Chinese competition in die/mold

Modern Machine Shop, Oct, 2002 by Bill Dundas

For several years, the buzz among American moldmakers has included the persistent complaint that competition from China and other Asian nations is eroding business conditions. While a number of U.S. shops have closed their doors during the past decade, the survivors rely increasingly on technologically driven process improvements to maintain profitability. Because competition forces successful American die/mold shops to employ the best available machinery and techniques, the assumption persists that a technological advantage will continue to counteract the effect of a substantial U.S.-Asia wage gap. Reinforcing this impression, many metalworking professionals in the United States believe that Chinese machine shops are primitive operations. This encourages the view that Chinese competitors lack the wherewithal to compete in high-end markets for complex, precision tooling.

Assuming the role of a latter-day Paul Revere, Tom Siwek, CEO and co-chairman of Pro Tech Plastics (West Chicago, Illinois), is puncturing these illusions with some intriguing presentations delivered to metalworking audiences. Mr. Siwek recently visited die/mold shops in southern China (including Hong Kong). Singapore and Taiwan to analyze the state of Asian moldmaking. His findings build a chilling case that--barring any substantial changes in current American policies or practices--survival of the nation's die/mold industry may be in serious jeopardy.

During the 1990s, China emerged as the chief competitor to American die/mold shops, as well as to other U.S. manufacturers. According to U.S. Census Bureau figures, the U.S. trade deficit with China has increased eightfold since 1990. In 2001, the United States accrued an overall trade deficit with China of more than $83 billion--even larger than the $69 billion U.S. trade deficit with Japan. The current value of Chinese imports flowing into the U.S. represents five to six times the value of American goods and services exported to China.

While the scarcity of trained metalworkers is frequently cited as a principal cause for America's competitive disadvantage, these statistics indicate that a disproportionate cash flow between the two countries represents another key factor. In this vein, U.S. die/mold shops seem to be swimming against political currents both at home and abroad. On one hand, the Chinese government has liberalized regulations on foreign-owned companies, thus making it more attractive for large manufacturers of consumer products to locate plants in the country. On the other hand, both political parties in Washington continue to aggressively promote expansion of U.S. trade and investment in China, thus extending a spiraling trade deficit.

As long as Chinese suppliers were unable to meet international quality standards or to satisfy delivery schedules for U.S.-based customers, American die/mold shops enjoyed a substantial measure of protection. But in addition to discovering that Chinese die/mold shops are better equipped than most Americans believe, Mr. Siwek found that these shops now possess the capabilities to meet or exceed the performance of many shops in the United States.

Mr. Siwek made this comparison by soliciting competitive quotes from an American and a Chinese moldmaker to provide tooling for his firm's injection molding operations. He found that the Chinese supplier provided better quality and customer service at a substantially lower cost than the U.S. shop. While the U.S. shop was 1 week late in making delivery, for example, the Chinese supplier met ProTech's requested delivery date. Furthermore, the Chinese supplier had no problem meeting Mr. Siwek's material specifications for tooling used in high-volume, continuous production.

This experience corresponds to the conditions Mr. Siwek witnessed when he visited machine shops in Southern China. A substantial portion of China's export metalworking industry is based in the Pearl River delta area north of Hong Kong. Much of this activity is located in the fast-growing city of Shenzhen.

"All of the shops we visited had been built recently and used up-to-date equipment," says Mr. Siwek. "The average shop employs 100 to 350 machinists. The larger shops may have as many as 1,000 employees and produce 200 to 500 molds per year. The quality we saw is second to none, and the Chinese are familiar with all of the modern mold components and systems."

The Chinese have been able to attain this level of performance primarily because of some fundamental changes in the communist government's economic policies. These changes began in 1978, when former Premier Deng Xiaoping committed the country to a new economic course designed to open up China to foreign trade and investment. This reflected the government's desire to move China's economy from a sluggish, Soviet-style model to a more market-oriented system.

To pursue this goal, local government officials and managers of industrial plants were granted previously unknown autonomy to develop a variety of free enterprise ventures. Despite some liberalization of economic rules, however, the Communist Party of China (CPC) has preserved many state-run enterprises--and the CPC retains strict control of the country's overall development. Therefore, China's limited brand of capitalism has not been accompanied by any corresponding gains in individual liberty or human rights.