Outsourcing Apples and recieving oranges…Made in China

Outsourcing Apples and receiving Oranges…..Made in china….a tight noose that breaks the neck of a brand? …  By Mark Allen Roberts     www.outbsolutions.com  Before I expand this thought I feel I must explain I have no issues with China, The Chinese people, or their traditions, culture or politics. I found on my trips to China great people with a desire to grow their companies. Their culture is rich as well as diverse. As a student of Chen Tai Chi it was a particular treat to see the practitioners executing their precise movements that are both exercises and a combative art. This country is so rich in tradition and culture it fascinates me as an on looker, an outsider and drives my desire to learn more. The people I meet are kind and helpful. The history of China is one of our oldest recorded records. At one time China introduced a number of new products; paper, the bow and arrow and everyone’s favorite gun powder. Once relationships are built, once they feel they can speak openly, politely, they often would challenge the stereotypic US businessman focused on this quarter’s stock value. One China business owner put it best “your business culture thinks about tomorrow, ours focuses on our children’s children” I am not planning as I sit down to write to make a China “bashing” thought but more of one that shares an observation I see very clearly in hopes of broadening others thought processes to enable and empower them and their future decisions.  My desire is to express my thoughts on a topic, on a developing trend if you will, that must gain top of mind consideration for US multinational corporations and any other companies entering into business with China. Having established vendors in China and out sourced a number of products for the companies I have served, I always enjoyed the process of identifying possible vendor partners to drive the cost out of various products to help the company I served be “more completive and more Profitable.” As general rule we found vendors could provide a landed price for 1/3 the cost we could manufacture it for. On the surface then why not send all your products to China? Why not become more of a service and sales organization and place less focused on Manufacturing and all the complexities that go with manufacturing? As I meet with owners and officers of companies the common desire to make more profits can easily be enveloped in the argument over core competencies. It usually starts with …”our core competency is the identification, design of (apples) that meet the needs of our market today and into the future and not necessarily the actual manufacturing of those products, so we would like to explore the out sourcing of  products to China. This will insure we focus on what we are strong in and find partners that have strengths that compliment ours…” Who could argue with that thought process?  My desire is not to argue with strategy but possibly shed some new thought light into this discussion to empower stronger future decisions. First, I would like to challenge all company executives who feel a widget is a widget so why not outsource it. To me in this case you are truly comparing apples and oranges. Let’s pick a product, or may I can be as bold to pick all products. Invariably a product was designed to meet an unmet need. Behind that product was a history of thought. Often time’s companies fail to capture the depth and breadth of that thought. So a thought, regarding an unmet need becomes what I call a “what if?” question. What if we make a product that meets or better meets the need of our marketplace? Next we incorporate what I feel is still the true value root of all American business and that is the entrepreneurial spirit that drives the creative thought process which results in new innovative products and services.  We prepare prototypes that we show our key accounts as well as the accounts we desire to land. In that process we capture feedback. Often times the most valued feedback is an emotion that is created, based on the unmet need and how to solve that need and good product managers now become product champions. When you see it, you often feel they have lost their objectivity, or as one of the owners I worked with would say…” we are in trouble, Larry’s fallen in love with his product.” In reality, Larry has ignited an internal spark buried deep within our American DNA to solve problems and serve others. Yes it may appear he fell in love with the product solution placed on the boardroom table in the form of an SLA model prototype. However having been a product manager and serving in roles to drive new product solutions, I feel what we are falling in love with is the excitement in seeing with crystal clarity an unmet need.  This vision then fuels our product manager’s adrenaline of 196 evening away from home conducting market verification and refining the idea into a sellable product. Over time this “what if” gains clarity of vision and at some point, as if the diefibulator paddles were in place and someone shouts “clear” it comes to life.  We then begin the process of solidifying the drawings to incorporate all the learnings that occurred to this point, and start the patent protection process to insure we can and will realize a repeatable profit and sales competitive advantage. We gain the protection and begin manufacturing the product in house or with a local vendor. In that process we learn that in order for it to come off the tool and cool properly we will have to vent the tool and the product will have a minor visual change but it will not affect the deliverable which is how it meets the unmet need. As we continue the manufacturing process we have consumer field feedback that perhaps our new widget is not lasting as long as we committed to our dealer partners. We trace this back to find the root cause is a combination of the percent of prime verse recycled material as well as that we must slow our cycle time to insure this widget part has ample time to fill before the massive walls of the mold open and it drops to the conveyor belt. We find we need to reinforce our packaging to insure our product is in one piece after the riggers of UPS and or Fed –x.  