Product Global

China Will Soon Overtake the U.S. as India's Largest Trading Partner

In my last post, Fort Payne, Alabama Shows How to "Git 'Er Done" When Challenged by Cheap Imports from Low-Cost, Overseas Labor, I covered a story regarding a U.S. town adapting well to the challenge that global trade and low-cost offshore labor poses to them.  I saw this article and I thought it would make a great follow-up, and highlight what's going on while the United States' debates whether freer trade or more trade barriers is the key to maintaining the United States' economic excellence.  I say "excellence" in the place of "dominance" because, as this news flash shows, there are two other would-be superpowers that may soon share the limelight with us. 

This news came to my attention by way of SpendMatters (Jason Busch, SpendMatters author, cited  World Trade Magazine and India's Economic Times).  Anil Gupta, of India's Economic Times, writes in his article, The Future of India-China Trade:

First, trade between the two countries has grown very robustly. Each country’s aggregate international trade is expanding by 23-24% annually. In comparison, India-China trade grew at a 50% rate during 2002-2006 and will increase by a further 54% during 2007 to reach $37 billion.

Second, after adjusting for partner GDP (i.e., bilateral trade divided by the trading partner’s GDP), India’s trade with China is greater than that with Japan, the US, or the entire world. After similar adjustments, China’s trade with India is only slightly below that with Japan, the US, or the entire world.

Third, China already is (or will shortly become) India’s number one trading partner. From China’s side, India already is one of its top ten trading partners. Also, China’s trade with India is growing much faster than with any of the other nine. Thus, India is rapidly becoming an increasingly important trading partner for China.

Fourth, India’s overall international trade is significantly below that of China’s, in terms of both absolute figures (for 2006, $306 billion vs $1,760 billion) as well as relative to GDP (34% of GDP vs. 65% of GDP).

Fifth, even if the growth rate in India-China trade slows down to 25% annually (a conservative projection) from the current rate of over 50%, bilateral trade between them will be almost $75 billion in 2010 and $225 billion in 2015, i.e., as large as China-US trade just three years ago. These are very large numbers. Political and business leaders need to start getting ready now for this radically different world.

There is still a lot left to unfold that could positively or negatively impact trade between these two countries.  China and India are dancing around various trading partnership deals (India-China Free Trade Agreement, India granting China Market Economy Status) which could foster increased trade.  In contrast, continued growth in trade depends upon these two countries not getting caught up in quibbles over trade issues and protectionist attitudes.

Currently, the United States, at large, seems to be debating clamping down on international trade (demonstrated by those with protectionist attitudes in Congress and certain presidential candidates) and those that promote increased trade between the U.S. and other countries (also demonstrated by certain members of Congress and the current administration).  While we think about these issues, we may want to take note of the growth in trade and relationship-building taking place between the two most likely candidates for shared, superpower status in the next 50 years. 

For my two cents, (which isn't as valuable in the global currency markets as it was one year ago), perhaps more open attitudes towards trade and more towns adjusting like Fort Payne, Al (e.g. increased focus on innovation, education, and higher-skilled jobs), are our best bet at maintaining the lead we've worked so hard to gain over the last 50 years.      

Fort Payne, Alabama Shows How To "Git 'Er Done" When Challenged By Cheap Imports From Low-Cost, Overseas Labor

As more low-skilled jobs work their way out of the hands of U.S. workers' and into those of low-cost laborers overseas, many in the U.S. shout "what's in it for us?"  Adaptation to circumstances like this has never been easy.  But, as anyone who has taken 6th grade biology knows, adaptation is critical to continued evolution and survival, whether you're a salamander, lion, or sock factory worker in Fort Payne, Alabama.

The following example of Fort Payne's sock industry dominance challenged by cheap imports from Honduras, China, and Pakistan, demonstrates that being edged off the factory floor by a low-cost labor force overseas doesn't always have to create a net loss to people in the United States.  It can, in fact, result in improved circumstances for our citizens here.  Fort Payne, Al, shows us that's not just crazy talk.

