‘They’re slitting their own throats’
Manufacturer says outsourcing isn’t the answer
Jerald Skoff, president of Badger Metal Tech, has seen his firm’s potential client list of American diecasting companies dwindle from more than 1,200 to fewer than 300 in a few short years.
Correspondingly, his Menomonee Falls metal surface treating company’s revenues shrunk 15% in 2001, another 25% in 2002 and he projects another significant drop in 2003.
To Skoff’s way of thinking, American manufacturers who are outsourcing their production to China, taking advantage of cheap labor and lax environmental standards, may benefit in the short term, but they ultimately are "slitting their own throats."
The following are excerpts from an interview of Skoff by Small Business Times executive editor Steve Jagler.
SBT: From a Wisconsin manufacturer’s point of view, what is happening with China, and how is it playing out in your industry?
Skoff: The dies are going over to China to be made, because they’re less expensive. When that happens, they (American companies) no longer need the tool shop here to make the dies. In China, the labor cost for a worker is a dollar a day. We can’t pay a guy a dollar a day and expect him to live here.
Once that tool goes over there to China, contrary to what people think, instead of making one tool, they make a number of tools. They don’t tell you they’ve made a number of tools, they just copy it. It isn’t long before they cut that tool shop out. Pretty soon, they’re just passing over that guy and going right to the guy who uses the tool.
It then progresses. The end user says, "Great, I’m buying my tool from the Chinese company cheaper." And then he says, "Can you make these parts for me?"
A lot of times then, they just move the plants to China. In order to do that, they have to make the technology transfer. They can’t set up a plant in there, whether they’re making Bayer aspirin, electric motors or gasoline engines, without sharing their technology.
So, you not only share your technology with them, but you lose the business. They go right to market with the product. That’s what happened to New Balance shoes.
SBT: How bad is the product piracy problem in China?
Skoff: What happens is the manufacturing job at the American tool shop is lost. The Chinese suddenly cut out the (American) manufacturer.
It’s the profit mongers of the corporations that start this, because they want to make more profit and make it for less money – at the cost of the worker here in the United States.
The tool shop is closed, and you then have the high unemployment.
SBT: Then a Chinese company can take that American technology and manufacturing process, even put the American company’s brand name on it, and sell it more cheaply, right?
Skoff: There’s a company in Milwaukee (Briggs & Stratton Corp.) that makes engines, and they know for a fact that at least three engines are being reproduced over there that are counterfeited. One even has their logo on it. That’s a fact.
There’s another company. It’s Crain Tools. They’re a customer of ours. They sent a carpet-cutting tool over to China, with good intentions. The parts came in. The first couple loads were real nice. They looked good. Then they got a shipment, and they were sorting through it, and there wasn’t a Crain logo. There was a Chinese logo in place of the Crain logo. It wasn’t long before the Chinese flooded the market with these carpet-cutting tools, and it hurt Crain.
There’s no rule of law over there. It’s a communist country.
SBT: On the issue of patents, the Chinese government has policies and laws against patent violations. Are they not enforced?
Skoff: The violators are challenged by our attorneys. But when you’re dealing with a communist government that doesn’t respect their own citizens, you really are beating your head against the wall, because they’re not going to listen to the case.
There’s no way to stop them. And it’s so rampant, that the government over there can’t control it.
Microsoft has thousands of copies that are pirated all the time over there.
Cummins actually found its logo on engines that weren’t made in the United States, and I’ve heard rumors that there’s a whole car being put together over there.
And the thing is, it’s good stuff. They’ve got newer technology than our poor shops have over here. So, not only can the Chinese companies compete on a price level, but on a quality level.
SBT: What’s the impact in Wisconsin?
Skoff: The impact in Wisconsin is you’ve got companies like Zuelzke Tool & Engineering Co. in Milwaukee …. They’re gone. They’re closed.
You’ve got Badger Pattern Works Inc. down in New Berlin. They’re out of business. They closed. They just couldn’t compete. There’s a number of other businesses that are going that way, that are hurting.
If they’re competing overseas, then they’re getting killed.
In our company, we’re hearing from our customers over and over and over that business isn’t good, that they don’t have anything to send us. I say, "Foreign competition?" And they say, "Ya, China’s killing us. Everything’s going to China."
If we keep going down like this, we’re going to be one of the dominoes that falls over.
SBT: Has China’s entry into the World Trade Organization accelerated China’s dominance over American manufacturers?
Skoff: The World Trade Organization has increased the amount of business over there. As our trade deficit gets larger and larger, our country gets weaker and weaker. The trade ratio between China and United States is the highest of any country we do trading with, including Japan. It’s growing exponentially.
SBT: What about the United States granting China the most favored nation status, under the Clinton administration? Has that accelerated this problem as well?
Skoff: That has definitely done it. If you don’t believe me, have somebody pick up some objects in their home and try to find something that’s made in the United States.
SBT: So, the United States is losing manufacturing and manufacturing jobs as a component of its gross domestic product?
Skoff: Manufacturing is the backbone of the American economy. People think America went through its industrial revolution, and it’s now time for others to do that job. I’ve been told that Americans need to be retrained in high-technology jobs.
Who are we kidding? Why will you need high-technology careers if no one’s working here to buy that technology? Even your job is in jeopardy. If you have no companies here, who’s going to read your newspaper?
It will trickle down all the way to the level where we’ll become a third-world country and dependent on others for manufacturing. Ya, we’ll have a service company. Great. But we’ll service the people over in China.
SBT: In a worst-case scenario, could this problem have an impact on national defense, on America’s ability to defend itself?
Skoff: It already has. Oshkosh Truck gets a lot of its parts for its trucks from China, and it was not able to meet an American Defense Department deadline because of the import it had to make on the parts.
Our national defense is in jeopardy, because when you get to the point where you have no manufacturing, and someone declares war on you, and the other country, if it be China or wherever, is making your weapons, that’s kind of like asking the Indians if you can buy their arrows to shoot them with. It doesn’t work that way.
SBT: Former Gov. Tommy Thompson went on a couple of trade missions to China with the notion of advocating for businesses in Wisconsin. Was that mission misguided? Was that naïve?
Skoff: That wasn’t intentional, but I think it was misguided and naïve. When you look at it on the outside, you’ve got 1.2 billion people over there to market to. But you’re not marketing to anybody over there.
And the Chinese people are really getting treated unfairly too. I feel sorry for the people over there. The people are in terrible economic conditions over there. And if I were talking like I am to you in China, and you came to visit me again, I wouldn’t be here to visit with you again.
The Chinese people are not at fault. They would like to end this too and get some fair wages.
SBT: Relative to the US trading relationship with Japan, this is not a level playing field with China, is it?
Skoff: The democracy and the equal market and the number of people, not 1.2 billion, eventually raised their standard in Japan, and now they’re right back even with us again. Japan has actually moved some factories over here to the United States.
China isn’t going to do that. You’re not going to see China building plants in the United States to ship products back to be sold in China. Sorry. You’re not going to see that, ever.
SBT: We’ve laid out the problem. What’s the solution?
Skoff: I don’t have a solution. That’s why we’ve formed SAM (Save American Manufacturing).
March 7, 2003 Small Business Times, Milwaukee
