Saturday, March 26, 2011

Go for the best deal regardless and “local” will really look after itself


Imagine a supplier in Invercargill makes a spanner you can buy in Dunedin for $10.00.

Imagine a supplier in Dunedin makes the same spanner you can buy in Dunedin for $12.00.

You live in Dunedin. Which one do you buy? You buy the "import" from Invercargill and save yourself $2:00 right?

Not if you belong to the Chamber of Commerce "Buy local club" you don't. The club tells you that by "buying local" you are supporting the home team, your area, suppliers who might be your friends etc.

Are you? Actually no - you are damaging them. How?

If you buy the Dunedin spanner and lose $2:00 you just:

  1. supported someone who is less efficient at making spanners and needs to improve;
  2. told them that being inefficient and not giving customers the best deal is "ok";
  3. told other suppliers that if their costs creep up they can always lift their prices and still sell products;
  4. you wasted $2.00 which you could have spent on someone - maybe someone local - who is efficient.

If you buy the Invercargill spanner the effects are the opposite :

  1. you get the best deal;
  2. you have money over to support other locals who provide the best deal;
  3. you give the inefficient suppliers a reminder to lift their game;
  4. you scare off others who might have been getting lazy;

So - buying and selling is not like supporting Otago Rugby because you love Otago.

Buying the best deal makes everybody better off and does the most you can do to make "local" worth buying ahead of anything else.

When both spanners cost $10.00 it won’t matter either way – then you can support the local guy…. oh and the Chamber of Commerce can then do something useful with the members levies.

You might well ask what it is that escapes the Chamber's brain in this logic?? I have no idea but a deep suspicion.

Brent

2 comments:

  1. Excellent- post to John Christie, Dunedin Chamber of Commerce. He has never been in a real business- so please be tolerant if he does not understand

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  2. Does this hold for international trade? The 'Buy NZ made' campaign comes to mind. I certainly agree that the producer with the competitive advantage should produce the goods and therefore offer them to the market at a better price leading to more a efficient economy. But on an international level, NZ obviously has the competitive advantage in the agricultural sector and foreign countries have the upper hand in almost everything else. Should both Dunedin and Invercargil give up on the spanners and only produce dairy?

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