An American Welding Manufacturer Responds To Offshore Competition

Domestically, manufacturers of welding products and supplies continue to be impacted by a flood of imported products. Profit margins continue to shrink and we have noted the recent announcement of one large manufacturer's Chapter 11 reorganization. Given the advantage of lower labor costs, how do domestic manufacturers compete with offshore competitors?

Although offshore manufacturers have had a presence in our industry for many years, their profile was heightened on the heels of the 1998 Asian currency crash. That drop in currency values against the U.S. dollar made all Asian imported products lower in price. A number of American importers realized an opportunity and took advantage of it.

The Issue of Quality vs. Profitability
Although the quality of some imported products has improved, standards of quality are still an issue. During the 1980s and to a lesser extent the early 1990s, domestic manufacturers placed much of their marketing emphasis on quality. In many cases, goods imported from Japan were considered to be of a higher quality than products manufactured domestically. American manufacturers spent untold billions of dollars on new equipment and new procedures to assure the consumer of a quality product.

During the late '90s, a slowing economy resulted in a classic paradigm shift. Stockholders demanded continued profits. Suddenly lower-cost imported goods grew in popularity to meet the stockholders' demand for increased profits. Purchasing departments took the stance that if the product looked like a domestically produced product and its cost was lower, it would meet management's approval. Quality became a non-issue. Customer service and satisfaction continue to take a backseat to the instant gratification of increased profits.

More recently, we have seen a shift from long-term to short-term thinking on the part of management.

Deception or Marketing?
Offshore manufacturers have wisely chosen to market their product to appear physically similar to domestically manufactured products. Part numbers are similar to those utilized by U.S. manufacturers. Often the packaging is similar as well. The same colors are used on boxes and cards. Sometimes this packaging is so similar to the American product that it is virtually identical except for the country of origin marked on the package (in very small letters).

Buy American
American manufacturers do have a few available options in order to compete more aggressively with offshore manufacturers. We can remove as much cost as possible from the manufacturing process. In some cases we may see continued reductions in employment and an emphasis on “right-sizing” our workforce.

Another option is to promote and market through a “Buy American” program. Patriotism is at an all-time high. If the cost differential is not substantial and the quality is superior, there is little reason not to purchase domestically produced products.

The Measurement of “Cost”
The basic principles of economics teach us that we all benefit from increased competition in a free-market economy. There is no doubt that if price is the determining factor of a product's success or failure, we will see the success of imported products continue. But is price the only measurement of cost? What are the costs of planned obsolescence when a product's lifespan is shorter than that of its U.S. produced counterpart? What are the costs of products that just don't perform? What are the intangible costs to the reputation of a distributor when a product doesn't work or doesn't last?

If domestic manufacturers of welding products and equipment fail, the costs associated with imported products will rise. Without competitive pressure from U.S. based companies, there will be no need for the imports to improve the quality of their product.

Ultimately, we will all lose.