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The Controlled Partnering Formula

Globalization Manufacturer PerspectiveJoint ventures allow domestic design with foreign production.

The manufacturing sector of the material handling industry has been under significant pressure in recent years due to an influx of competition from overseas, particularly China. U.S. material handling manufacturers have invested hundreds of thousands of dollars in modernizing their factories and implementing high-tech equipment and machinery in order to increase productivity and production efficiencies.

Although these business decisions have been well-intentioned and traditionally sound, the competition from China has hindered the expected profitability and increased market share, thus reducing the anticipated return on investment. While American political and lobbying efforts continue to balance the playing field to pressure a change in China’s currency philosophy, business should not expect favorable changes anytime soon.

Conversely, some U.S. manufacturers recognized years ago the growing influence and market acceptance of material handling products made in China. With fears of eroding investment and equity, businesses changed their focus from manufacturing to distribution, tapping into the China source to handle their wholesale distribution requirements. This corporate procedural change has contributed to the bleeding of manufacturing job losses in America, now over 2.5 million job losses since 2000 (all industry segments). Moreover, it reduces the percentage of manufacturers within our economy, which is now around 12 percent and decreasing yearly, not to mention the inconsistency of quality and specification of products coming into our market.

So, considering that Chinese products are now an integral part of our economy, what direction should our manufacturing leaders take? As author Clyde Prestowitz puts it in his new book, Three Billion Capitalists, “There are three billion new capitalists in China and India.” We must recognize this, accept it, and develop new strategies within America. It has been proven that both approaches mentioned herein are flawed. Closing our doors and being inattentive to Chinese competition will not work. Cavalierly implementing a transformation from manufacturing to distribution will not work either. There is a better solution that will contribute to America’s domestic economic strength.

A solution will require corporate partnering and/or joint venture developments with overseas producers. It is essential that domestic manufacturers consider implementing a program that would include a combination of maintaining their production capability while simultaneously developing a “controlled” outsourcing program with a foreign production facility. This format will allow American producers to maintain American production while complementing their offerings with foreign-produced, but not foreign-designed, products. Business executives must make their overseas targeted partner company completely accountable to the same high standards that their own domestic production parameters incorporate. U.S. companies should not simply accept unproven “off-the-shelf” products from overseas producers.

This format will provide increased credibility with the wholesale client base within the United States and abroad. Product design parameters will be controlled. Diversity of product will increase in that companies will have the ability to offer category products with category pricing. Product market pricing will be consistent and stable compared to the current extreme cost discrepancies for what appear to be similar products but, in fact, are not. Competition of like products will be more balanced and fair. It will force foreign suppliers to be accountable to America’s businesspeople, while raising quality standards to the consumer of the product. While accomplishing all this, American manufacturing will be maintained.

This concept has been pursued by some of our industry’s largest producers with great success. It is time for all American producers currently under pressure from overseas suppliers of like product to take this controlled partnering approach. We must be smarter with our global partners in order to create extra value with domestic material handling manufacturing operations.

Material Handling Equipment Distributors Association
Steve Guagliano Meet the Author
Steve Guagliano is president of Mobile Industries Inc., located in Mississauga, Ontario, Canada, and on the Web at www.mobilept.com.

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