An Expensive Lesson; Do Chinese Products Benefit US Manufacturers?
In 2000, I set out to manufacture an American made magnetic base, a tool that is commonly used in machine shops to hold dial indicators or other gages. My competition was another U.S. manufacturer whose product retailed for $100.00, and Chinese made bases that went for $15.00.
With the help of an engineering firm, I launched a magnetic base that was superior in every way. It was 40% stronger than the other American made base, as well as the standard Chinese units. The handles and faceplate were polished nickel plated zinc, a distinct step above the plastic handles that my competitors used.
I did use several Chinese made components to complete the product, but the total cost 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 in Colorado Springs after powder coating the main body here.
The retail price of my mag base was 60 percent 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 product with “Made in USA” would make my mag base a hit. I invested $50,000.00 in mold costs to make the tooling for the product 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 bodies 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 in the end 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 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.
No, 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.
We source parts, sub-assemblies, and complete products. Let us know what we might quote for you.
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Words of Wisdom: The Business Comfort Zone
“By not stretching and expanding beyond your business comfort zone, you’re going to be in the same place tomorrow and the next day and the next. It’s not easy to come out of your comfort zone—but your comfort has a price. How much is yours costing you?
Brian Tracy says, “Ninety to 95 percent of people will withdraw to the comfort zone when what they try doesn’t work. Only that small percentage, 5 or 10 percent, will continually improve themselves; they will continually push themselves out into the zone of discomfort, and these are always the highest performers in every field.”
The Exchange Rate
Yuan to the dollar, as of today: 6.38 to 1
Rate when the Yuan was depegged from the dollar on June 19, 2010: 6.82 to 1
Change: .44 (6.4%)
Since 1991, Global Trade Specialists, Inc. has helped companies of all sizes get their products made in China from manufacturers of quality products. We are an American company who works with three trading groups in China with immediate access to thousands of manufacturing companies. We source most products made from metal, plastic, wood, stone, glass or textiles; from prototype to production. Many of our customers are first time importers; we walk you through the entire process.
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