Leveling The Playing Field

Changes are happening around the world that will affect every job 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.

On July 1, 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. China's export surplus has been astronomical and has also produced its share of headaches in dealing with foreign trade partners (especially the United States). It is also somewhat of an environmental concern as many of the rolled-back rebates cover what is referred to as “polluting industries” including petrochemicals, cement, leather manufacturing and dying.

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

In the end, 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. The question now becomes, "how do we take advantage of it?"

For years, owners of job shops who have been focusing on customer service, keeping prices competitive and delivering product on time and of a high quality feel that there is no way to compete against some foreign competitors because the prices are so low. Now, China's tax rebate elimination could be a way to level the playing field in offering competitive prices.

Think of any customers in the area that you have done work for in the past who 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, it will show intelligence beyond what’s happening in your backyard, and most buyers appreciate you thinking about their business. Second, 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.

On a recent survey on www.mfg.com, more than two-thirds of buyers responded that they would prefer to work with local suppliers. Not all of them have been able to do this though, because of price. With these recent rollbacks, this is a 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 pricing needs.

This won’t affect every customer or prospect, but it will affect enough of them that it will be worthwhile to place the calls, set up a meeting or send them information on your shop. Remember in last month’s “The Branding Myth” column—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: “The best minds are not in government. If they were, business would hire them away.” 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.

Mitch Free is president and CEO of MFG.com, Atlanta, Georgia. He can be reached at (770) 444-9686, ext. 2946 or at mfree@mfg.com.