Assuming our marketing and salespeople are the best in our market (as we told our investors) they begin placing our widget in the market. If they are as good as we say they are, they do so by not focusing on price as much as the unmet need this product solves, egnighting the spark of solving unmet needs in the hearts of our buyers. We do this with our brand promise as well as individual commitments born of relationships we built with years of meetings, negotiations, dinners , and being the only sales rep invited to the buyer’s first daughters wedding. We place the product and now we have partners whose brand also shares in that product both good and bad. This is an exciting time for everyone, the supplier/inventor, and the company we sold it to, the marketing team, sales team, consumers, senior management and our investors alike.  Then the day comes, and it always does as a comment is made, floated if you will to see where it lands. “You know, we could be making a lot more money if we would outsource our (apples) to china. I hear we can realize a landed cost close to ½ or 1/3 of our cost to manufacture these ( apples) so why not?” This thought floats around the board room and takes on a life in all those it touches….CFO, “¼ (not a typo) our cost to manufacture? Over the projected product life cycle we have developed that would result in $X millions of incremental profits!” the Senior VP of Sales pipes in …with that kind of a cost I could land Wal-fish, the big one, and then I , I mean we , will blow our sales forecast out of the water” The CMO says something like …” this feels right, I hear ZRY competitor is already working on something that is better than our ( apples) and our sales team is telling me it will be cheaper too. If we out source it should also help us fund many different colors and sizes of (apples) so we can have a full line of products.” The COO now uncomfortably says …” I think our team is doing a great job of making ( apples) but we can not compete with China’s manufacturing costs , and besides I could use the machine we have running ( apples) to make the new (bananas) marketing plans to launch in the spring..” The CEO smiles broadly and says “make it so.”  Have you been in those meetings? Have you lived that play more than once, same script but different actors? I have and we often made the choice to out source our (apples) too. We put some of our best talent on airplanes to China and we secured vendors, disseminated part drawings, provided samples and waited for our fist production samples to arrive like a new born to come into this world already in an Oshkosh outfit. I can honest say I have never seen the first part samples arrive perfect, ready to go to market. Often times what I am now holding looks like our product, an Apple, but actually has a subtle or not so subtle difference we just can’t initially put our hands on so we use a new part number in our system so our current product (apples) will not get mixed in with our outsourced product (oranges).  The CEO now wants to hear the plan to insure this product meets the timeline we committed to sales and marketing who has already sold this product based on an outsourced cost estimate and unlimited supply. Very quickly manufacturing, engineering and quality control grab their passports and energy bars and are on airplanes to China to insure we meet the market Plano gram date for Wal-Fish. After all when we gain their business, although sold at a much lower price than our loyal vendor partners who supported us over the years, it helps us gain “efficiencies” that the CFO already chiseled into the plan tablets sent to our investors eight weeks ago and our senior team bonuses. Great American entrepreneurs have a way of just making it happen. We hope they capture the last minute flights to china in their costs of product development. We hope they realize the opportunity cost of having their best and brightest on airplanes eating peanuts and reading sky mall magazine while their teams make due with out them. We hope they capture all this if not in writing but in their thoughts so the next widget (apple) that comes along they can make sure and plan for all the costs possible delays. What becomes more concerning is when companies unknowingly ship and tie their brand promise to what they think are Apples but find out they have been Oranges for the last few years. Just recently Toys R Us has recalled and removed baby bibs from their shelves as the content of lead in them was not to our safety standards. The manufacturer of the bib’s  must be having a number of emotions ; devastation that a product they made could be hurting babies, concern over the impact on the trust they have built with their vendor partner, will this effect their other retailers’ future decisions, trust in our current products? What will they require to verify all the other products they are selling meet safety standards? What about the true customer’s perceptions? The parents of baby’s? How will they view future purchases, future retailer for purchases for their children? How about future consumers who may be painting rooms blue or pink…what has this incident done to the brand of the bib company and brand Toys-r-us in their minds? How will that seed now planted grow over the next few years, generations?   