Manufacturing China

September 15, 2006
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GRAND RAPIDS — For a large sample of the West Michigan manufacturing base, the growth of manufacturing overseas has provided a virgin opportunity for growth.

It has been fairly easy to overlook in discussions of the knowledge economy that most of the region’s knowledge and technology has long been concentrated within the manufacturing sector.

The Grand Rapids area ranked No. 6 in the World Knowledge Competitiveness Index last year. In its report, A New Agenda for a New Michigan, Michigan Future Inc. noted that the local machining and metalworking industry had a concentration three times that of the nation at large and twice that of Detroit — only automotive, furniture and leather had higher concentrations. The Harvard Business School rates the local production equipment and technology industries among the strongest such clusters in the world.

In short, one of West Michigan’s greatest assets is its familiarity with the manufacturing process: the making of things that make things. And with little manufacturing growth in the local market, companies are actively looking for business elsewhere.

“In Michigan, if you go out and get new business, you’re essentially taking away business from someone else,” said Mike Hartley, president and owner of Apollo Tool & Engineering. “You’re not seeing new business starts. Where we’ve managed to grow has been with out-of-state and out-of-country accounts — Canada, Europe … China.”

Typically, this has been through existing customers in the United States, Hartley said. One client has introduced Apollo to Brazil, France, Poland and China. The expansion of its clients into the world market has provided a unique boost for the 26-employee toolmaker. To a larger degree than Europe and Mexico, China presents political and cultural challenges to entry for small manufacturers. With its current foothold, Apollo is now positioning itself to serve Chinese companies, as well.

“Obviously, the manufacturing footprint of our customers continues to expand globally,” said Kevin Kemp, vice president of Burke E. Porter Co. in Grand Rapids. “It’s headed to areas like China, India and Russia, and in order to provide world-class service to our customers, we typically do the same.”

A much larger firm than Apollo, Burke Porter — the world leader in automotive testing systems — has the ability to invest in facilities across the globe. It plants its flag in eight different countries, including its newest facility in China. As that facility ramps up, virtually all of the product made there will stay in-country.

Today, 55 percent to 65 percent of the company’s sales are outside North America, with most of that product built in Grand Rapids and Europe. As the company’s manufacturing assets overseas increase, it will funnel work back into Grand Rapids and Europe, where all of the company’s research and development is done.

“It’s been a real catalyst for growth,” Kemp said. “It’s no secret that the North American auto industry is in decline or static, with not a lot of growth in capital equipment. It’s been a significant opportunity beyond what the domestic automakers could have provided us.”

Another category leader, RoMan Manufacturing, attributed 10 percent of its revenue this year to components made in Grand Rapids and sold in China. The world leader in resistance welding power sources has a joint venture facility in both China and Taiwan, but has found it more cost effective to make some parts in West Michigan and ship them overseas.

“You can’t ignore the growth of manufacturing in China,” said RoMan President and CEO Bob Roth. “Every automotive manufacturer in the world is going to China and setting up shop. Do you want to participate or not? Machinery is still very much technology-driven, and there is a lot of opportunity in these developing markets for those of us with the best technology.”

In the long run, cheap labor isn’t going to overcome technology, Roth said, and the Chinese know that.

“They’ve decided they want American technology,” Roth said. “Unlike the feeling we get with Europe, we’ve found the Chinese have been embracing us; they’re truly interested in our capability to put value into their organization.”

A group of local toolmakers, the Michigan Tooling Group coalition, has found similar success in India, where it is currently exporting product with no in-country facilities.

“They had never even seen a progressive die,” said Andy Harder, principal of NDI Sales and Consulting, the marketing firm representing MTG, of his Indian clients. “They were amazed at what we could do. They’d been doing everything by hand. They couldn’t do anything high volume — no repeatable processes.”

With the help of West Michigan technology, that manufacturer — which is producing no product for U.S distribution — will be able to modernize its processes.

Jay Baron, president and CEO of the Center for Automotive Research in Ann Arbor, agrees that many West Michigan companies have a strong advantage over their foreign counterparts. In tooling and automotive manufacturing, for instance, new materials are constantly being introduced. A common example is high-strength steels that are difficult to form and require sophisticated tooling and engineering.

“As long as our companies keep introducing new material and technology, we’ll always have an advantage,” Baron said. “It’s like shopping at Kmart; you don’t go there if you’re looking for quality.”

Of course, there are dangers in this model.

Grand Rapids clean room component maker Clean Rooms International has seen its Asian sales decline over the past decade as copycat products usurped its position in the manufacturing boom.

“Technology is a hard thing to protect, particularly for a small company,” said company president Nelson Werkema. “You have to be well aware that you may enjoy an initial order, but repeat business may not be there because they’ve reverse-engineered it.”

The Asian copycats have yet to produce a comparable quality to the U.S. version, but the acceptable standards are much lower in that market; and the 25-employee firm cannot compete with the price of the lower quality version.

With that said, when an Asian firm does have quality concerns, it will pay the premium for the U.S. product. The company actually has one pending order from the Republic of India Central Government.

Other West Michigan companies are challenged with introducing their technology to Asian firms. Clipper Belt Lacer Co., for instance, has had enormous difficulty selling its mechanical belt fastener products in that market, which is accustomed to an alternative fastening process called vulcanization.

“We have to overcome a bias to our product,” said Clipper Belt General Manager Nancy Ayres. “We’re still trying to break into the industrial market over there.”    

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