Best Place to Build Factory :: Questions and answers. Help.

I wonder where is the best place to erect your factories. Should I place them close to the supplies or should I place it in a countries with low salary, low tax and high unemployment? Does energy consumption relevant to this matter?

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24.02.2016, 10:08

Last time edited : 24.02.2016, 10:20

Wonson

Wondime

This is not easy to answer, you will get 20 different views. Mine:

First of all, cities with education lower than 3.0 are not suitable for production/research imo, even if the salary seems to be low. Don't count on training, you need 1.5 months of training to cultivate their brains to something like 8.0-10.0 and that's the limit for them (training will not work forever, there's a limit to the level you can educate the workers). You won't feel the disappointment until you want to install technologies higher than 15 (and hopefully that won't take long)

There are two major production costs: salaries and supplies. Energy expenses are not that high yet, until governors decide to remove the subsidies. Also if the target market is not in the same country, custom duties will come into play. so there's a balance between custom duties, salaries and supply costs. Concrete analysis is required before deciding where to locate the plant as it may affect these factors. So among many different scenarios we discuss a few:

a) If share of salaries in the total cost of production is high, then one must think of a place to pay less wages. A motorcycle factory is of this type, maybe costs you $2500 for supplies and another $2500 for salaries to produce each motorcycle.(salaries add up to 50% of the costs)

A rough estimation that Russian community uses to minimize the salaries, and I also follow:
100*CityEducationIndex/AverageCitySalary must be high
ratio>3 is excellent and cities with education lower than 3.0 are bad, no matter what the ratio is (remarks are mine)

b) If supply is the most important factor in the costs, there's nowhere you can hide.

c) If the target market has high import duties on that specific product, then you must really start to think to place the factory near the target market. A fine example would be producing photo cameras for sales in wealthy European countries (i.e Germany). Producing each camera may cost you $150 for supplies, $80 in salaries and at least $120 for importing to Germany. It's at least 34% ($120/$350) of the costs that your company has to bear and placing the factory in Germany can be an option, though you will be forced to pay another $20 in salaries to the proud virtoGerman workers (per product), and perhaps another $20 for energy due to high energy prices in Germany to save the $120 import duties.

And what about taxes? I never think about the taxes, because it's not the biggest money-sinker and running to remote locations to save a few virtodollarov in taxes will lead to higher transport costs and custom duties most of the time. Again anything depends on concrete analysis of the actual business.

24.02.2016, 16:27

What a thorough explanation with concrete examples. Thanks.

24.02.2016, 17:38

G_Money33

Consolidated Transnational Corp (CTC)

G_Money33 Ltd.

Hefei on Lien is decent for new players

24.02.2016, 18:10

Last time edited : 24.02.2016, 18:10

TyStuFF

I started with production in Kano Nigeria (Mary). Salaries was about 30 and education level was 1.00

Trained my staff plenty, also paid high salaries for a long time. And ended up with education levels around 8.00 and 50 bucks for each employee.

Realistically it was a bad move. Wasted crazy amount of cash on too high salaries and training for a long time. But now I can enjoy cheap salaries for a long time.

Only a shame the mayor raises the salaries all the time, but that has benefits for the retail in the city, so it makes sense.

Ideally I would recommend for a beginner to go for salaries around 100-150 and education around 3.00-5.00
It gives the most playing space, you can always start on tech 1 with lower salaries and equipment quality to grow your production qualification quite quickly. And after a while you can easily train and expand to run high technologies, while paying cost friendly salaries.

24.02.2016, 20:01

Last time edited : 24.02.2016, 20:15

GLOBE Inc.

Regarding salaries importance.
It depends on type of the factory. If the factory produces large amount of products daily the salaries are not as much important as if the amount of produced goods is low. Lets assume you have a factory that produces 5000 pieces of goods daily and requires 2000 workers with a salary of 1000$: 2000workers x 1000$ / 5000 pieces = 400$, meaning 400$ of the Prime Cost will be spent on salaries. Now lets assume your factory requires the same amount of workers with exactly the same salary, however this one produces 40000 pieces of goods daily: 2000workers x 1000$ / 40000pieces = 50$, in that factory only 50$ of Prime Cost is being spent on salaries. So yeah - it really really depends on the type of factory. And i agree with everyone on this topic that training your employees will help reduce salary expenses especially on those types of factories that produce a relatively small amount of goods daily.

25.02.2016, 02:39

Last time edited : 25.02.2016, 02:43

Jayman Corporation

Jayman Incorporated

Jayman Rulezzz!

The most important factor is customs. Income tax is important too but not as much because you can ship everything to a warehouse in a low tax country to minimize profit taxes. Salary is not as important but can be very expensive if the education level is low and you need educated workers.

Since more companies put factories in cities where they can make more money, the best locations usually have little or no unemployment. On Lien realm, I recommend Semipalatinsk in East Kazakhstan. Most products have 0% export tax, profit tax is low at 17%, salary is low ($89), and education is sufficient (5.00).

26.02.2016, 20:17

Thanks, Jayman. Semipalatinsk, East Kazakhstan is indeed a great place to build factories.

27.02.2016, 01:12

Last time edited : 27.02.2016, 01:46

GLOBE Inc.