I caught wind of this story in a blog post at Marc Andreeson's blog.pmarca.com, and it seems it can be traced back to an NPR story found here.  Marc does a great job at putting the pieces together:   

The [US government] today announced it has [decided] to... apply a textile safeguard measure [i.e., protectionist tariff] on cotton socks imported into the United States [from Honduras]...

"[The US government] reached this decision after careful consideration of all available information and comments submitted by all interested parties. [What's that smell?] The substantial increases in imports of cotton socks from Honduras found during the investigation have led [us] to move forward with the safeguard [i.e. protectionist tariff] process..." said Deputy Assistant Secretary of Commerce Matt Priest...

[The US government] made a determination that a safeguard measure [i.e. protectionist tariff] is warranted with respect to imports of Honduran origin cotton socks based on the substantial growth in imports from Honduras. Imports of cotton socks from Honduras were 27.3 million dozen pairs through the first eleven months of 2007, an increase of 99% from the same period a year earlier. [The evil brown people are strategically swamping us with cotton socks!]

Based on the substantial level of imports of cotton socks, [the US government] determined that it will not, at this time, make a determination to apply a safeguard measure with respect to wool and man-made fiber socks. [The evil brown people are not yet strategically swamping us with wool and man-made fiber socks!]

Source: US government International Trade Administration.

The situation is grim for Fort Payne, Alabama, the "sock capital of the world", says NPR:

There's no question that globalization has been really bad for the sock industry of Fort Payne, Ala. Just a few years ago, the town called itself the sock capital of the world, and with good reason: Most of the town worked in the sock business.

There were more than 150 sock factories, churning out a big chunk of the socks worn in the U.S. But lately, there has been a flood of cheaper socks coming in from China, Pakistan and Honduras. It has devastated Fort Payne. Two-thirds of the town's sock mills have closed...

Jimmy Durham, the county economic development officer, shows just how grim things have been for the sock business here.

On street after street, he points to buildings that used to house sock mills, most of which are now gone.

Terrible, right?  Well...

With all these businesses shuttered, you might think [county economic development officer] Durham is in despair about the future of Fort Payne. He isn't.

Those closed sock factories are reopening as new businesses.

He points to Steadfast, which makes bridges; Ferguson, a major plumbing supply company; a distribution center for Children's Place; two new metal tube manufacturers; a high-tech label maker. For a town of only 13,000 people, this is a lot of new, good-paying employment. These jobs pay more than sock-making jobs.

In fact, most of 4,000 recently laid-off sock workers quickly found new jobs...

Durham says there has been a high-tech revolution in Alabama. Mercedes-Benz, Toyota and Honda have all opened plants in the state. And that means a huge influx of parts suppliers. BAE Systems, a major U.K. aviation company, opened an engineering office in Alabama.

Durham says there are now more high-paying, high-skill jobs in the state than there are people qualified to take them...

The unemployment rate has stayed the same, even as the population has increased. In other words, the number of jobs has gone up, even as thousands of sock-making jobs have gone away.

So why on Earth would the US government put a protectionist tariff on Honduran socks now -- particularly when Honduras is a fellow participant in CAFTA, the Central American Free Trade Agreement?

There's only one reason: a deal President Bush struck late one night in July 2005.

That July night, Bush met with Fort Payne's congressman, Robert Aderholt, to talk about tariffs and the sock business.

That meeting was, most likely, the moment Aderholt had more power than at any other time in his life. The House was voting on CAFTA, the Central America Free Trade Agreement. The vote was an exact tie. Aderholt was the holdout. And President Bush very much wanted CAFTA to pass. So, Aderholt offered the president a deal: He could get his big free-trade deal only if he rolled back free trade on one industry, the sock industry.

"I told him this was what I needed," Aderholt said. "This was the one thing I had great concerns about."

That night, President Bush agreed to Aderholt's deal. CAFTA passed. And the White House gave itself a self-imposed deadline of Dec.19, 2007, to put back tariffs on sock exports from Honduras [which they missed by about a month].

