Outsourcing Is Overrated
Sending factory work over to Asia has become so often a recommended strategy over the years that outsourcing now spurs a knee-jerk reaction in many entrepreneurs. Want to make something? Call China.
And yet, it can make a great deal of sense to run manufacturing in the U.S. Ironically, one proponent is a woman who came from Taiwan 20 years ago. Eve Yen, CEO of Diamond Wipes, which manufactures more than 2,000 packaged wipe products, arrived in this country to pursue a better education for her two daughters. Her husband, who held a good job in Taiwan, was supporting them. But Yen knew that she needed to generate regular income in the U.S.
"In Asia, it is a custom to give you a hot towel when you first come in [a restaurant]," she says. You get another after the meal. But she noticed that American restaurants almost never provided such a service. She imported from Taiwan a single machine that would package moistened towels that could be put into a microwave and heated (or chilled, for those in hot climates) and then given to a customer. Single use, the restaurant would not have to deal with cleaning the cloths and keeping them hygienic.
Over the years, business has grown and Diamond Wipes has more than 100 machines as well as 120 full-time employees and 40 to 50 temps, and lines of products that include disposable wipes for kitchen prep areas, restaurant tables, shining shoes in hotels, or removing make-up. Yen also says that her company sells private labeled products to the likes of Wal-Mart, Target, and Whole Foods.
Labor Costs Aren't Everything
But why manufacture in the U.S. when labor is so much cheaper in Asia? Yen admits that American labor can be seven to eight times more expensive than in China. Healthcare insurance and workman's comp can be 10 times as much. And yet, she has a bigger view of the business: "If you just want to make a good product and service your customer and not [just] pursue the maximum amount of money, you do it here." Plus, "now China has new labor rules and regulations," Yen says. "That drives the price higher." And labor rates in the U.S. have dropped, making manufacturing more financially feasible here.
And labor costs aren't everything. "Nowadays, a lot of the importers or business decision makers push for cost, cost, cost," she says. "You go to China and it's cheaper." But manufacturing in the States means that she has control over the process and so knows the quality of her products. She can also get custom orders out in two weeks rather than two to three months. Without the need for a longer shelf life, she can use far fewer preservatives, cutting manufacturing costs.
Then there is shipping. "For our products, the shipping is 20 to 30 percent of the product costs," she says. That doesn't make up all the difference, but it is significant and the business can react more quickly without the months it can take for container ships to cross the ocean.
Finally, Yen knows that her success is tied to that of her customers. "Without them, we won't be successful," she says. And if there aren't local employees who make a living and spend money in restaurants, hotels, and stores, the profit train could stop pretty quickly.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.