I can hear the multinational company executives now….” You can not cast blame for an innocent mistake, who are you to be challenging the very fiber of our business model? You have no idea what we are up against, so before you cast judgment, you had best try to understand.” Well first of all I apologize if it seems I am casting Judgment. I am trying, as objectively as possible, to state the facts as one whom once walked in your shoes. No, my shoes were not size multi billion, but I walked the same airports in china and had the same road trips from hell to remote factories. I felt the same pang of concern that lies deep within you that says this just does not feel right, and I too made the same compromises to my inner voice for the desire to obtain the big picture.  So how clear is that big picture for dog food companies who recently made world news with tainted dog food that killed pets all over the world? This tainted food did not just kill pets but branded an emotional scar on all those pet owners, and influence groups of those pet owners who were affected and all those who felt it through various communication vehicles. In one of the companies I currently help is Melody. A single women who’s pet was more than a companion, it was her family. We watched as she missed work while the veterinarians tried to save her family member. We could not help but feel her loss when ginger passed. We felt her emotional trauma over coffees in our lunch room and we morn for the part of her lost when her companion was senselessly taken from her over a tainted product from China. I am not trying to condemn the manufacturer nor its vendor partners for they made decisions assuming they would receive Apples and they received oranges.    I wonder how my mother will shop for Christmas presents this year for my young nieces. They are still in the action figure stage that my wife and I loved once with the Ninja turtles and cowboys of Moo maysa years ago . To watch your child create worlds in their imaginations is truly a gift. To see your child build personality into inanimate objects, toys, that come to life in their minds is truly amazing to watch. But I wonder what my mother, my nieces grandmother will do this Christmas, particularly after the Mattel toys recall. I grew up playing with Mattel toys. I particularly loved Rockum sockum robots. Never in my wildest dreams as I child nor as a parent today would I have thought  that this toy I would play with for hours could or would take my life or create learning disabilities due to high lead content. However the recent Mattel recall is for toys made in china that have a risk of small parts causing a choking hazard and high lead content. Reading between the lines does that mean there are current cases of parents who lost little Ashley’s or Tyler’s to a toy they bought at Wal-mart, Target, or Toys r us? Or are there parents of little Jordan’s out there who will not be celebrating with cakes candles and ice-cream next June. I am not trying to be morose, I am trying to stir an emotional tie to the decisions we have made, and are making in corporate America and the true impact it is making beyond Wall Street. So I called my mother and asked the question. Interesting how quickly she is now checking the labels on everything, not just toys. Interesting how she quickly touches on an almost patriotic thread of made in America is all I trust as at least she knows the rules in which they were made. Her buying patterns have now changed over a story that now has an emotional resonance within her that goes far deeper than price. This emotional response will also dissolve the Mattel and Toys r us brand firmly planted from years of brand loyalty she once had when I was much younger.  I am also sure when a toothpaste company outsourced their tooth paste to China they never would have dreamed the manufacturer would have cut the formula with a chemical composition similar to radiator fluid. Think about that for a minute, Radiator fluid, you know the stuff that if you’re pet does ingest causes it’s kidneys to shut down. Maybe it’s easier when a pet ingests it as veterinarians have said it tastes good to the pet, so they ingest large quantities and they pass away quickly. What about the consumers who now have ingested very small quantities of this chemical? Will they see the effects over time? Will they worry? Will they trust the brand, the American brand with the same unquestioning loyalty without turning the package around to see where it was made? Will their buying behavior change to insure the items they buy are not made in China? Will other US consumers now choose not to take the risk of shopping for Apples and bringing home Oranges? We will have to wait and see I guess. My guess is the titanic has just started rubbing up against the ice burg of our own creation. I am convinced unfortunately, that we will see many more gallons of similar stories fill the hull of our economy. As entrepreneurs we are very cleaver. Now we are also importing parts that go into making widgets that when the finished good is complete we can say “made in America” after all it was assembled here.  We will see many more examples unfortunately as in our desire to appease a very fickle Wall Street our multinational brands have made compromises. We will see more food tainting, more toys that break and take our children from us. We will see class action law suits against auto makers who outsourced their Apples and were assembling their vehicles with Oranges. So we can expect problems in the future as we rely heavily on China to keep our economic ship afloat.   So what do really know about China? China has the fastest growing economy in the world. When our fickle Wall Street connects with a multinational driving profits and incremental sales by developing relationships in China we see they show their love in close to 3,000% increase in those stock values. (What we feed will grow) In an article I just received one company stock value increase 3,800% in just over 20 months for a China based company. Jet are we sure they are looking at the value of these China based companies the same?We have close to 500 of the top multinational corporations now fueling the China economic growth. China has 1.3 billion total population and they graduated over 4.2 million from college in 2006.  