Globalization can be tough on those in jobs and industries that can be done easily, anywhere.  I'm sure if my job or function was outsourced within a year to someone in India or China, it would be a challenge for me to reassess my situation, pick up what I have left, and keep moving forward.  But, adaptation is critical to my survival and is an intrinsic element of a globalizing world.  If I sit on my haunches, I'm done for.   

The bright side is, like many workers in Fort Payne, I may find myself in a better position.  Trading out low-skilled/low-paying jobs for higher skilled/higher-paying jobs can be advantageous if tackled head on.  I have to extend kudos to an entire town that seems to be on their way to accomplishing this.  They're changing with the times and finding a better future for themselves, rather than throwing up their hands and saying "no fair".  The Honduran sock makers may have a better claim to "no fair", who are also honest, hard working people who want to provide for their families.  They are unable to compete to their full capability, not because of economic forces, but political wheeling and dealing on the part of our politicians.  Hopefully, they're just as resourceful as their Fort Payne counterparts.         

 

High-Quality Manufacturing is so "in"! How Can You Get Some?

Getting quality product from offshore manufacturers entails laying out and adhering to a development process.  Time to market is important, but delivering poor-quality product is probably worse than delaying your ship date a bit.  If I buy a product and it doesn't live up to it's promise (translation: it's a piece of &$#@), you better believe that I'm not going back to that brand. 

To build quality INTO your products, consider the steps in the process that may need to take place and the time you may need to accomplish them.  Below is an example GANTT chart (you should be able to click on it to open it) for a product development schedule of a consumer electronic product I just came up with (this one is pretty cool and if 1% of the human market buys one, man...)

This is a pretty raw chart, meaning it's not based on a whole lot of information, and activity timelines could lengthen or shorten a bit depending on the issues that arise, the kind of product, etc.  This particular product requires complex, high-quality injection molding.

We're at least 6 months out from being production ready.  What's taking so long?  Well...

• Production Package Release: The company has provided a full design package including industrial designs, parts drawings, Bill of Materials, and Specifications.  This is important.  It lays out exactly what the product will do, look, feel, and how. 
• Factory Review/Component Sourcing/Costing:  A factory then needs to review all the materials received, answer any initial questions, go out and contact the appropriate suppliers, review relevant information with them, assemble all of the initial production and cost information, and pass that back onto the company.  It's similar to the telephone game you played in Kindergarten, only harder.
• Looks-like/Works-like Prototype Build: If the company builds a prototype, this will give them a good indication that the factory is nailing down the concept on their end and may provide the company with something to show the market, investors, etc.
• Contract Negotiation/Prototype Approval: There's usually some back-and-forth with the factory regarding costs.  There will also likely be some modifications made to the prototype after the company's review, until the prototype is "approved" by the company.
• Tooling Release (start):  Upon the approval of the prototype, the company issues a tooling release to the factory.  It's time to build those big steel molds so that we can shoot molten plastic into them a million times or more.  The timeline on this may vary quite a bit.  Usually, 3 weeks or so is a minimum.  But, if my satellite imaging/dog feeder/garlic dicer needs to have specific finishes on the plastic to give them that sleek and shiny look, then extra time may be needed to polish and fine tune the tools to accomplish this.
• First Shots on Tools: When the tools are completed, the factory runs them.  They shoot the plastic in them and see what comes out. 
• 1st Engineering Pilot/Parts Review:  The factory tries to put the pieces together to test for "fit and function".  They may also pass the peices onto the company for feedback.
• Tooling Modifications:  More than likely, modifications will need to be made to the molds to get them right.
• Final Shots on Tools: The tools are run again.  Steps like this probably won't take a week.  But it never hurts to have a little buffer time that may be eaten up somewhere else in the process.
• Final Engineering Pilot/Parts Review: The pieces are tested and reviewed again by the interested parties.
• Tooling Release (complete): When the pieces work, the company issues a tooling release indicating that the tools are approved.
• Package Art Release: The company issues the packaging art to the factory.  This may happen at different steps in the process and is not really dependent on the other steps.  However, it's advisable to be moving into this phase earlier rather than late. 
• Print Proof Review/Approval: The factory sends packaging "proofs" back to the company for review.  If the proof looks good, the company signs off.
• Product Testing: The product, in packaging, is needed for these steps.  Depending on the kind of product and the duress it will be under during transportation, use, etc., the factory will put the product and packaging through several tests.  Tests may include drop testing, environmental testing, transportation testing, power testing, throw it against the wall and see what happens testing, put it in the smoke break room and see what colors change testing, and finally my favorite, pour red bull and vodka into it and see if it can stay out at the club until 6am testing). 
• Production Pilot:  Once the product meets the specs in the testing, the production line is set up, run, and debugged of potential issues.
• Production Unit Review/Approval:  The first articles (the first units coming off of the production line) are reviewed and sent to the company in package for approval.  This is their baby and represents what will soon turn into millions of products flying off of the shelves into consumers garages or "what-have-you" drawers. 

