Business owners looking forward to an international marketplace

September 18, 2005 

Irl Davis gets so excited talking about the new global economy he’s like a revivalist preacher, all words and waving arms.

He sees the shifting international marketplace as a thrilling opportunity, a world without borders, where every region contributes what it does best and everybody profits. People who complain about jobs being exported to China are living in the past, he says.

“The old way of looking at things is, ‘I’ve got a product and I want to sell it to them,’” Davis says. “That ain’t the way it works anymore.”

Davis, who owns the Gig Harbor-based company A/D Electronics, has been using Chinese factories to make connector cables for 21 years.

He is one of many Washington business owners who see outsourcing jobs to China not as traitorous but heroic, a way of honing the strengths of U.S. companies and allowing them to stay in the game.

China’s abundant supply of cheap labor left them no choice but to move, these American owners say. They are simply adapting to global economic realities and – sometimes – creating different jobs here.

Davis has come to regard China and America as mere players in a global orchestra. He has offices or factories in four countries and wants to broaden to more.

At A/D’s local headquarters, Davis has assembled a staff fluent in eight languages. His office in Shenzhen, China, is run by a Turkish manager who is fluent in Chinese.

Davis sees himself as a global conductor, a supply-side management expert who can hook up businesses with suppliers of components from around the globe, assemble them where it’s cheapest and market them wherever there are people who want to buy.

“This doesn’t take business away,” he says. “It helps other people succeed, and there lies the key.”

Bernie Yau, chairman of the Golden Dragon aerospace company in China’s Sichuan province, has a similar view.

“A lot of businesses in the United States are getting to the end of their lives,” Yau said. “If they don’t do something, their companies will be bought by Japanese or Germans. Then everybody’s jobs will be gone.”

Yau’s company makes complicated jet engine parts for aerospace companies, including Boeing. The parts could be made in the United States, he says, but they would be so expensive nobody would buy them.

The work his 130 employees do in China actually saves jobs in Washington, he reasons. Because Boeing can buy parts cheaper, it can be more competitive in international aerospace competition.

“We’re helping them win business from Airbus,” Yau said. “It’s not a matter of taking jobs. The alternative is no jobs.”

For Robert Propet, making shoes in China made so much sense that opening a shoe factory in America didn’t even register as a possibility.

China’s labor costs are so low, says Propet, owner of the Kent-based Propet shoe company, that making a competitive product in the United States is out of the question.

“Right now, you could not even make shoes in Taiwan or Korea,” he said recently at his factory in China’s Guadong Province. “If we didn’t come over here, we would be obsolete from this industry.”

“For us it was move or go out of business.’”

Propet started his business in 1985 when he scraped together $20,000 to buy a single shipment of shoes from Taiwan.

He loaded samples in the back of a Ford Escort and made the rounds of rural Washington towns, trying to persuade retailers to carry his brand.

When the walking craze took off in the early 1990s, Propet’s company did, too. Now his Chinese factory employs 800 people and makes between 1.3 million and 1.5 million pairs of shoes a year. Propet sells them in 2,000 stores throughout the United States, as well as in Canada, Australia and six other countries.

Propet’s Kent headquarters and distribution center now employs 50 people. Those jobs, he notes, did not exist before.

Washington residents are benefitting not only from those new jobs, he says, but from lower prices.

“In every trade, both sides need to get benefit,” he said. “The U.S. gets jobs and less expensive shoes, too.”

Cheap, motivated workers

China’s most attractive resource for Washington businesses is its abundant supply of cheap, motivated labor. The supply is obvious everywhere, from the legions of workers using brooms to clean freeways to swarms of gardeners prying up weeds with hand trowels.

China has 1.3 billion people, one-fifth of the world’s population – and the move from Communism to capitalism has left most of them searching for ways to make a living.

“There are hundreds of millions of people out there who want these jobs,” Yau said recently on the floor of his factory near Chengdu.

As he talks, a dozen serious men and women in their early 20s busily attend to softly humming machines. Crews work in three shifts, 24 hours a day.

“In the United States, the people are expensive so you surround them with work,” Yau said. “In China, the machinery is expensive, so we surround it with people.”

Chinese workers are a manufacturer’s dream, Yau said. They enjoy wearing uniforms and feel pride in being part of a team. Because they’re all the same race, there are no discrimination issues. They are so fresh from the countryside there are no illegal drugs. China has nothing like America’s welfare system, which Yau says creates the expectation of getting money without working. And there are no unions.

“How do you run a business when that is the case?” Yau asks. “In China, you give them a 10th of the salary and they never strike.”

