INC Magazine on Sweatshirts in USA Vs China

INC Magazine has an article comparing making a sweatshirt in USA vs. China.

Google grabbed headlines recently for its decision to make its wearable computer, Google Glass, in California. The tech giant is not alone. As wages in China rise and intellectual property laws continue to be ignored, more companies are doing their manufacturing closer to home.

I've always taught find the best supplier in the world, and if it is USA, then make it here.  But is anything new going on?  Trade data suggests not, contrary to this article.

http://www.census.gov/indicator/www/ustrade.html

The INC article goes on..

A lot of companies underestimate how much American suppliers have closed the price gap, particularly for high-quality materials.

Well, if they do underestimate then they did not do their job, and deserve to fail.  There is nothing new in this article, there are other examples of the same.  But if INC is right in its summary, then I worry for American Giant:

If Winthrop manufactured in China, he would face currency fluctuations and higher financing and inventory-management costs. Then there's the value of clear communication. Recently, a quick email exchange with a supplier saved a potential $70,000 fabric dyeing problem.
...But it Still Costs More at Home...Cost premium for manufacturing in the U.S.: 10%--30%
...Even So, the Bottom Line Still Works.Profit margin for direct-to-consumer online sales: 50%--75%

One reason contract manufacturing in China is still growing, according to the actual trade data, is currency fluctuations, finance and inventory management costs, and clear communications are all management functions, and mission critical components of a business.  Chinese management of these is every bit as good but costs no where near what it does in USA.  And working with first rate management in China (if you do your job in finding them) you would not have had the dyeing problem to begin with.

Yes, you can get junk made in China, or first rate products.  Apple produces in China because Chinese management costs less and is more effective than USA management.  There is no real way to measure that except in results (how is manufacturing in China working out for Apple overall?).  But by insisting the problem is labor rates, and by the government controlled media constantly repeating known, proven lies about Apple in China, Americans never have to face being responsible in managing businesses in USA.  Advantage China.

The summary about the profit margin is a non-sequiter.  The B2C internet model and its gross margin has little to do with the source cost.  What the model misses is it costs more to attract customers with direct website internet marketing than with the traditional manufacturer(importer)/wholesale model.  Overwhelmingly more. He may talk of a "tidy (gross) profit" but I can pretty much guarantee he is running a net loss.

But wait there is more.  All this attention American Giant is getting has brought a spike in sales.  And in response, the company has done exactly the wrong thing...

In a lengthy conversation, Winthrop argued that wasn’t the case. He walked me through the mechanics of the delay—why, exactly, my story had sparked such a lengthy backorder, and what the company has been doing in the past few months to meet demand. He also argued that scaling up has been good for the company. Everything about American Giant is now more giant than before—the firm’s production capacity has increased by 15 to 20 times what it was in December, and it’s now planning on launching new products, including a women’s line that will debut in the spring. “This is a whole new ball of wax for us—we’re entering a whole new phase of growth, permanently resetting the company at a new level,” the company’s founder says.

Increase production to meet a news article spike?  What happens when mean regression kicks in and for an equal while sales drop below average and then return to normal trajectory?  How will they pay for all that new production capacity and the staff to manage it without the sales to warrant it?  A news article spike is not even a fad so there is no point in trying to manage a fad into a mania, like Ty Warner showed how.

But I guarantee you the Chinese could have met the demand, but you have to have good inventory management to begin with, something American Giant does not seem to have in place.

Before my piece ran, Winthrop had been slightly worried about the holidays. “I’d had a planning meeting with my operations guy, and he warned me that we’d overbought for the holiday season—that we were just too deep in inventory,” he says. “Then your piece came out, and orders started to come in. Within a few minutes I was like, Oh, wait a second, this is starting to pick up steam. I called our e-commerce team and talked to my main contact there, and he told me they were trying to level-load the servers because traffic is rising. And then as we were talking, he says, ‘Dude, I don’t know if you understand what’s happening. In the last minute that we’ve spoken, 55 orders have come in.’ It was just crazy.”

My prediction is American Giant will go under like the 1000 others who tried what he is trying, for exact the same reason, but now faster because of Romney/Obamacare.  Romney/Obamacare reduces the quality of health care in USA while wildly raising the price (not the costs, the price.)  The difference is going into the pockets of the bigbiz/biggovt combines that call the shots.  Making things in USA is getting more costly without any improvement welfare, in fact matters are deteriorating fast.  Look at the employment figures.

USA economic policy is urging USA manufacturers to mechanize and robotize work to replace employees, and where that cannot be done, offshore the work.  Republican and democratic economic policy agrees: destroy the American economy.  Look around.

As to American Giant going under, I could be wrong.  They might survive.  If they change tactics and begin to produce in China.

***John Spiers will be offering an all-day seminar on small business international trade start up at Orange Coast College, Los Angeles Area, June 29, 2013.  Full info here...***

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