I've now hit my bullet point quota for the next year, but there's quite a lot to do here.  Going through a process like this, with several tests and verifications along the way, helps to ensure that what a company gets out of the production line on the other end is what they wanted in the beginning.  Notice that this doesn't even include incoming QC inspections, production line inspections, and 3rd party inspections before shipment.   But if you allow yourself enough time to go through this process correctly and efficiently, you end up keeping your promise to your customers with high-quality products going into their hands.  That's so hot. 

Product Design for Cutthroat Pricing: Start Making Friends

The message of this post came to mind after reading a post by DT at DesignSojourn, entitled 25 Bad Habits of Industrial Designers.  A few of the bad habits mentioned, specifically No. 11 and No. 13 ("not being friends with engineering" and "not being friends with marketing", respectively), got me thinkin'. 

Here is a product development approach geared towards failure which I often see in markets with high price sensitivity: 

Someone designs the product.  Someone engineers the product.  Someone applies for a patent on the product.  Someone prototypes the product.  Someone sources offshore manufacturing on the product. 

                                                              (quick breath...)

The tooling cost or unit cost of the product, even offshore, is out of the ballpark in terms of the organization's cost targets AND/OR the materials or processes called out by the design will not be matched exactly offshore. 

The organization seeks the cheapest source and gets burned on quality, payment, or both, OR, the organization redesigns for manufacturing cost and feasibility overseas.  Design and engineering costs go up.  The patent claims become constrictive or are negated entirely.  Time to market is increased.  And the product manager, CEO, or whoever in charge puts on 20 lbs through stress induced over-eating.

I see this happen often in industries that are very price competitive, because if you are off by 5% - 10%, you're out of the ballgame. 

Some might say this is just part of the development process.  Sometimes you win, sometimes you lose, but onward we plod with a success rate that looks more like a baseball batting average.

Design is getting a lot of attention these days and that is good. Who doesn't like a well-designed product?   But...this also might encourage designers to feel they don't need friends in engineering, marketing, and manufacturing.  Yes, I'm talking to the guy wearing the black turtleneck. 

What would happen, if 3/4 of the way through the design or prototyping process, a designer called up a few other people in other departments or companies and asked for feedback?  Do they risk having their creativity crushed?  Do they risk a flurry of rejections that could kill inspiration?  Maybe. 

But, what if they learned that modifying their design could reduce the tooling cost by 30%?  Or, if the material they plan on using to give their product that "look", will increase the unit cost by a dollar.  Perhaps they might learn that their product is just plain large and heavy, and reducing it's size will reduce both the unit cost and shipping costs.  Quite often, designing a product to look "cool" adds cost.  Will the market bear that cost?

Good, experienced, industrial designers are often familiar with a lot of these issues.  But in today's world, in which people often need to specialize a great deal in a given craft in order to excel and become distinguished in their field, there is less time and energy to invest in learning about complimentary aspects of the business. 

Thus, the ability to make and collaborate with other specialists is a skill/habit that is becoming more valuable.

If it's price sensitive, you need to start making friends with everything (everyone) that impacts cost.  If it's going to be made overseas (after all, it's price sensitive), feedback from overseas early on will tell you if you're on the right track or not, and will probably save you steps in the long run.   Save that product design from the trash and start getting friendly.