Monday, October 3, 2011

Why One Small US Manufacturer is Moving Operations to China

Photo Credit - Flickr Common

Most Americans want to buy products made in the U.S., and many large and small manufacturers want to stay in the U.S. to produce their products. Americans certainly want jobs that have been American manufacturing jobs for decades to stay American jobs.


America knows it must better balance a consumer economy with rebuilding and retaining a strong manufacturing base to get back on its economic feet. We all know manufacturing is a job and revenue multiplier in the economy. When we lose manufacturing, large or small, we lose that multiplier.


Health care, the fastest growing industry in the U.S., was under served in the medical apparel segment. Founded in May, 2008, Medelita identified that need and led the creation of a new market within the segment to address it. It was also evident to them the needs not being met in the U.S. were not being met internationally.


Located in Orange County, CA, Medelita designs, manufactures, and sells unique, upscale medical apparel in the medical uniform market place. Their product line includes: men and women’s lab coats, dental lab coats, clinician scrubs, men's scrubs, nursing scrubs, scrub hats, Sanita clogs, and Amodex Ink & Stain Remover.


In less than three years, the company has earned the patronage of customers in every sector of health care, from medical directors and professors at the nation’s most prestigious hospitals and medical schools, to office based physicians, dentists, and veterinarians. By complimenting its superior product line with embroidery and customer service, it has created brand equity in its space.


Medelita is a wonderful small business growth story despite launching during the Great Recession. They have created American jobs in the last two and half years.


They must now move their manufacturing to China to improve product quality and to continue growing their business. Joe Francisco, Medelita’s President and Chief Marketing Officer, explains why.


BKH: What was your inspiration for the company and your products?

JF: Our founder, a Certified Physician Assistant of ten years, Lara Manchik-Francisco, was frustrated by the lack of quality and innovation in the scrubs and lab coats she had worn throughout her professional career.

The industry was lacking a brand focused on comfort, fit, quality, and a professional appearance.


We saw an opportunity to introduce certified advanced fabric technologies, such as fluid and stain resistant treatments and moisture wicking bacteriostatic fabrics, which previously had not been introduced.


BKH: What gave you the confidence to start a company during the Great Recession?

JF: Honestly, naiveté. And, we had already committed resources to fabric and website design. We were all in from day one and unwavering in our drive to see this concept to success.


BKH: Did you find it easy to start the company?

JF: Going from zero sales and zero brand awareness to seven figure sales during a recession is difficult. One must be committed to the brand proposition and distribution channel. One cannot make emotional decisions based on short term issues.


We stayed focused on where the business needed to be 1, 3, 5 years from that first day and what we were doing every day to get to those goals. There were steep learning curves, and there continues to be daily learning experiences and challenges.


BKH: What has been the growth of your company since 2008?

JF: We are proud to say that since we launched, we have grown from our two founders in 2008 to sixteen full-time employees and one part-time employee during this difficult time. We project we will be adding up to ten more people to support our growth in the next eighteen months.


BKH: To what do you attribute your success?

JF: We have a commitment to unparalleled quality in our products. We have stayed committed to our branding and marketing goals.


We live by the golden rule of customer service, treating our customers the way we want to be treated. It’s simple - answer emails and return phone calls in an hour and “always” follow through on promises.


BKH: What are your needs now to expand to meet demand?

JF: We need to continue to grow our product assortment and capitalize on the brand equity Medelita has earned over the last few years. To do so we need capital to support the growth. Financing is difficult without a significant history of profitability, and we are experiencing the strain this puts on growing a small business daily.


BKH: Why are you now moving your manufacturing outside of the U.S. to China?

JF: The quality is significantly better for woven goods in China and other Asian countries. Our overseas suppliers are all vertical and can easily continue to scale our production to meet our demand.


Quality and scalability were not available to us in the U.S. at a competitive price. It came to a point where we had to make the decision – either go out of business or move production overseas and continue on a strong growth trend.


BKH: What is America not offering that China is offering that would keep your manufacturing here?

JF: Again, high-quality woven goods are difficult to find in the U.S. We could not find vertical suppliers who could match the quality, performance fabric capabilities, production scale and competitive pricing that we find globally.


BKH: What are the pros and cons of keeping your manufacturing in America?

JF: The pros of manufacturing in America are a quick turn of goods which means a more manageable cash flow and the ability to personally oversee production without significant travel.


The cons are a lack of vertical supply chains and an inability for small producers of quality woven goods to scale due to lack of skilled labor needed to sew such intricate garments, and an unfavorable climate in the U.S. right now for small business.


BKH: What are the pros and cons of moving your manufacturing to China?

JF: The pros of moving to China and globally are significant. The suppliers we are working with globally understand the business climate in the U.S. and the opportunity. They are willing and able to help with inventory financing. These partners provide an exquisite quality and craftsmanship for our products. They provide scalability and the ability to control every aspect of the production from the raw materials to finished goods.


The cons are longer lead times, higher order quantities, and some countries have an unstable political climate which makes doing business more complex.


BKH: What has been most imperative in making the relocation decision for your company?

JF: The biggest impact is improving our quality and having very consistent delivery of our products allowing us to meet customer demand. While manufacturing in the U.S., there were constant delays causing back orders and disappointed customers. We have virtually eliminated back orders with our new partnerships.


BKH: What do you wish local California politicians understood about manufacturing job creation in the U.S.?

JF: It takes a substantial long-term fiscal commitment. State and federal governments should offer competitive grants to self-organized groups of manufacturers. These grants would help manufacturers solve problems they have in common, but which they cannot solve individually because of market failures.


Groups could be organized within an industry. There are many of us who would like to manufacture in the U.S. but simply cannot.


BKH: What do you wish the President and Congress understood about manufacturing job creation in the U.S.?

