Sleepless nights for many manufacturers
news.ft.com
Published: November 3 2003 20:11 | Last Updated: November 3 2003 20:11
Additional reporting by Victor Mallet
...........................................................................................................................................
James McGregor is president of Osmi Morgal, a family-owned metal- stamping business with a factory in Springfield, Ohio - a state that, along with Michigan and Indiana, is the heartland of manufacturing in the US Midwest.
The company, established in 1939, makes metal stampings for parts in the vehicle industry and for lawnmowers and gardening equipment. But a year ago one of the company's customers dropped Osmi Morgal as its source for a component in favour of a Chinese company that could make the part more cheaply.
"It was quite eye-opening for us because it was the first time it really touched us, losing to a Chinese source," says Mr McGregor.
Losing business in such a way has reached epidemic proportions over the past 18 months in the Midwest. Companies that for decades relied on large customers such as Wal-Mart, the US retailer, to buy components are seeing those customers turn to cheaper suppliers in China. Vehicle parts suppliers are being forced by carmakers to set up operations in China. Eric Turnquist, purchasing director of Automotive Electronic Controls, an Illinois maker of switches for windscreen wipers and wind ow winders, says: "[The carmakers] don't really care where you make it; they just want the lowest price."
The Federal Reserve Bank of Chicago, in a study of the Midwest's manufacturing and trade relatio nship with China, estimated that between 1997 and 2001 the region experienced relatively higher growth in what it calls "import penetration" from China than other US regions.
The Chicago-based US-China Chamber of Commerce (USCCC) has experienced a surge in the number of companies seeking advice in the past year. Siva Yam, its president, says: "It's very s erious. You've got people who can't sleep. There are people phoning me on a daily basis."
Midwestern businesses are badly positioned because many are family-owned and have not reinvested their profits. Mr Yam says: "They just took the money out and did not loo k to the future."
Concerned businesses are also putting local politicians under pressure. John Smirnow, a lawyer with KMZ Rosenman, a Chicago-based law firm, says: "The volume is definitely gett ing louder that China is the primary cause of jobs lost in American manufacturing, and in the Midwest there are more congressional folks getting involved."
Last year, says Mr McGregor, small Midwestern vehicle companies lobbied Washington against steel tariffs that have increased the cost of certain types of steel. He says that China's effect on US manufacturing is next in line. "A lot of people had not done that [lobbying] before. Now they are mobilised . . . that activism will transfer from steel to China."
Yet many Midwestern businesses at a USCCC conference last week appeared ambivalent about pushing for US tariffs on Chinese goods. Osmi Morgal's Mr McGregor says job s could be preserved if the US government insisted that goods sold in the US contained a minimum amount of domestic content. He does not believe that tariffs are the answer. He also acknowledges an "internal debate" within his company between those who want to relocate some of its manufacturing to China to reduce the cost of assembly back in the US, and those who want to retain capacity in the US to preserve local jobs.
Mr Yam and other observers say companies faced with the Chinese low-cost threat have no choice but to set up manufacturing facilities in China.
David Helfrey, a lawyer who runs a practice in St Louis, Missouri and in Shanghai, says companies that do not move to China risk "going out of business; it's that simple".
He says: "We [the US] are creating markets in China that did not exist. Now they're buying Boeing and Airbus. If you isolate any piece of the puzzle with something like tariffs it's not a fair look at what's really happening. We're getting cheaper stuff here, but the Chinese are creating markets for our goods. It's a win-win situation, even though there are structural dislocations in both countries.” |
