few enterprises, the competition is not full, and enterprises may have greater profit margins instead.

He started with buying groceries.

In the United States, he often goes to Costco, and also goes to Chinese and Asian supermarkets such as 99 Ranch Market and H Mart. According to his observation, compared with thirty years ago, there are fewer small shops on street corners, and large chains occupy an important position in grocery retail.

China is a different scene. In addition to large supermarkets, there are also wet markets, morning markets, community stores and street stalls.

For the same daily purchase, consumers have different places to go.

Online shopping is similar. Most of the Americans around him are used to using Amazon; Chinese consumers can choose between different entrances such as Taobao, JD, Pinduoduo, and Douyin.

The focus of this comparison is not to count who has more platforms, but to see: how many truly alternative choices do customers have? Can new enterprises enter? Are existing enterprises forced to continuously respond to competition?

A market economy is a broad label, but whether the competition is full is a specific problem that every operator has to face every day.

Therefore, why can't we, who are excellent, hardworking and good at solving problems, devote part of our energy to markets where the supply is not so sufficient and customers still have obvious pain points?

II. To understand business, you also need to understand the rules behind it

Why is the competition in some Chinese industries so fierce?

The professor's explanation is: behind the competition between enterprises, there is also competition between local governments. In China, every place hopes its own industry will develop, and no other place wants to lag behind. Talents, investment attraction, supply chains, and infrastructure may all enter this competition.

Local governments hope that local enterprises will develop, because enterprises will bring jobs, tax revenues and industrial opportunities.

One place is attracting investment, another place is also attracting investment; one place develops the automobile industry, another place also hopes to attract relevant enterprises and talents. Everyone not only wants to do a good job in their own market, but also hopes that local enterprises can enter the markets of other places.

In words that entrepreneurs can easily understand, different regions are a bit like competing business units in a large company: they have their own tasks, and they also have their own motivation to fight for resources and achieve results.

This mechanism not only affects local governments, but also affects the enterprises in it. New competitors keep emerging, and existing enterprises can hardly stop.

This made me understand another seemingly contradictory phenomenon: Chinese enterprises work very hard in doing business, but they have developed strong capabilities in this hard process.

The professor took his students to visit Luckin Coffee's factory in Kunshan. The company told him that it must continuously launch new products to respond to consumers' demand for new flavors.

In his comparison, American consumers are more used to familiar flavors, while Chinese consumers are more willing to try new things. Enterprises cannot just make one product well, but also continuously understand demand, adjust products, and organize production.

Compression has compressed profits, but also trained capabilities. The question is: can we only continue to use these capabilities in the same crowded market?

III. What is the hardest part of Chinese manufacturing to replicate?

When talking about Chinese manufacturing, the professor did not only talk about labor costs, but told a story about a carton.

He visited a diamond factory. When trade frictions were fierce, the founder of this company went to Laos, Vietnam, Cambodia, Thailand and other places to investigate, wanting to see if production could be transferred there, but finally decided to stay in China.

One of the reasons is very small but critical: in some places, you can't even find suitable packaging cartons, and you have to ship them from China.

For example, in China, a company needs 5000 nails, and the manager can find them after riding a bike around the neighborhood.

A carton and a batch of nails look insignificant. But what customers buy is not an isolated part, but a complete product that can be delivered on time with stable quality.

If one part is missing, the whole batch of goods may be delayed; if the packaging is not suitable, transportation losses may increase; if the design is adjusted, whether the supplier can cooperate in time will affect the time to market.

Therefore, when comparing production costs, we cannot only compare the wages of the two places, but also compare whether accessories can be found, whether suppliers can cooperate, and whether problems can be solved quickly.

The advantage of Chinese manufacturing is that many enterprises have long been close to customers, divided work and cooperated, and finally formed industrial clusters.

This cannot be rebuilt just by copying a supplier list.

The professor believes that the reasons for China's rapid economic growth are: roads enable the flow of people and goods, and education enables more people to have the ability to enter modern industries.

What manufacturing needs is not just a few star scientists, but a large number of people who can handle engineering problems, organize production, and make products. To move manufacturing to another country, in addition to factories and equipment, there must also be corresponding talents and industrial supporting facilities.

