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Manufacturers discuss international business

It’s not uncommon to see a “Made in China” stamp on a product and there are some good reasons why, said manufacturers at The Daily Transcript headquarters last month for a manufacturing roundtable.

“Today, right-this-minute today, if you start looking at the real cost in China versus the real cost in America, Mexico, Europe, you’ll start to see real parity in the cost of labor,” said Elliot Shev, senior vice president of SMS Technologies.

“People went to China because they saw dollars in their coffers.”

About 40 percent of consumer goods imported into the United States come from China, according to the U.S. Consumer Product Safety Commission.

Despite the inherent cost benefits of making products (or at least part of their products) in countries like China, Korea or Mexico, the manufacturers noted there are risks involved as well.

While China has the ability to produce things in mass quantity for a low rate, there is no guarantee that the parts will come back to the United States fit for use.

Shev and others at the roundtable, sponsored by Strategic Development Worldwide, said the cost of sending things back and forth because they do not meet quality standards can hurt a company.

“They can copy but they can’t really duplicate,” said Susan Long, the president and CEO of Diving Unlimited International Inc.

In Don Rodocker’s case, when his company SeaBotix Inc. needed additional copies of parts, the factory he was working with in China kept “jacking up the price” with every new order.

After doing the calculations, he said he discovered he could do the same plastic molding here in the United States for cheaper, with better quality and without the hindrance of a language barrier.

He mentioned, however, that his company needs parts in small quantities since it only produces about 125 underwater electronic units a year.

For larger projects, it makes sense for work to be sent elsewhere, but several roundtable participants said there is a major risk of getting their products reverse-engineered and seeing it sold under a different name.

Unlike the United States, which has patent laws, other countries either have limited or no rules to protect intellectual property.

China, in particular, does not have stringent patent laws, which can result in a company’s ideas getting “ripped off.”

“Without our patent protection, we don’t have a business,” said Brad Chisum, the president and CEO of Lumedyne Technologies. “We’re at a size where if one of the larger companies decided to make our exact same product we couldn’t compete… That’s one reason markets such as China become very scary for us. Our product is very difficult to reverse engineer, but certainly not impossible.”

HiTech Equipment Corp. President and CEO Ken Arnold said there was a bit of a “herd mentality” when it came to U.S. companies sending products to be manufactured in Asia.

“A number of years ago, the consumer electronics business -- just everyone -- looked and said, ‘Hey Asia’s cheap,’ and whoosh, they were out of the business in the U.S. and that was probably not a good long-term decision,” he said.

Shev, the executive of SMS Technologies, said he thinks it is possible for the United States to be competitive in manufacturing, especially since the dollar is weak compared to the Euro.

Shev said labor costs can be 10 percent to 15 percent less expensive in the United States compared to Europe, which could help bring manufacturers back.

Additionally, he said the quality of American products is alluring to international businesses.

“There could be a considerable advantage in doing business in the U.S.,” he said.

However, the group was less enthusiastic about manufacturing in California.

Labor laws, taxes and environmental regulations were all brought up as hurdles for manufacturers who want to do business in the Golden State.

“The rules tend to layer on,” Rodocker said.

However, many manufacturers, like Lumedyne and HiTech, stay in San Diego in particular to be close to their customer base.

* Video: Interview with Susan Long

Participants included:

Ken Arnold, President/CEO

HiTech Equipment Corp.

Brad Chisum, CEO

Lumedyne Technologies

Susan Long, President/CEO

Diving Unlimited International Inc.

Don Rodocker, President

SeaBotix Inc.

Elliot Shev, Senior VP

Industry Consultant

Victoria Zillioux, Managing Partner

Strategic Development Worldwide (Sponsor)

Send your comments to Jennifer.Lebron@sddt.com

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