Competing Against the China Price

By Jack Russell

In my last column, I offered you this cold shower: As Pennsylvania manufacturers, you face the “China Price,” a growing challenge from able Chinese competitors with big cost advantages. If you produce a commodity and compete primarily on price, you are at risk. If your main markets are the supply chains of multinational corporations with global reach, you now compete on price, quality, timeliness, and engineering with hundreds of aggressive foreign firms.

I also promised you a perspective on what small- and medium-sized manufacturers (SMEs) in Pennsylvania should do to compete against the China price. Now it’s showtime. SMEs with a future must be, in four words: lean, agile, distinctive and demanding.

Lean. Continuous improvement of bottom-line results is a necessary condition of business success. Firms focused on systematic elimination of non-productive actions in all elements of enterprise will achieve the continuous cost reductions the market requires. If you are a supplier, your manufacturing customers expect annual price reductions; if you sell to big box retail, same story. Star firms now extend lean discipline beyond the plant floor to office functions and out into their supply chains. Their educated employees are the frontline in a war against all waste. Their cost reductions permit competitive pricing and achieve retained earnings to re-invest in the business. Lean is essential – but no longer sufficient.

Agile. Pennsylvania SMEs with a future must be early adopters of technologies that enable performance and communication in the electronic modes demanded by the most rewarding markets. Smart firms will compete through knowledge management, getting the right information in the right forms to the right places at the right times – inside their firms and within the supply chains and networks they serve. This requires steady investment in state of the market technology and an educated workforce – and leadership that turns these assets to competitive advantage. Agile American SMEs that contribute solutions in the design, engineering and logistical environments of multiple multinational corporations have a chance to stay ahead of hard-charging foreign competitors.

Distinctive. In a global economy where some competitors enjoy an order-of-magnitude advantage in direct labor costs, Pennsylvania SMEs must offer distinctive capabilities that customers will value more than the China price. Distinctive firms know what they do well and sustain what makes them special. They analyze current and potential markets for new opportunities and make product and service innovation a firm discipline. Distinctive firms price their products with confidence based on their known value to their customers rather than auctioning off commodities in a buyers’ market. They are lean because the bottom-line matters, but they prosper because they grow their top lines by making the right things for the right customers in the right way. Their ability to value-price earns returns that are re-invested in the tools, skills and knowledge that drive growth.

Demanding. Successful Pennsylvania SMEs must demand excellence from a widening circle of players who should support their enterprise and their future. At the epicenter are the managers and employees of each firm; manufacturers that do not demand the best from themselves have no standing to challenge others. Strong SMEs will expect their own suppliers to be lean, agile and resourceful – and engage their supply chains as a strategic asset. They should ask for solidarity from other firms in their regions as they seek a common voice for manufacturers.

With their common voice, manufacturers should make demands on state government, not just for fair tax and regulatory policies, but for real services that can help SMEs succeed in the global economy. Their competitors in Asia and Europe benefit from services that support technology selection and implementation, modern management, workforce development, market analysis and product development. Fortunately, in Pennsylvania, the Industrial Resource Centers do this job well. Finally, SMEs should demand that their national government make manufacturing excellence in America a permanent national purpose sustained by coherent strategies in research, development, procurement, trade, taxation, education, training, standards, and direct extension of real services to manufacturers. For this good morrow we must, it seems, wait – but not patiently, please. The risks to the American industrial base and the better life and better society it supports are clear. The country needs thousands of small manufacturers who demand from their leaders the same excellence they require every day of themselves and their firms.