Therefore, the most valuable thing to take out of China is not just cheap products, but the complete set of capabilities formed around products: understand demand, find supporting resources, organize production, adjust quickly, and finally deliver the goods to customers.

IV. China-US complementarity should not only stay at "China produces, the US consumes"

After listening to these cases, my understanding of the economic complementarity between China and the United States has become more specific.

In the past, complementarity was easily understood as: China has manufacturing capacity, the United States has consumption capacity, China produces, and the United States buys.

But for an enterprise, this is not enough.

The real question to answer is: what are Chinese teams good at? What kind of customers in the United States need it? Who will complete the missing part in the middle?

Chinese enterprises can provide manufacturing, engineering and supply chain organization capabilities; teams familiar with the local US market can help understand customers, connect channels, handle delivery and follow-up services.

Only when the capabilities of both sides are connected can we form a complete business.

The professor also distinguished China's long-term production capacity from short-term economic pressure. We cannot deny the capabilities accumulated in China over the long term just because the domestic market is under pressure at the moment. One possibility of going global is precisely to connect these capabilities with the demand of other markets.

At the same time, starting from economic interests, China and the United States open their markets to each other, so that enterprises on both sides can do business and obtain benefits. Only when the other party's enterprises can benefit from cooperation, will a force supporting cooperation be formed.

This is the professor's expectation for China-US cooperation, but how far it can go will also be restricted by political and security issues.

For entrepreneurs, this means two things need to be clarified at the same time: on the one hand, see the complementarity between each other's capabilities and demands; on the other hand, understand the rules and entry conditions of specific industries.

Just finding that the other party sells expensively does not mean that you can definitely enter the market. What we are looking for are opportunities that we can enter, improve supply, and complete delivery.

V. What kind of business spaces can Chinese entrepreneurs study carefully?

Following the professor's cases, I suggest prioritizing the study of three types of spaces.

1. Supply gaps in ordinary commodities

Daily necessities such as nail clippers, as well as home products, tool accessories and other segmented categories, can all start from a specific problem: where are the existing local products expensive, where are they not easy to use, and where can't you find suitable products?

The value of China's supply chain is not necessarily only to reduce prices, but also to provide more specifications, more suitable combinations, or respond to small-batch demands faster.

However, in addition to the ex-factory price, there are transportation, taxes and fees, warehousing, channels, customer acquisition, return and exchange, inventory and capital occupation. Most of the money consumers finally pay does not necessarily stay in the hands of manufacturing enterprises.

Therefore, we can't just ask "how much does it sell for in the United States", but also ask "who took the money". If all the saved manufacturing costs are turned into platform fees and advertising fees, the factory may be busier, but the enterprise may not necessarily be stronger.

First find a small group of real customers, verify whether they are willing to buy and whether after-sales service is controllable, and then decide whether to expand investment. Don't ship a whole warehouse of goods first and then look for the "US market".

2. Turn engineering and manufacturing capabilities into more complete delivery

The professor mentioned that several former friends who worked in the automobile industry came to the United States and noticed the demand for single-family houses in backyards.

If this kind of house is built locally, it may cost 1 million US dollars, and these friends envisage producing it in China, then shipping it to the United States and selling it for about 300,000 US dollars, which still has profit margins.

They did not originally make houses, but tried to transform their original equipment and apply their production experience to another product.

The most worthy reference of this case is the idea of capability transfer: can what we originally know how to do solve the high-cost problem in another market?

Of course, a house is not a large express package. In addition to manufacturing, there are local approval, site conditions, installation and continuous services.

For different enterprises, the opportunities are not necessarily "selling whole houses", but may also be components, materials, equipment or supporting systems. Only by doing well what you are good at and then cooperating with partners with local delivery capabilities can you reduce the total cost.

3. Keep the team and capabilities in China, and place the customer market overseas.

The professor also mentioned that some businesses have difficulty competing in the domestic market, but can find space when switched to overseas markets. In addition to commodities, this idea can also be extended to services, and AI services provided by Chinese teams for overseas customers.

The key here is not simply to replace the Chinese interface with English, but to see what problems local customers actually have, and whether our existing technology and organizational capabilities can provide a more appropriate answer.

These three types of opportunities look different, but in fact they are all asking the same thing: where can the same capabilities create value that customers are willing to pay for, and still hold up after deducting all costs?