JF: Small business is the engine for growth in this county, and they are still being ignored as Washington talks about job creation. The Small Business Administration loan programs are not working for the average start-up.

Every single job is difficult to create for small business. It’s not like adding someone to a Fortune 500 company.


BKH: What major changes need to occur in America to build and stabilize U.S. manufacturing and have jobs remain in America?

JF: There needs to be a genuine effort to support new, young growing companies from a position of understanding business start-ups and entrepreneurs. There needs to be grants and favorable loans for working capital.


There needs to be an understanding and realism that the traditional manufacturing jobs may not come back to the U.S. now, but new jobs can and will be created by supporting growing companies.


BKH: Once you have made the investment to move your manufacturing operations outside of the U.S., will it ever make sense for you to bring it back to the U.S. in the future?

JF: We would be extremely proud to bring manufacturing back to the U.S. I am not sure it is possible due to the competitive landscape and how much ground we have already lost in the U.S.


We are not optimistic that it would be possible to bring it back, even though we would have liked to have stayed in the U.S. in the first place.


BKH: Thank you for your candor. You can follow Medelita on Twitter and Facebook.


Manufacturing has been leaving the U.S. for more than a decade and continues to leave. Large and small operations are leaving mainly due to the rising cost of taxes and regulations as well as a vital missing link – qualified American labor.


The majority of these companies do not want to offshore operations as a first choice, yet they cannot stay in the U.S. and remain competitive in a global manufacturing environment. Many would point to trade agreements that were not negotiated well on behalf of the American people as the starting point of this decline.

Washington has spent a lot of time talking about job creation the last few months gearing up for the 2012 election. The truth is there have been poor job creation results to show even after spending $878 Billion in stimulus.

Spending hundreds of thousands to millions of dollars per job in a stated goal plan to create or save jobs, non-permanent and permanent, is an utter failure in any reality but a political one apparently. It is time to be honest.


Would a private sector company create a success story this way? Would they even be in business a year later with no accountability on spending and burn rate of capital?


Would politicians hand over money like this if it was coming out of their own personal pockets? Would they allow enormous wasteful spending and no accountability if the money was coming out of their own personal business venture, family business, or salary?


It is vital to remember, government does not create jobs in the private sector, but it does create legislation and an environment that promotes jobs or kills jobs.


We are starting in a reality where the President’s Economic Council on Jobs and Competitiveness is headed by the Chief Executive Officer of General Electric Company Jeffrey Immelt - a company taking a lot of its manufacturing, jobs, and intellectual property paid for by American taxpayers to China in addition to having paid no federal income taxes on billions in profit.


China will make $350 Billion from America this year. Columbia will make $4 Billion. President Obama championed investing in Brazilian oil exploration, telling them America wanted to be their best customer, while refusing oil exploration to American oil companies.


None of this is acceptable, and we must get serious as a nation. Free trade has not been fair trade or good necessarily for American workers and jobs as it turns out. We must be honest with ourselves.


Just as important for any business, large or small, politicians must acknowledge there is a need for business to be able to plan out 3-5 years with reasonable projections.


Tax policy based on political gamesmanship and extreme levels of cost increasing regulations, that seem to change every six months to a year based on reelection politics, do not allow business to soundly plan for growth and investment back into their company.


This is the “uncertainty effect” that is keeping investment capital money on the sidelines that Washington does not seem to comprehend. Washington must also comprehend they can not demonize private sector business and then demand they create jobs under these conditions.


If the U.S. would do the following, there might not be a need for companies like Medelita to have to move manufacturing and jobs to China to expand operations in the future:

  • Stop political demonizing of the private sector and business owners.
  • Respect that it is the private sector that creates wealth, not the public sector or government.
  • Stop the privatization of success and the socialization of failure in our capitalistic system.
  • Recognize no business is too big to fail. Comprehend when a business fails, another with a better business model, or with a better product, or with better business practices will replace it.
  • Comprehend the multiplier effect of a strong manufacturing base on positive economic growth.
  • Respect that the public sector is paid for by money earned in the private sector.
  • Respect the taxpayers’ hard earned money in every government expenditure. Treat all spending like the money is coming from your own personal checkbook instead of looking at taxes collected as an unlimited, grows on trees, open checkbook.
  • Eliminate the business climate uncertainty by understanding business plans out 3-5 years.
  • Make small business loans more accessible.
  • Promote investment in American industries over the same industry in foreign countries.
  • Promote job training in the direct manufacturing skills now needed.
  • Promote globally competitive tax rates instead of class warfare.
  • Review and eliminate industry and job killing regulations.
  • Negotiate fair Free Trade Agreements and have real private sector business professionals negotiate on behalf of America not politicians or diplomats.
  • Eliminate anyone from a company that is outsourcing jobs on the President’s Economic Council on Jobs and Competitiveness. Include more successful small business and manufacturers on the council.
  • Recognize Congress is the U.S. legislative body not unelected agency directors or Czars.
  • Respect the three branches of federal government as equal and a needed check and balance.
  • Read every bill and comprehend the law of unintended consequences to formulate a yes or no vote.
  • Put common sense and meaningful action in political intent and then walk the talk.
  • Stop the constant political gamesmanship, spin, and crony capitalism.
  • Care more about the livelihoods of the American people than political careers and reelection.
  • Be our own best friend instead of our own worst enemy.
We have a lot of problems in this area. Yet, if we can put a man on the moon and create the Internet, would you agree we can rebuild the manufacturing base in America as a nation?

Brenda's Related Articles:

"Reshore" U.S. Manufacturing to Stabilize Credit Rating, Reduce Debt, and Create Jobs, BusinessInsider.com

Special 5 Part Series – Bringing U.S. Manufacturing Back, AXcessNews.com


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