29 Jan 2010
Low price is a powerful weapon in the arsenal of Chinese manufacturers. That's the bad news. The good news is that it is their only weapon.
Yes it's powerful, but it isn't all-powerful. I believe there are several approaches U.S. manufacturers can explore to counter these low prices, but it will take a willingness to change and to take some risks.
Product safety should be a big issue. Here's a shocker for you: Chinese manufacturers have been making children's jewelry laced with cadmium, a toxic heavy metal. Apparently they are running low on lead, which is also unhealthy in toys.
Just this month, The New York Times reported the Chinese government shut down a milk producer in Shanghai after finding the toxic chemical melamine in powdered milk. This happened three months after the November 2009 executions of two businessmen involved in the 2008 Chinese milk scandal. Melamine-tined milk killed six children and sickened 300,000 in that one.
I don't think I'm the only person in the U.S. concerned about buying unsafe products made in China. But I believe there are many people whose awareness could be increased dramatically by U.S manufacturers and retailers.
In a country where people pay premium prices for organic vegetables and gourmet pet foods, one has to believe there is a large segment that would pay premium prices for guaranteed toxin-free items made in the U.S. I'm thinking toys, jewelry, dinnerware, baby bottles, utensils, food containers and perhaps even clothing, to name just a few.
Another potential advantage for U.S manufacturers is ease of doing business.
It's not that easy to buy things in China. There are language issues and differences in standards. There are all manner of other issues introduced when a supplier is halfway around the world.
Consistently superior customer service can be a powerful equalizer. Unfortunately it is still uncommon to hear horror stories in the U.S. about poor customer service from the first phone contact all the way to the first call for help with a warranty problem.
My definition of superior customer service is expansive. It includes responsive, helpful people who are thoroughly trained and know their products inside and out. It's the operational excellence to deliver high-quality products fast, to keep delivery promises and to react when customers need something expedited or changed.
Manufacturers must stand behind their products when problems arise, solving the customer's problem first and assigning responsibility later. If you aren't significantly easier to do business with than a Chinese competitor, you are in trouble and have no excuse.
One Big advantage U.S manufacturers have over their Chinese counterparts is proximity to customers.
Of course, it's only an advantage if manufacturers exploit it. By that i mean offering services the Chinese manufacturer can't match. Customers who order from China typically buy in larger quantities to minimize the number of deliveries and to provide buffer inventory in case a shipment is lost or delayed. A nearby manufacturer can offer smaller, more frequent deliveries to help customers reduce inventory and improve cash flow.
Carrying this to the extreme, local manufacturers can become embedded in a customer's supply chain to the point of managing the customer's inventory levels, keeping bins or shelves filled as necessary, and providing one monthly bill for all the goods provided. Manufacturers of fasteners have done this for years, but almost any commodity can be handled this way.
Offering services isn't the whole story. Manufacturers need to know how to sell the service. That means helping customers understand the total cost of doing business in China, recognizing increased cash investments in inventory and accounting for other risks. Sales people must be properly trained to do that analysis and make those arguments. If all the customer sees is two prices and yours is higher, you can predict the results.
Manufacturers having trouble competing head-to-head also can consider finding strategic partners that either broaden their offerings or bring in new skills. If customers need more technical support and you can't provide it, maybe you can partner with an engineerings firm. Perhaps there are suppliers of complimentary products having the same competitive trouble that could join forces to provide customers with a broader, deeper offering or more technical expertise and support.
Looking at the very big picture, manufacturers clearly must support their chambers of commerce, manufacturers associations and individual trade associations. Those organizations can speak for large groups of manufacturers and work to curb practices such as dumping and currency manipulation that can give Chinese manufacturers unfair price advantages.
But it's not enough to join organizations and wait for change. Manufacturers must concentrate on the things they can control now. Assuring product safety, superior customer service, taking advantage of proximity and broadening customer support through alliances are strategies that manufacturers of all sizes can explore and implement right now.