Monday, February 20, 2006

Afraid of China?

Good morning all.

I read the latest in a long line of "Fear the Chinese" newspaper items, today's version is in the Greensboro News-Record . The perceived Chinese menace to American made furniture and cabinetry cannot be overstated. I often read and occasionally comment on internet forums geared toward cabinet and furniture makers. In those forums, it's common to hear people to wax nostalgic for a time before imports put pressure on domestic suppliers of these items. They express opinions about Chinese imports that range from contempt to paranoia. Is any of it appropriate?

I can recall fairly well a similar outpouring of fear and concern about thirty years ago regarding imported automobiles. Detroit got caught flat-footed by a sudden rise in gasoline prices, and didn't have any products to offer to compete with foreign, especially Japanese, imports. Sound familiar?

There was more to it than that, and it's largely overlooked today. I bought a Japanese car twenty five years ago because I needed a small inexpensive economical car. At the time, although I was not involved in the manufacture of automobiles, I was a member of the United Autoworkers Union, which at the time was the second largest trade union in the world. It was common to hear about foreign cars being vandalized in Big Three Automaker parking lots, and "Buy American" was all the rage in bumper stickers, if not in showrooms. "Buy American" was discussed in a desultory fashion in our own coffee room, but solidarity only goes so far, and gas went from $0.35 to $1.00 per gallon after all.

American automakers behaved strangely. They tried to compete with Honda Civics by taking a very poorly designed car, the Chevette, and offering it at the same price, and realizing the savings necessary by selling it without its back seat. I'm not joking. My neighbor bought one, and I looked in the window and saw a big sheet of galvanized metal where the back seat would normally be.

I waited six weeks on a list and paid a premium over list to get a Honda Civic.

The reason was a lot simpler than the media and the struggling car manufacturers let on: I couldn't afford to own a car that didn't run, never mind one that didn't have a back seat. Did Detroit really think you'd buy a Pinto with a reputation as a Improvised Explosive Device or a Chevette with a reputation for the engine to melt when I could get a Corolla that ran like a top?

Now, indeed, the American car manufacturers were inexpertly building the wrong kind of cars at an inopportune moment, but the adversity of higher gas prices exposed the underlying corporate and union character flaw: they were making crummy cars, poorly designed, engineered, and manufactured. And they treated their customers as a cow to be milked, not a constituency to be served. And they got their butts kicked by people that had been bombed back into the stone age just 30 years earlier, and knew that had to do things better, faster, and more cheaply than their economic big brothers or they'd stay in that stone age. And Detroit got caught napping. They got caught drowsing again recently, and still tried to blame the Japanese; the problem this time is that the Japanese factory is in Kentucky now, and the one thing that's different from old American Iron is there's no collusion of management and union against the customer. There can't be, because there is an alternative for the consumer now.

There are real people, hard-working and salubrious, caught up in the changes wrought by inexpensive furniture imports coming in from China and Malaysia,and India and Vietnam, and I've heard of this IKEA thing too; they've snuck up from the west while we were looking east. And we must be very sympathetic to the plight of people who order their lives based on current conditions only to have the march of events overtake them and their crafts, and subsume them. But we cannot pretend that it's going away anytime soon, and encourage people to continue on by special political pleading, making the denouement of their struggle worse.

The article specifically mentions tariffs geared to avoid dumping of cheap furniture on the American market. Analysts who are either foolish or worse believe that the Chinese are dumping goods on the market below their costs, in the hopes of driving out domestic American manufacturers and then charging whatever they want for the goods later. I doubt it.

You see, the analysts are describing what they understand from the playbook as previously written, when the powers that be just needed enough capital to outlast their competition and then could lord it over the consumer later. Always, it boils down to a fixed game against the consumer. That's how you get a CEO in Detroit signing off on a sheetmetal back seat in the 1970s. They thought what the consumer will accept is what we give them. That works, if there' s no other alternative. But it's 1949 Soviet tractor factory management thinking. Who thinks that's going to work any more?

Well, I doubt it's the case that China is dumping goods on the American market to get market share, and will just hang on until our own industries tank, and then charge what they want. China has a resevoir of hundreds of millions of persons who will jump at the chance to make those inexpensive items. And if you think you can outlast them by making the exact same stuff, only more expensive but made more cheaply, you better be ready for a long siege. And if you think you're going to keep everything the way it is, and all of us frozen in amber, marching off with lunchpails to factories belching smoke and churning out furniture sold in department stores by clerks with pencil thin moustaches and pinstriped suits, you're dreaming. You'll all lose your jobs anyway, and the stores will be empty to boot. The market for cheap furniture you're fighting for wouldn't exist if the furniture wasn't cheap. Put another way, you can't make expensive cheap furniture and expect to sell it. The market would go away along with your competitors.

Make what the Chinese, won't, or can't. You've got a 3000 mile head start. You know what your neighbor wants; the chinese manager has to guess. People will buy what you have if you have what they want, made in the fashion they require, where they want it, in a timely fashion, with excellent customer service.

You can be the Honda Civic; let others be the Chevette with the sheet metal back seat.

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