However, opinions among contract manufacturing insiders in southeastern Wisconsin are mixed on whether it is an advisable move for the domestic industry.
Perhaps the most graphic description of the downside of offshore manufacturing came from Mike Retzer, controller for W.G. Strohwig Tool and Die in Richfield. Retzer also serves as president of the Wisconsin chapter of the National Tooling and Machining Association (NTMA).
"You know how the Eskimos kill wolves?" Retzer asked. "They take a knife and use it to make a blood Popsicle. They encase the handle of the knife in a block of ice, and the smell of the blood lures a wolf. The wolf starts licking the blood – but after a while, the blood it’s tasting is its own.
"The wolf is us. The blood is cheap foreign imports. And the tongue — that is our manufacturing economy."
The Eskimos, in Retzer’s eyes, may be the Federation of Asian Die and Mold Associations (FADMA) and its member companies in 10 Asian nations. In 1995, FADMA said its members owned 40% of the world mold-and-die industry, and its stated goal was to increase that share to 70% by 2001 and to 80% by 2005.
The trap
By partnering with Chinese suppliers, Retzer contends, US firms are not operating by their own strategies, but instead are falling into a trap.
"Their tool-and-die industry was really set up to service their own manufacturing economy. Their ultimate goal is to win the whole thing — design to production," Retzer said.
The fact that more and more products — from machine tools to consumer goods – are being imported to the United States from China may be an indication that China’s plan is working, he said.
The immediate impact of offshore competition is already visible in Strohwig’s bottom line. Strohwig’s sales were off by 25% in 2000 and 2001.
One of Strohwig’s market advantages has become large and specialty dies that require specialized equipment.
"When you are dealing with a 12,000-pound block, you are really in a different niche," Retzer said. "But we have lost a lot of our plastic injection molding business. Some shops are down 50%. Others have closed."
Retzer and national representatives of the NTMA advocate for national policy changes that will help level the playing field between the United States and China. Raising US tariffs to match China’s 12% tariff and 17% value-added tax on tools imported from the US is a priority.
Retzer also favors an investment tax credit on domestically produced tools. That would sweeten the existing economic recovery package rammed through Congress by President George W. Bush.
"We need to modify the economic recovery package," Retzer said. "The investment tax credit would stimulate demand, while speeding up the depreciation would benefit the people making the investment. The current package assumes you are making money, and a lot of shops aren’t making money – they cannot retool and they cannot borrow."
Lowering the value of the US dollar also is a priority, according to Retzer.
While Maha Solutions proactively seeks relationships abroad, Chinese manufacturers also are actively marketing themselves to US interests. Just ask Robert Cowen, president of C & S Machine, Milwaukee.
"I probably see or hear something once a week asking if I want to subcontract my work offshore," Cowen said. "I am a true-blue buy-American person, and I really struggle with this, because it would be more beneficial for me personally and for my business if I were to go overseas. But it wouldn’t be for my employees or for the long-term interest of my country."
Cowen’s firm won Future 50 recognition this year from the Metropolitan Milwaukee Association of Commerce, and the company’s growth has depended on lean manufacturing principals and fast turn-around that would be impossible for overseas firms to achieve.
Even so, longer-run projects have been harder for the company to hang onto.
"We are losing all of our volume work," Cowen said. "Our specialty stuff — that is what we have left. Right now, our only real advantage is time."
In the eyes of Cowen and others, those engaging in partnerships with China are speeding up an insidious process.
"The CEOS of these companies are thinking short-term," Cowen said. "In 15 years, when we don’t have any manufacturing here, what are all these people going to do? … China is a country with a billion people, a huge land mass and unknown natural resources. Are we going to help them surpass us?"
Counterpoint
Proponents of Maha Solutions’ overseas plans minimize the downsides of the partnership strategy.
"I don’t think sourcing overseas takes jobs from American workers," said Carthage College professor Arthur Cyr.
Cyr, the former director of the World Trade Center in Chicago, consulted on Maha Solutions’ business plan.
"It is the most unskilled laborers who are at risk. What Maha is doing is typical of what a lot of companies will probably do, and this will serve to increase employment for higher-value workers like designers and engineers," Cyr said.
Also consulting on Maha Solutions’ plan was Matt Wagner, executive director at Racine’s Center for Applied Technology and Innovation (CATI). Wagner was cognizant of how concerned local manufacturers are about overseas sourcing.
"That is something we are currently discussing," Wagner said, indicating that CATI was forming a group to study other ways southeastern Wisconsin manufacturers could cope with competition from China and other low-cost suppliers.
However, Wagner defended the decision of Maha Solutions to seek partnerships overseas.
"I don’t think that in every case we can compete in a global market," Wagner said. "There are hybrid ways of doing things, and this is one of them."
Oct. 11, 2002 Small Business Times, Milwaukee
