Leveling the Playing Field?

Changes are happening around the world that will affect every mold shop owner reading this column. I have always stressed the importance of understanding and following global economies—and now some recent news may change or may have already changed your daily business.

As you may know, on July 1, 2007, China eliminated, and in some cases reduced tax rebates to their suppliers on many of the products that they export. Tax rebates are commonly extended to exporters in countries such as China that hit suppliers with value-added taxes. The rebates narrow border price differences, and are matched with value-added taxes on imports. For China, their export surplus has been astronomical and has also produced its share of headaches in dealing with foreign trade partners (especially the U.S.). It is also somewhat of an environmental concern as many of the rolled back rebates cover what they refer to as “polluting industries” including petrochemicals, cement, leather manufacturing and dying.

The largest area affected is the steel business. Many of the rebates are focused on helping to alleviate concerns in the U.S. due to the recent petitions filed by the United Steelworkers and six other U.S. welded steel-pipe producers accusing Chinese steel-pipe companies of dumping activities, and also reprimanding the Chinese government for granting a 13 percent export tax rebate on welded pipe products.

In the end, the result of the rebate repeal is likely to result in a 5 to 8 percent increase in costs for products manufactured in China. This is good news for U.S. manufacturers. It’s not a magic bullet, but it is a step in the right direction. But, the question becomes, how do you take advantage of it?

For years, one of the main concerns I have heard in speaking with owners at job shops is that while they focus on customer service, keeping their prices competitive and delivering their product on-time and of a high quality—they feel like they just cannot compete against some foreign competitors simply because the prices are so low. Consider everything I have written so far
as an opportunity and a step toward leveling the playing field.

Are there customers in your area or those that you have done work for in the past that have sent work overseas? Maybe this is a good time to contact them and ask about how these new regulations have affected the pricing they are getting. First of all, it will show intelligence beyond what’s happening in your backyard and most buyers appreciate you thinking about their business. Secondly, the Chinese suppliers are no different than any other—we all want to make a profit. If they are losing rebates, they will certainly jack up their prices to make up for it.

We have done a recent survey of buyers on MFG.com and more than two-thirds of them would prefer to work with local suppliers. But not all of them were able to simply based on price. With these recent rollbacks, this is your chance to get your foot in the door and talk to them about quality, talk to them about solutions and how you will be able to fill all of their needs, not just price.

This won’t affect every one of your previous customers or prospects, but it will affect enough of them that it will be worth your time to place the calls, set up a meeting or send them information on your shop. And remember what I talked about last month in the “Branding Myth.” The key is to turn your technical expertise into telling potential customers how you will solve their problems—not about how well you make parts.

How long will these rollbacks last? It’s hard to say. When it comes to government policy, I tend to think of Ronald Reagan’s quote that, “The best minds are not in government. If they were, business would hire them away.”

You need to take advantage of this situation while it lasts. If you are able to make price part of the issue, and not the only issue, you have a better chance to show your customers why working with you will be their best solution.