Oct 16, 2012

A lot is said in the press about how we should be buying American made products instead of from China sourcing companies. While I agree, I learned an expensive lesson about what the general public really wants.

In 2000, I set out to manufacture an American made magnetic base, which is commonly used in machine shops to hold gages. My competition was another U.S. company whose product retailed for $100.00, and Chinese made bases that went for $15.00.

My mag base was superior in every way. It was 40% stronger than the one the other U.S. company made, as well as the standard China import units. The handles and faceplate were nickel plated zinc, a distinct step above the plastic handles that my competitors made. I did use several Chinese made components to complete the product, but the total value of the product had far more American content than foreign. The main body was made in Alabama, while some of the other components came from a California manufacturer. I did the assembly and powder coating in Colorado Springs.

The price of my mag base was 60% below my U.S. competitor, but two and a half times that of the Chinese bases. In spite of this, I felt confident that the superior features, appearance, reasonably competitive price, and, especially, that I was marketing a “Made in USA” product would make my base a hit. I invested $50,000.00 to make the molds in the States, and we were off.

The mag base was sold through distribution companies, and they placed orders. Everything seemed like it was on the upward trend, but… a few snags hit. The powder coating process was trickier than anticipated. The company that assembled the main body encountered problems. In time these problems got ironed out, but it took a lot of time and effort.

Sales struggled. I should have been selling thousands of units a year (and needed to just to break even with the project), but I ended up selling the line at a steep loss, giving the tooling away and selling the assets for little more than I had in them.

While this was going on, my China sourcing business was growing; from that point on I focused solely on the import business.

In looking back there were several factors going on. The country was just heading into a recession. However, I originally started Global Trade Specialists in 1991 – during a recession – and the business grew like a weed, so I don’t believe that a recession is enough to stop a well-run business with a valid product or service.

I learned a painful, expensive lesson from that experience, and it had nothing to do with recessions. American manufacturing companies, some of who get offended if you ask them if they are open to farming out work overseas, have to cut costs just like everyone else. Today’s global economy has forced them to buy the product that will do the job at the right price. At the end of the day, putting food on the table is something we all have to do.

The reality is that Chinese made products are commonly used on the shop floors of thousands of U.S. manufacturers, helping them keep their costs down so they can put out a competitive product. Not every part can or needs to be made in house; many manufacturing companies farm out some of their work to other suppliers so they don’t have to invest in equipment or personnel to do work they’re not suited for. If the volumes justify importing those parts at a significantly lower cost, they’ll look at it. It doesn’t make sense not to.