Capitalism vs Volume Selling

OK the topic seems like an unrelated match-up. I somehow feel there is a link. Let's see if I can put my thoughts together. A few random thoughts have converged to how Volume Selling beat the concept of Capitalism through the recession.

First lets put both these in perspective. This is how I define and understand both.

Capitalism is the concept of a capital driven economy. People borrow money to spend on things they can't afford but they live a quality life and spend their whole life paying off their debt. The people who loan out this money and drive this concept are rich ones who earn from the debt and the interest. Governments can print money so people can take loans more easily bringing down interest rates but increasing inflation. The people who keep the cash make money from it by loaning it out more. All their electronic money converts to paper money and then goes back to being electronic money to loan out further.

Volume Selling is a business model where people earn money by having lower profit margins but selling a lot of it. For example,  I have a product for which cost of making was $10 and I sell it for $40. So I make $30 for every sale I make. Somebody else sells the same product for $20. So he will have to sell 3 items for every 1 item I sell to match my profit. If this ratio remains, we are earning the same. The concept that he applied was, he needs to sell more to make more. That's Volume Selling, kind of. He would have a different marketing & sales strategy as compared to what I would have.

Now if he is somehow able to bring his cost of making down and come down to the same ratio. He could make the product for $5 and still sell for $20 and he reduces the ratio. Now he only needs to sell 2 items for every 1 item I sell.

That's the simple explanation of the two concepts. At least my simple explanation. They still look very irrelevant but let me try to put this in perspective now.

The recent recession has been the output of this crazy model of capitalism. People keep taking loans and loans from loans and leveraging further on intangible stuff. Everything in the air. Everything a big bubble. It had to burst. It did. Everybody heard it, everybody took the impact. But let's look further. Who came out the better on the other side?

Just observe the economies that have come out pretty strong from this recession. Let's take just the major 2 for an example. India & China. I wouldn't call them capitalist driven economies even though India might show a glimpse of that. Both countries are densely populated and they have put their workforce to action. At least the ones they could.

India relies on its booming IT industry initially driven by BPOs and Call Centres and now moving towards some entrepreneurial stuff as well. The business biggies are now tycoons heading into the world taking over companies with the cash they have at hand. Their agricultural products remain strong and they got a good cash base to look into the future. They got a lot of population working abroad in many different countries of the world actually running economies in some and a lot of that money now heading back to India in terms of investment, new ventures etc. So lets look at the irony here. Other countries are printing money which gets invested back home when people send money back and invest.

How are they so successful abroad? The answer is simple. Skilled talent for much less the cost as compared to the local labour. You can get 3 Indians on the same salary of 1 person if picked from the local market. I am talking western markets here.

So basically, I categorize this as Volume Selling as well. The Indian sells for much cheaper than a European for example. Companies are willing to get 3 Indians instead of 1 European and they end up paying the same. Compare that with the example above and it fits perfectly into the Volume Selling model.

China is the world famous place for cheap labour. They did the same as well. Now the world's goods are being made in China for much less the cost. Big companies realized that while they are trying to sell more then can still improve profits by reducing the cost of the making. Move the making to China. Take any line of business. Ideas may be generated in the developed markets but mass production comes down to China.

The advantage is that after years of just making something, some creativity comes in as well. Soon we'll see creativity and research oriented development generating from these economies. They are on the right track.

So while Capitalism promised the "good life" it all seems much short-term based right now with all that has happened. The countries who came out well drove their economies by selling more for less. People living in the capitalist model didn't care whether a car was worth $100,000 or $120,000 its all going on a loan anyway so my monthly payment doesn't get effected that much. On the other hand, the volume selling market was careful on each penny saved being a penny earned.

It seems like 2 random concepts but I think they are somehow linked. The link factor is how the booming economies came through the recession pretty good. There is much more to it I am sure. But this has some sort of link as well. Sometimes I wish, I had studied economics. I could understand and express much better on such topics. Anyway the thought has initiated, it will develop into something solid. It will make a lot more sense.