David R. Henderson  

The Incredible Chinese Contract Manufacturers

Great Moments in Responsive Go... Allen Wallis vs. David Henders...
Contract manufacturers make products for other companies that prefer to focus on product design and marketing. In China, "you can find a specialist in any product," said Stephen Maurer, a Shanghai-based managing director at consulting firm AlixPartners. "You want a toaster oven? There are a dozen contract manufacturers that make toaster ovens. That kind of contract manufacturing just doesn't exist anyplace else."
This is from James R. Hagerty, "It's No Fun Making Toys, Toasters in USA," Wall Street Journal, February 10, 2015 (print edition.)

The article is interesting throughout. Because it's gated, though, I'll mention a surprising statistic, surprising to me at least:

Chad Bingo, a college student from Rochester, N.Y., came to the same conclusion after inventing his Gotta Go Button, a device that lets pets signal when they want to go outside. Of the two Rochester-area companies he approached, one could provide only plastic molds, not finished products. The other offered to find a manufacturer in China but needed a minimum order of 5,000 devices. Mr. Bingo didn't want to risk ordering so many immediately.

Using Alibaba.com, Mr. Bingo found a company in Shenzhen, China, willing to make just 500 of the devices, which retail for $14.99.

Wow! He could actually find a manufacturer in China willing to make just 500!

Also, the article talks about Charles Heidenreich, head of Swift Manufacturing & Engineering in Madison, Wisconsin, who wants his firm to compete with Chinese contract manufacturers. The problem? He can't, at a reasonable cost, commit to as low a production run as his Chinese competitors can. This comment of his, though, didn't make obvious sense:

One problem, Mr. Heidenreich said, is that "there aren't enough people like me," fighting for orders from America's product designers.

Doesn't he mean that he wants more people demanding such orders, not supplying them?

One other interesting tidbit in the piece:

U.S. manufacturing production finally crawled above its pre-recession level in October, but manufacturing employment is still about 10% below the tally before the recession began in December 2007.

And I guarantee that it never will hit its December 2007 level. The reason? Not mainly foreign competition but mainly increases in manufacturing productivity. Every major manufacturing country in the world, including China, has lost manufacturing jobs.

Comments and Sharing

COMMENTS (7 to date)
Lupis42 writes:

I'd presume that he thinks (plausibly) that more people demanding such orders would make more firms placing such orders look to US firms, and more workers to specialize in improving the efficiency of those firms. In other words, a larger market would increase the pool of available workers and available work.

It seems like a very odd way to put it, but if he's essentially saying that an increase in supply would drive prices down, it's not that surprising.

Grant Gould writes:

As someone who has spent the last 15 years in the startup space -- "there aren't enough people like me" is an absolutely ubiquitous sentiment. I've never met a startup CEO who didn't at some point say something similar. If you are the only person doing something, nobody will ever know to look for you. Your marketing problem is enormous -- nobody even thinks to look for you, or understands the ads you push out.

If you are the only one, you have to figure out how to tell the world that you exist; if you are one of a dozen, you just have to be the best.

David R. Henderson writes:

@Grant Gould,
Thanks. That helps.

Hazel Meade writes:

There are American companies that will make finished PCBs, chips soldered on and everything, and there are companies that will make you a plastic mold for a body, but you're right, there probably isn't a place that does a complete integrated product. Youd have to do the final assembly yourself.

I have a friend who got into business for himself making microcontroller-based products, where he was ordering the circuit boards from China and doing the electronics assembly himself. He also mentioned this thing, that the company he was ordering the boards from basically came right out and offered to make the entire finished product for him.

He said no mainly because he was worried they would make copy-cat products since it wasn't under patent.

James Forrest writes:

There are countless contract manufacturers of electronic products in the United States for startups to use. The advantage is that you are close to home and can iterate your design far, far easier. I have used Plexus, Flextronics, and others over the years, though generally the best price/performance over the long term will come from China as the entire supply chain is lower cost than here. Move there when you know you have a winner. David, I hope to see you at the meeting in Washington, D.C., we can speak at greater length. I have been going to China since 1981.

Capt. J Parker writes:

I subscribe to WSJ, I think everyone should. But, if you don't, you might want to try entering the exact title of a WSJ article into Google and then following Google's links just to see what happens. You might find yourself reading a few free WSJ articles and wanting to subscribe. Murdoch's editorial crew is good at exposing the follies of both mindless progressivism and crony capitalism.

Allen Pratt writes:

As a Chicago-based lean manufacturing consultant, I see US manufacturers that don't worry about the West Coast port shut down. Many US manufacturers are ready to compete and restore the strength in the sector again.

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