The country's import taxes is a two sided coin. On one side you will save a lot on importing the raw materials, however from the other hand your customers will have to pay import taxes to their countries which will raise your product price which will reduce the sales numbers. Those import/export taxes will be payed anyway and since most of the income from stores is coming from wealthy countries like US, your customers will pay that import tax. Just an example - i have a factory that produces Steel and its located in Russia, the prime cost is relatively small, however i use that Steel to produce other goods using factories located in US. Bringing that steel to US almost doubles the Prime Cost of it. So basically even if you are able to produce the goods in Russia for low Prime Cost and offer it for a low price, your customers will pay a relatively high price anyway. So do your calculations. Im bypassing some taxes and paying only US Import tax which is approximately 85% of my Prime Cost(Steel import tax is very high), however its still cheaper to bring my own steel from overseas rather than buying it from other suppliers plus the quality im producing is higher than market's average.

I have to add that having the same Steel factory in US will triple the Prime Cost just because import tax on the raw materials is much higher than on Steel(which i find stupid, any sane government will prefer to create work opportunities rather than keep its population unemployed), but that does not apply to every factory type. Some final products have higher import taxes than raw materials, some like steel have higher taxes on raw materials. And of course it varies from country to country.

27.02.2016, 03:31

Wonson

Wondime

Last2Night
...,but that does not apply to every factory type.

yes, i think that's the point.

27.02.2016, 04:56

Last time edited : 27.02.2016, 05:06

Jayman Corporation

Jayman Incorporated

Jayman Rulezzz!

If you're producing products to sell worldwide, it's the export taxes that hurt profits the most. There will always be import taxes from other countries but if you put a factory in a country with a 10% export tax you will have to pay an additional 10% in every country in addition to import and income taxes. If you put the factory in Vietnam, Kazakhstan, or the Philippines there aren't any export taxes for most products.

27.02.2016, 05:04

Jayman Corporation

Jayman Incorporated

Jayman Rulezzz!

Last2Night
US Import tax which is approximately 85% of my Prime Cost(Steel import tax is very high)

Import tax in US for steel is 40%. If you're paying 85% you must be selling for less than IP cost. IP cost for steel is $60 so you will always pay at least $60 x 40% = $24 for import tax even if you sell steel for $1.

Russia has a 10% export tax which you could avoid if you put the factory in a country that doesn't have export taxes. The minimum export tax is $6 ($60 IP cost x 10%) regardless of how much you charge.

27.02.2016, 05:29

Jayman
Last2Night
US Import tax which is approximately 85% of my Prime Cost(Steel import tax is very high)

Import tax in US for steel is 40%. If you're paying 85% you must be selling for less than IP cost. IP cost for steel is $60 so you will always pay at least $60 x 40% = $24 for import tax even if you sell steel for $1.

Russia has a 10% export tax which you could avoid if you put the factory in a country that doesn't have export taxes. The minimum export tax is $6 ($60 IP cost x 10%) regardless of how much you charge.

Yes, what Jayman said is true. Last2Night, I think if you want to use your steel produced in Russia more effectively, you should consider relocate your steel-consuming factories to Russia or countries like Vietnam, Philippines, and Kazakhstan.

27.02.2016, 06:11

Last time edited : 27.02.2016, 06:51

GLOBE Inc.

These IP restrictions are pointless, useless and bring no good. But thanks for pointing out that its the IP that increases the Import taxes.

What i tried to explain is that no matter where you produce your goods, your customers will pay full import tax to their countries so even if your Steel sale price will be 60$, for a customer from US it will appear as 85$. Im not saying go ahead and build your factories in US, NO, im just saying keep in mind that you have to sell your products to other people so take their point of view in consideration.

Export taxes are not a problem, it cannot bring you down, as an example - more than half of my production is based in US which has the highest export and income taxes in the game(correct me if im wrong) and yet out of 5.1 billions of revenues i pay only 1.1 billion taxes and thats a total taxation that includes expenses taxes as well as other countries based operations such as Russia(im running a lot of production in Russia) and Norway, and my customers are based all around the globe.
Now Import taxes is a different story, it can change everything as they are very high in some countries which can lead to a factory closure and thats what i do a lot. I dont do much taxation calculations because i can afford opening a factory, trying it out and closing it if its not working well, but then again i have a pretty good income and those hundreds of millions i spend on those tryouts equals a spare change in my pockets.

Here is a screenshot, just look how the Export Tax is being neglected.

27.02.2016, 07:16

Jayman Corporation

Jayman Incorporated

Jayman Rulezzz!

If you sell steel in Russia for $60 for a customer from US it will appear as $90 but if you sell in Vietnam it will appear as $84. To compete with someone selling in Vietnam you have to charge $6 less which hurts profits. If your profit margin is low the export tax can be more than the income tax.

Import tax isn't an issue when deciding where to build a steel factory because it can't be avoided. If you put the steel factory in the US you will pay the same 40% import tax on the raw materials to produce the steel. That's why I put all my factories in countries with no export taxes when I'm selling products worldwide.

Sometimes I put factories in China, Japan, and US when the import tax for raw materials is less than the import tax for the final product but those factories are only to sell products within those countries.

27.02.2016, 08:16