Why so cheap?

If white-label Chinese PC makers can sell laptops for hundreds of pounds cheaper than bigger-name brands, are their costs really that much lower, or are the main manufacturers and retailers simply piling on gratuitous margins?

According to analysts and PC builders, it’s a bit of both. “Original manufacturers often have a premium price and that’s why the grey market comes up,” said Professor Rajkumar Roy from Cardiff University. “OEMs are often inflating the price and it’s higher, much higher, than you pay in the grey market, because you pay for the brand.”

Some companies can command higher margins than others, with Apple’s brand loyalty and desirability allowing it to push prices way above the raw cost of the component parts. According to a teardown from TechInsights, the iPhone X, for example, has a bill of components that amounts to $357.50, but the handset sells for $1,000.

The difference includes manufacturing costs (estimated to be in single figure percentages), research and development, marketing and the costs of running a brand – it’s not all profit. “If you look at the breakdown of the costs of a product, it’s well reported that it’s a few dollars to assemble the product, so all the costs are in the components or in the mark-up, branding and distribution,” said Srai. “The high value parts are in the components and the assembly costs can be very small and then there’s a lot in marketing sales and distribution.”

Selling no-name goods direct from China avoids many of the overheads that companies such as Apple are obliged to cover – from glitzy adverts and product placement campaigns to swanky stores in prime locations and a monumental research, development and design effort.

Samsung and other manufacturers that sell through the channel also have to build margin for retailers into their pricing. “If you have an unbranded product, you save all the branding costs and, depending on your distribution model, you may have some advantages there as well – if you are selling direct, for example,” said Srai.

“It’s expensive to set up a shop, run research projects, marketing and overheads and only then you have your margin. If you have a business that’s not interested in branding, you can compete on price via ecommerce, which has allowed us to engage effectively with these companies.”

The fact that many of the upstart manufacturers invest little in design or development is, however, highlighted by criticism of what goes into budget machines and a lack of innovation. “Looking at the China-based sites, there’s a lot of very cheap, very limited capability products on sale,” said Ben Miles from UK system builder Chillblast. “A lot of these are so cheap because they are underpinned by a single technical component which is then used in hundreds of different end products.

“A lot of the mini PCs and entry-level tablets will be based on the same internal underpinnings that also end up in a wide array of different assembled end goods, simply repurposed with a bespoke outer plastic shell to form a ‘new’ product.”