Yau says he hates communism, but as a businessman, he is grateful for the economic imbalance it produced.

“Thank you, Chairman Mao,” he said. “You kept this country a hundred years behind the times and made this opportunity for us.”

Davis, at A/D Electronics, shares Yau’s view.

At the Evermuch Technology factory in Pak Sheki Ha, where Davis is a part owner, the average age of the workers is 20. Few have more than a sixth-grade education.

“They know how to read and write, but that’s about it,” Davis said.

Inside, big overhead fans blow air on workers, all dressed in blue shirts and black pants. They sit shoulder to shoulder on four-legged stools at long stainless steel tables lit by fluorescent lights.

The workers are serious, concentrating intently on the wires and cables in front of them. Sounds of whirring machinery, the impact of presses and beeping test equipment fill the air. There is no laughing or talking.

“The diligence is exceptional,” Davis said. “They will do the same job over and over and over all day long. Who would do that in the United States?”

That characteristic of the Chinese laborer is also a disadvantage, Davis said, and it might be America’s saving grace.

Thanks to work habits established by Communist state-owned enterprises, Chinese workers are accustomed to doing just one job, he said. Generally speaking, they are not innovators.

“Look at this.” Davis points to a big bundle of cables at the end of a production line. “Every one of these is exactly the same. These guys are great at doing this. But if you asked them to make each one slightly different, they would go into orbit.”

Complex manufacturing still makes sense in America, Davis said.

“That is the kind of work we can keep in the States,” he said. “American workers are more adaptable. They can figure it out.”

Kelly Koontz, who runs the China operations of the Gig Harbor-based company Jevco, has noticed the same thing.

In Jevco’s Chengdu factory, as clean as a hospital, 18 young Chinese men and women, all in denim shirts with Jevco stitched on the breast pocket, tend to machines that make parts of ultra high-speed drills used for electronics manufacturing.

The work is repetitious. One young man’s job is to polish holders for drill bits, or “collets,” each about the size of a tie clasp.

He sits in front of an electric motor, slips a collet onto the shaft, turns on a nut to fasten it, then holds an abrasive rubber stick against it until it is bright and shiny. He removes the collet and threads on another one, a process he repeats eight hours a day.

Koontz said he is trying to get his workers to embrace the concept of multitasking to build flexibility in the production line and relieve boredom. But the lesson is slow to catch on.

However, Koontz says, it would be a mistake to regard the Chinese workers as automatons, or to think America will hold its edge on innovative, technical jobs for long.

China begins training technical workers in high school and has excellent trade schools that turn out top-quality technicians, he notes.

China’s graduate school programs are turning out three times as many advanced students each year as the United States.

Jevco pays its China workers the equivalent of about 68 cents an hour, plus incentives if they meet goals. Their $30-to-$35 weekly salary puts them far above the average worker in China.

“In the United States, labor is so expensive we always have to seriously weigh hiring additional people,” Koontz said.

“In Gig Harbor we’re always, quite frankly, kind of compromising. When we want to hire someone, we have to ask ourselves, ‘Can we afford this person?’ Lots of times, the answer is, ‘Well, maybe not’”

Manufacturing in China makes sense not only because of the labor advantages, Koontz says, but also because, increasingly, China is the market for high-tech tools like those Jevco makes.

“Our China plant is not a replacement for Gig Harbor,” Koontz says, “but there are incredible advantages. This is definitely where more and more of our growth is going to occur.”

“Quite frankly,” Koontz said, “if we weren’t doing something like this, it would be very scary, looking into the future.”

The issue of exporting jobs is a sensitive one at Jevco. It’s a small enough company that such decisions are personal ones.

“We’re trying to do it responsibly and openly,” Koontz said. “We’re motivated by a lot of things, but No. 1 is sustaining our business. To do that, this is a necessity for us. You can’t just bury your head in the sand. You’ve got to be proactive.”

Jevco is hoping to move most of its high volume product lines to China, Koontz said. The Gig Harbor operation, in addition to remaining Jevco’s corporate headquarters, would be used for the complex special orders that take greater engineering expertise.

“We’re really hoping our China operation does nothing but enhance our Gig Harbor operation,” Koontz said.

Koontz says he is not worried about China’s impact on the American economy.

“We will find things that are not manufacturing based,” he said. “We survive. We evolve. Things change.”

However, one thing is certain, he said.

“We are not going to enjoy the king- of-the-hill status anymore. This is China’s century.”

Rob Carson: 253-597-8693

rob.carson@thenewstribune.com

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