Here’s the challenge though, why is it that fewer than one in ten of the recent graduates are employable by US multinationals? My guess, and again I may be wrong, is they have highly educated people, but they lack the same DNA we as Americans in a free market economy have. Born from having to creatively fix our farm equipment when our tractors broke down in the field we are driven to find solutions that ultimately become new products. They lack that MacGyver desire to seek the need and creatively solve it. They have highly educated employees fixed on completing very disciplined and specific tasks for the good of the whole. These employees often fail to see the big picture that you can not use a chemical additive for plastics commonly used in the production of fertilizer to cause false positive protein reads that creates the right chemical reaction but in that reaction produces a finished good that kills humans and pets. We know that only 1/3 of their population enjoy sanitized water. We know that close to 90% of vitamin C is made in China. We know close to 70% of pharmaceutical supplies are made in China.  What’s next?  My belief is China is quietly exporting our North American, free trade driven entrepreneurial talent in our top futuristic thinkers and they will begin an even more aggressive outsourcing project of their own… hiring American senior executives to offset their perceived weakness. I believe China business people are bright and can harness their resource (bodies) to produce world wide value exchange. However I believe if this model of using the human capital of China to drive higher % increases on Wall Street is to continue, then Multinational companies must and ultimately will take the responsibility for leading the human capital and controlling all processes when making the Apples. You see, we grew up eating Apples. We know how they are to taste, when to pick them, when not to eat them, how to throw them, when is the best time to throw them, how to bake with them and which ones we should bake with and which ones are best to pick and eat. We have grown to know how to harvest them, store them, and ship them to insure the best consumer experience. We think out of the box, we know we want to control insects and disease but we take the time to review the impact of those solutions on our true goal of producing a healthy dietary consumable product.   We have executives who intuitively know about apples and they have memories, learning’s if you will, as to what they can and cannot do.  Just as when I desired to study martial arts I went to the root China. China took the teachings of the monk from India and shaped these exercises now called yoga into a series of holistic movements that not only heal your body and improve overall health, but can be used to defend it. Just as these Chinese masters studied how animals defended themselves and over the centuries developed learning’s, styles of self defense far superior to other worlds, the US has its own mastery in the art of thought. US business, the entrepreneurial spirit, has also taken centuries to perfect so why would US multinationals assume it can be bought or brought, to other cultures? The burden is now on us, again to insure that if we choose to continue to use China for its natural resources in people that we must compliment those resources that are uniquely American with regards to business. I feel in the future more of us will be embracing Chinese medicine as more of our population ages. I believe Tai Chi and Yoga practice will expand exponentially here in the United States in our quest to not only live longer but live longer, healthier. Tai chi and ancient medicine is the product from a time in China when creative thought was honored.   My goal in writing is to share a crystal clear trend I see, and I am sure others see. My goal is to build a conscious awareness of this issue and how it is damaging the DNA of US multinational corporations and their brands. Once you damage the DNA you can not control the next generation. I am calling on this generation business leaders to fist examine their own DNA as seen by what consumers are buying and ingesting everyday. Once you dig deep to the root ask yourself a very simple question; “would you want you and or someone you love using or ingesting your product based on what you have learned? “ If the answer is yes, congratulations, as you must have very stringent quality control processes and US trained quality controll officers living in China leading teams to insure you are selling Apples. If your answer is no, then please rally your team to insure what seems like a minor compromise today does not become a death blow for your organization in the future.   Last keep an eye on what I refer to as Futuristic leaders in North America. Track them like you would any other natural resource. Is our supply increasing, down, stagnant? Do we have enough of this resource based on a future world economic outlook? Do we see an exodus of this resource to developing nations like China? The burden is truly on every US company to think with our children’s’ children in mind.  When you strategically consider the cost savings, added profits to the bottom-line, please also consider the risks. What is the cost to a stain on the brand you built over 25 years? Should a quality issue slip through the intricate net you have developed; can you afford the two to three years of time and millions of dollars to win back the trust of your consumers? Should you decide to outsource your product, know the risks and plan on a quality team living in China to inspect what you expect and add this into your costs.   How are you seeing consumers adjust to “made in china?” Has your internal filtering mechanism now added “made in china” as one more way to filter the buying decision for one brand over another?