Culture 17 April 2017
In 1990, China only accounted for 3 percent of the entire global manufacturing output by value, a number that's since skyrocketed to a whopping 25 percent. Add to that the fact that the Chinese make things we tend to use more frequently (such as computers and smartphones) and suddenly it seems like “everything" actually is made by this powerhouse of a country.
For example, The Economist reports that China produces roughly 70% of the world's smart phones, 60% of its shoes, and 80% of air conditioners. This rapid rise in efficient, money-making factories in China has naturally inspired other Asian countries to follow suit, which has resulted in roughly 50% of the world's total goods coming from Asia Pacific's “Factory Asia."
Cue the fervent push to “bring jobs back to America" and to increase the number of product labels that read “Made in the USA." In theory, it sounds like a brilliant, no-brainer of an idea. Boosting U.S. manufacturing means that we increase the number of jobs available to America's own, right? Sure, but not without cost.
The Cost of Bringing Jobs Back to America
It's no secret that Asian factories are often more efficient, easier to work with, and more cost effective than their U.S. counterparts. This, of course, translates to cheaper price tags. For example, Marketplace crunched some numbers and discovered that if every single part of an iPhone was produced within the states, the retail value would hover around $2000. And here's a real-world application for you: Levi's currently sells two versions of its “Original Shrink-To-Fit Selvedge Jeans" – one that's produced outside of the states, and another that's made in the USA.
These are two identical pairs of jeans, but with two different production locations and therefore two different prices. The first pair of jeans retails for $128 while the USA-made jeans cost $148. While that's only a $20 difference, it's still a savings. Before you assume everyone would naturally fork over the extra Hamilton, consider a 2016 Associated Press-GfK poll that asked people to choose between a $50 pair of pants made outside of the USA and a USA-made $85 pair equivalent.
Despite the current outcry for “Made in the USA" labels, the poll found that 67 percent of people would choose the cheaper pair. What's also important to note about this poll is that individuals in high-earning households ($100,000 or higher) were no less likely than lower-income Americans to choose the less expensive, made-overseas product.
What's the Solution?
While there's an ever-increasing push to produce more goods in America, there's also a complacency (on the consumer's part) and fear (on the company's part) driven by these bargain-priced products. Ultimately, producing more expensive, American-made products can potentially shove companies out of an already fiercely competitive market.
An interesting case study of “Made in America" products comes from luxury brand Shinola, which was founded as an experiment of sorts in 2011 by Tom Kartsotis, the Texas mogul who famously founded the Fossil Group out of his garage back the in the '80s. Kartsotis chose Detroit of all places – easily one of the country's most untouchable cities – and poured $225 million into his new company. The two primary goals were to bring well-paying, benefit-laden jobs to people who were out of work in Detroit, and to see if Shinola could actually produce and sell watches made in America.
In an April 2017 lecture for the Savannah College of Art and Design (SCAD) Style conference, Kartsotis shared the original vision and evolution of Shinola, and expressed that he really wasn't sure if this “experiment," if you will, would work. Fast forward to 2017 and the company has since expanded from watches to leather, bicycles, paper products, and recently audio and jewelry. They're even planning to build a hotel. Despite the (comparatively) higher price tag on many of their goods, consumers are still buying Shinola because they believe in the brand and their mission.
Interestingly, though, when an aspirational clothing designer student asked Kartsotis if he had any advice for those going into the garment-producing industry, he offered the non-sugarcoated response of “Garments? It's tough. It's very difficult. We're staying away from that one for right now."
This answer is assumingly two-fold: it's hard to break into the garment industry in the first place, but it's also tricky from a retail pricing standpoint. He mentioned that the cost associated with producing an American-made, Shinola garment was almost double the price of equivalent current market products, which may make Shinola non-competitive even as a luxury brand.
Clearly Shinola is doing something right – and creating jobs in the process – but the truth is that not every business is savvy enough to pivot to U.S.-made products and sell $850 watches to the general public. Not to mention the insane amount of shifting and re-sourcing this would require of companies. Apple's current assembly line spans over 20 different pieces in at least nine countries.
