She has traveled a number of times to Washington in an effort to make small business and its travails comprehensible to politicians. "You can't just talk about these issues," she says. "You've got to put your money where your mouth is. A lot of these characters have no idea what it means to meet a payroll."
Ruth Stafford worries for the business, fears it could die a slow death by 1,000 cuts from mercurial and uncomprehending forces. On the other hand, Kiva gets buyout offers all the time. The Staffords could sell tomorrow. But that would leave nothing to pass on to the next generation. "Who knows? Tom's son, Chad, might be interested some day," says Ruth hopefully. Chad is all of six years old.
Kiva sits in a dusty industrial neighborhood of west Phoenix. In the plant, men in baseball caps, T-shirts, and ponytails tend to throbbing machinery. The place looks like just another factory, where people show up in the morning, manufacture boxes, and make some money. But the scene is deceptive in its normality. Life at Kiva amounts to little more than a daily struggle for survival -- and thus speaks volumes about the state of small business in 1995.
* * *
Competition: The Big Squeeze
For the American economy and for companies like Kiva, the late 1950s were the halcyon years. Back then, Phoenix was a world unto itself, a small city set in a blissful expanse of American emptiness. Then came the highways, the jet planes, the people, and all the modern communications that linked the city to Tucson, Scottsdale, Tempe, and from those cities to the world beyond.
In today's hyperconnected world Kiva Container remains a tortoise that none-theless must move at a hare's pace. It is largely a commodity business selling to local and regional customers. Kiva's sales last year came in at about $10 million. The net margin in a typical year is not much more than 5%. To boost that number -- and keep the top line from eroding -- Kiva has pursued a two-pronged strategy. First, it has tried "to get as horizontal as possible," says Tom Stafford, by offering a wide array of products and services to entice efficiency-minded customers with the promise of one-stop, one-invoice shopping.
Second, Kiva has tried to produce more value-added product, much of it proprietary and even patented. That has meant moving fast to get ahead of the market in materials, by producing corrugated plastic containers, which can last 40 times longer than corrugated cardboard containers. Eight years ago the company opened a plant in Anaheim, Calif., to convert corrugated plastic into boxes. This year it did the same in Taylor, S.C.
Corrugated plastic costs five times as much as corrugated paper and commands commensurately higher margins. But it's also costlier to convert. In a typical year Kiva now spends $500,000 on capital improvements just to keep pace with the technology.
The basic intent of such agreements as the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) is to allow more companies to participate in more markets. The upside of that is the noble-sounding idea of free trade. The downside is the brutal reality of global competition.
There used to be a clearer delineation of markets. Big companies dealt with large national and international accounts. Smaller ones like Kiva concentrated on local or regional markets. Kiva retains its share of local customers, but now the big "integrateds" wade ever deeper into the Staffords' markets. Billion-dollar multinational companies, such as Stone Container, Gaylord Container, Packaging Corp. of America, and Container Corp. of America, by their sheer mass can flood and depress local markets. Or they can cherry pick.
"The integrateds used to concentrate on larger accounts because they would do only larger runs. Now they can economically do small runs," explains Tom Stafford. "They used to ship by the trailer load. Now they'll run 5,000 pieces and ship just 500 at a time."
But the big fish find even bigger ones eyeing them. Three years ago a Taiwan-based producer of corrugated plastic persuaded Texas officials to give it tax breaks to set up a huge facility in Port Arthur, Tex., near Houston. When the plant came on-line in mid-1993, it doubled U.S. capacity for producing corrugated plastic. The company promised to create upwards of 3,000 jobs -- and to be only a producer, not a converter, of raw material. The Staffords were skeptical, and their suspicions soon proved justified. During the first quarter of 1994, their industry sources informed them that the Taiwanese company was installing equipment to convert the plastic to finished value-added product. Its output instantly depressed prices 10% in the markets it was entering, chiefly the low-end agricultural markets. Tom Stafford says that Kiva focuses on higher-end consumer markets, but he is certain that the foreign competitor will migrate up into those markets as well. "We have accounts that I know they would love to sink their teeth into."
Ruth Stafford says that while the Taiwanese company came into the United States promising 3,000 jobs, "nobody talks about how many jobs they've destroyed in the process." She adds, "Once things get going in the right way in a market, there's always somebody who screws them up. And this was all financed at taxpayers' expense."
