The rise of China Inc.

US manufacturers say Asian competitor has grown too big to ignore

By Charles Stein, Globe Staff, 8/19/2003

It is a long way from China to Hyannis, but not far enough for David Bourque.

His 20-person Hyannis company, Abco Tool & Die, has been losing jobs to competitors in China. On some projects, Bourque has submitted bids for $50,000 to make elaborate plastic molds for the optical industry. The bids from his Chinese rivals: as low as $5,000.

"My materials alone can cost me $20,000," said Bourque, the company's president. "You are talking about a huge difference."

In Clinton, about an hour from Boston, Nypro Inc., another plastics company, also has China on its mind. But for Nypro, China represents not a threat but a huge opportunity. Nypro makes plastic products for some of the world's biggest companies, and when one of those companies moves to China, Nypro moves with them. The firm has four factories in mainland China, and business is booming. "China has been our fastest-growing market," said Al Cotton, a Nypro spokesman.

For anyone who makes things for a living, China has become too big to ignore.

As Jerry Jasinowski, president of the National Association of Manufacturers, put it in a recent speech: "China's emergence as a manufacturing powerhouse is a phenomeon unlike any in modern history." Once content to make low-cost goods such as textiles and toys, the Chinese today are big players in everything from furniture to plastics to electronics.

Many of those products find their way to the United States. Over the past year, the US trade deficit with China has reached $110 billion, and angry American manufacturers say they are being driven out of business by Chinese imports.

They also blame China for a large portion of the 2.7 million US factory jobs that have disappeared since the beginning of 2001. Yet at the same time, other companies, especially large, multinationals, see China as either a huge potential market or a great source of low-cost supplies.

"The business community is not at all unified in how we should approach China," said Mark Zandi, chief economist at Economy.com, a Pennsylvania research firm.

That split opinion is apparent in Massachusetts, which has lost 18 percent of its factory jobs, or 74,000 jobs, since the beginning of 2001, the second-biggest percentage loss among the states. For many small and mid-size manufacturers, China is a company-killer and a job-killer. The casualties have been particularly heavy in industries such as metalworking, plastics, and textiles. Companies that survived recessions and previous waves of foreign competition are not sure how they are going to cope this time around.

For Joseph Peters, president of Universal Plastics in Holyoke, the competition shows up in the form of very low prices. In the past six months, Peters said, he has lost roughly a half-dozen jobs to Chinese rivals who were able to undercut his price, often significantly. That has been both alarming and surprising.

"I'll sometimes quote a job in Philadelphia and lose out to a local company because my freight costs are higher," said Peters. Yet Peters' Chinese competitors are beating his price, even though they have to ship their goods all the way from China. "That doesn't make any sense," he said.

Willard Cutler said the cost differential between the two countries is simply too great to overcome. Cutler is treasurer of C&C Thermoforming, a small maker of plastic packaging in Palmer.

"These [Chinese] companies pay low wages. They don't pay for health insurance, workers' comp, or environmental regulations," said Cutler, whose business is down 60 percent in the past three years. Price competition explains some of the decline. The exodus of key customers explains the rest.

Like small fish who live off the scraps left by bigger fish, smaller manufacturing firms have a symbiotic relationship with larger manufacturers. Historically, many were located near their big customers, so they could provide parts and services quickly. But as the big companies have departed for China, their suppliers have been left high and dry.

Even relatively large companies have felt the pain.

Mack Molding, a $250 million plastics company with a facility in Westford, prospered in the late 1990s, making plastic products for the computer industry. Then two things happened: The industry slumped, and the remaining American manufacturers left for China and other low-cost locations.

Today, Mack has a much smaller work force and a new strategy. It looks for customers who are likely to keep producing in the United States. Said Jeff Somple, president of Mack's northern operations, "The first thing we ask now: Is this going to be a long-term deal?"

Nypro has prospered using a very different strategy. Its motto could be described as "If you can't beat 'em, join 'em." Nypro employs 9,000 people in 30 plastics factories around the world. Its plants are located within a hour of major customers. In China, Nypro makes toothbrushes, computer parts, and cellphones for companies such as Motorola and Nokia.

"We don't lose customers," said Al Cotton. "If they leave, we service them where they go." In Clinton, Nypro employs 600 workers who make products for the medical industry.

Morgan Construction Co., of Worcester, is a smaller family firm, but like Nypro, it has gone to China because that's where the action is. Morgan produces heavy equipment for steel mills. The American steel business has been in a slump for years. In China, the industry is thriving.

"China has been our best market for the last decade," said Dan Morgan, senior vice president. China represents about one-third of the company's sales, he said. Morgan's 350 Worcester employees handle the engineering and the most sophisticated manufacturing work; its 250 Chinese employees do everything else.

For big global companies, China represents what it always has: a small market with potential to grow much larger.

EMC Corp., the Hopkinton maker of data storage equipment, says its China sales are too small to have an impact on the company's results. Still, said vice president Mark Fredrickson, "China dominates a lot of conversations here because of its potential."

Gillette Co. has been making razor blades in China since 1982. More recently, it built factories that make toothbrushes, electric shavers, and batteries for the Chinese market. This month, Gillette acquired a majority interest in a small Chinese battery company.

On the political front, manufacturers are delivering a mixed message about China. The companies which rely on Chinese business want to make sure friendly relations prevail between the two nations. Those squeezed by Chinese competition want the United States to take a tougher line on trade issues. The most hard-hit manufacturers are angry and frustrated that their misfortune has attracted so little attention.

"No one seems to care," said Jeff Somple, of Mack Molding. "If this were happening to American farmers, people would be going nuts."

In a letter to several politicians, Bourque, of Abco Tool & Die, put the matter more strongly: "I am afraid that we as a society in the United States are committing economic suicide," he wrote.

Charles Stein can be reached at stein@globe.com.