Interestingly, some companies – particularly those specializing in electronics – have taken a “meet you in the middle" approach in which production takes place overseas, but assembly, crafting and designing occurs within the U.S. This hybrid approach alleviates costs while allowing for more localized quality control, and arguably supports both the global and American economy.
At the end of the day, “Made in America" is a luxury label. It's certainly not a label for the poor, and is even a tough sell for the wealthy. Whatever the solution is, it's going to require decades of slow shifting and thoughtful consideration.
3 Min Read
"How did you ever get into a business like that?" people ask me. They're confounded to hear that my product is industrial baler wire—a very unfeminine pursuit, especially in 1975 when I founded my company in the midst of a machismo man's world. It's a long story, but I'll try to shorten it.
I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up—even if it involved a non-glamorous product. I'd been fired from my previous job working to become a ladies' clothing buyer and was told at my dismissal, "You just aren't management or corporate material." My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.
Over the years, I've learned quite a few tough lessons about how to successfully run a business. Below are five essential elements to keep in mind, as well as my story on how I learned them.
Find A Need And Fill It
I gradually became successful at selling various products, which unfortunately weren't profitable enough to get me off the ground, so I asked people what they needed that they couldn't seem to get. One man said, "Honey, I need baler wire. Even the farmers can't get it." I saw happy dollar signs as he talked on and dedicated myself to figuring out the baler wire industry.
I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up.
Now forty-five years later, I'm proud to be the founder of Vulcan Wire, Inc., an industrial baler wire company with $10 million of annual sales.
Have Working Capital And Credit
There were many pitfalls along the way to my eventual success. My daughters and I were subsisting from my unemployment checks, erratic alimony and child-support payments, and food stamps. I had no money stashed up to start up a business.
I paid for the first wire with a check for which I had no funds, an illegal act, but I thought it wouldn't matter as long as I made a deposit to cover the deficit before the bank received the check. My expectation was that I'd receive payment immediately upon delivery, for which I used a rented truck.
Little did I know that this Fortune 500 company's modus operandi was to pay all bills thirty or more days after receipts. My customer initially refused to pay on the spot. I told him I would consequently have to return the wire, so he reluctantly decided to call corporate headquarters for this unusual request.
My stomach was in knots the whole time he was gone, because he said it was iffy that corporate would come through. Fifty minutes later, however, he emerged with a check in hand, resentful of the time away from his busy schedule. Stressed, he told me to never again expect another C.O.D. and that any future sale must be on credit. Luckily, I made it to the bank with a few minutes to spare.
Know Your Product Thoroughly
I received a disheartening phone call shortly thereafter: my wire was breaking. This horrible news fueled the fire of my fears. Would I have to reimburse my customer? Would my vendor refuse to reimburse me?
My customer told me to come over and take samples of his good wire to see if I might duplicate it. I did that and educated myself on the necessary qualities.
My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.
Voila! I found another wire supplier that had the right specifications. By then, I was savvy enough to act as though they would naturally give me thirty-day terms. They did!
More good news: My customer merely threw away all the bad wire I'd sold him, and the new wire worked perfectly; he then gave me leads and a good endorsement. I rapidly gained more wire customers.
Anticipate The Dangers Of Exponential Growth
I had made a depressing discovery. My working capital was inadequate. After I purchased the wire, I had to wait ten to thirty days for a fabricator to get it reconfigured, which became a looming problem. It meant that to maintain a good credit standing, I had to pay for the wire ten to thirty days before my customers paid me.
I was successful on paper but was incredibly cash deprived. In other words, my exponentially growing business was about to implode due to too many sales. Eventually, my increasing sales grew at a slower rate, solving my cash flow problem.
Delegate From The Bottom Up
I learned how to delegate and eventually delegated myself out of the top jobs of CEO, President, CFO, and Vice President of Finance. Now, at seventy-eight years old, I've sold all but a third of Vulcan's stock and am semi-retired with my only job currently serving as Vice President of Stock and Consultant.
In the interim, I survived many obstacles and learned many other lessons, but hopefully these five will get you started and help prevent some of you from having the same struggles that I did. And in the end, I figured it all out, just like you will.