|
|
Get Four
|  | NOVEMBER 29, 2004
The Trials of Competing with China Top execs at Bartlett Manufacturing in Illinois talk about the disadvantages they face -- and how Washington isn't doing anything to help Why can't small U.S. companies compete with their Chinese rivals (see BW, 11/6/04, "The China Price")? A good case study from the domestic printed-circuit-board industry is Bartlett Manufacturing, a Cary (Ill.) privately owned company. Its revenues, estimated at $9 million this year, are down 58% since 1999, when the 52-year-old company employed 230 workers. Today 85 work at the cavernous, 78,000-sq.-ft. plant. Recently Doug Bartlett, chairman, and Greg Meindl, president, spoke with BusinessWeek Special Correspondent Ann Therese Palmer about the burden of bidding against Chinese competitors. Here are edited excerpts of their conversation: Q: Describe your company's cost structure. A: Prime materials and supplies are 30% of sales. That includes copper, laminate, and chemical processes. Direct labor is 15%, indirect is about 10%. Miscellaneous outside labor, which includes jobbed-out production is 2%. Equipment maintenance is about 4%. Overhead is about 20%. Sales and commissions [are] 8%, general sales and administrative 6%. These costs total 95%. The rest -- 5% -- is profit. For a double-sided 18 x 14 panel, the price is $45. Q: What are your labor costs? A: The total cost for all labor last year was $1.3 million for direct labor, $856,000 for indirect labor, $109,000 for services off-site from an electrical-testing and gold-plating service. [The company's] total labor costs last year were $2,265,000. This year, labor costs will be down because the company has downsized by 10 employees for a labor savings of $226,000. Q: How have your other costs fluctuated? A: The cost of laminates is up 40% from last year due to raw materials costs in China. The price of copper is up 60% from last year. That has resulted in increasing our prices by 8%. Our cost of natural gas, used in the winter, has risen 30% to 40%. Our electric-utility taxes are up 5% to 7%. With transportation costs, we've just been hit by our carriers for extra surcharges for fuel. That's a 1% increase. Our health-care expenses are very high. They've gone up 15% in the last year for basic medical, hospitalization, and dental. We've had a 5% increase in workers' comp and unemployment comp for each of the past two years. Q: How do your company's costs compare to those of a Chinese competitor? A: The Chinese are able to bring their products to market at a substantially lower cost by fixing their currency at an artificially low rate against the dollar. The cost of materials should be relatively close. There's only one daily quote for copper as a resource worldwide. [But] if you look at the average input from employees top to bottom between the U.S. and China, my guess is that their employee output might be 30% to 40% higher. When you factor in the significant price differential due to their currency and the lower labor, that's how they beat us. Q: Which of these cost differentials is particularly troublesome? A: There's a game being played in the international marketplace with subsidies. Chinese circuit-board manufacturers are being subsidized by the Chinese government. If you export, you're going to get a rebate of about 15%. In addition, the Chinese currency is being kept artificially low. It's about 40% below what it should be at. Back in the '90s, the Chinese built laminate factories and destroyed the U.S. laminate market. You can't make boards unless you have laminates. Then board production moved offshore. The U.S. government has done a spectacular job of destroying its own manufacturing base. Assemblers are moving offshore at a rapid rate. I don't think [the trend has] hit its peak yet. Assemblers are following the same path as laminates and circuit boards. Once you've got the laminates, circuit boards, and assemblers in China, how are you going to be able to design anything here when all of the factories will be there? Q: Do you have competitive advantages? A: The only thing we've got is our proximity to domestic purchasers' locations. For small runs, we can be cost-competitive because the Chinese like larger runs. Because we're closer than China, we can communicate with a customer to work out engineering and debugging problems. If someone needs something really fast, we can do it. But now you can ship from Beijing to Chicago in 24 hours. Out of the jobs we bid for, we get one-tenth and lose seven-tenths to foreign competition. Five years ago, we'd get one-tenth of bids, but we'd be losing seven-tenths to domestic competition. Q: What's your industry doing to help itself? What about the government? A: Last year, we organized the U.S. Printed Circuit Alliance in Evanston, Ill. We've got 70 members [out of] about 500 U.S. companies. The industry is so fragmented and the owners are spending so much time and money trying to survive, they don't have the money to fund this effort. We don't even have money for a lobbyist. The industry can't bring an antidumping case because it doesn't have the money. It costs upwards of $1 million. If we were to go to the Dept. of Justice and ask them to bring a suit, the first thing they would say is, "Where's your attorney?" They want cases that are already researched, not complaints. The government isn't doing anything. It has plenty of money to train people for new jobs. It should help companies incorporate new technology that's being developed in the defense industry. If the government would allocate some money to help us research legal cases, in which we could prove the impact of how the Chinese are using their currency to unfairly compete against us industry-by-industry. We'd get some relief from foreign cheating. And, if the government would help bring modern technology to small businesses, we could compete. Q: Where do you see your business headed in the next five years? A: Our volumes [sales] will increase slightly because our domestic competitors will go out of business. I'll continue to be profitable for the wrong reasons -- because I work in a declining industry, not a growing industry.  Edited by Thane Peterson
BW MALL
SPONSORED LINKS
Buy a link now!Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
