Opinion

David Rohde

How Zippos, dredges and vitamins can save the American middle class

By David Rohde
May 25, 2012

Last week, 41 American companies received awards at a little noticed White House ceremony. Despite the recession, the companies – most of them small and medium-size businesses – have experienced rapid growth and handsome profits in recent years. And they’ve beaten Chinese, Indian and European competitors at their own game.

How? By selling to a burgeoning global middle class expected to grow by 1 billion people – primarily in Asia – over the next decade.

Zippo Manufacturing Co, the maker of the iconic American cigarette lighter, has experienced 1,000 percent sales growth in China over the last 20 years and 900 percent growth in India over the last eight years. While other American companies have shed jobs, the 650-employee, Bradford, Pennsylvania-based company has added 150 jobs in the last three years and experienced a 20 percent increase in sales, most of it overseas.

“It’s tough to compete, but we’re doing it,” said Greg Booth, the company’s president and CEO, referring to cheap lighters manufactured in Asia. “We’re competing in a category that is under incredible pressure.”

DSC Dredge, a small, Louisiana-based builder of dredges, has increased its overseas sales by 1,300 percent over the last 10 years and nearly doubled in size from 80 to 140 employees. Their biggest overseas customers? Nigeria and Bangladesh, countries that Americans think of as impoverished but are experiencing significant economic growth. The firm’s overseas sales have risen from $1.4 million a year in 2002 to over $20 million last year and make up 65 percent of its business. Charles Sinunu, the director of international sales, said the firm just sold three dredges to Russia and sells to 48 countries worldwide.

“It’s become something where it really wasn’t a big deal 10 years ago, and now it’s a huge deal,” he told me. “Right now, we have a record backlog of business and are actively trying to hire additional people.”

And OSIsoft of San Leandro, California has done the seemingly impossible. While other companies have outsourced programming and technical work to India, the $300 million business software firm has grown from 150 to 750 employees in the last six years. Where are its new customers? In 110 countries around the world. Where are nearly all of its employees? Inside the U.S.

“We basically came to the conclusion that the cost of software development outside the U.S. is more expensive,” said Nand Ramchandani, OSIsoft’s director of business development and government affairs. “We just can’t afford to have negative experiences. We’d rather develop that in house.”

A rough pattern emerged in interviews with senior executives of five of the 41 winning firms, which sell everything from vitamins to “waterless urinal technology” to oilseed presses. The rise of middle classes in China, India and other developing nations was not the death knell of the American middle class, they said. Instead, it represents an opportunity for American businesses that are willing to adapt.

“The real war that is being waged every day is an economic war,” said Tom Kallman, a former Air Force F-15 fighter pilot whose New Jersey-based consulting firm, Kallman Worldwide, won an award for helping other U.S. companies export. “America’s strength and future depends as much on a strong economy as it does on laser-guided bombs and jet fighters.”

American politics, though, is not changing fast enough, the business leaders warned. They expressed derision for the partisan politics of both parties in Washington.

“I can’t state this strongly enough,” said an executive at one of the award-winning companies who asked not to be named. “There aren’t words in our language to express it. They are so far off base it’s sad.”

He and other executives said the problems come from the extreme right and left. Last week, a Tea Party-backed bill to close the U.S. Export-Import Bank, which lends money to American firms that export, was defeated in the Senate. Several of the businesspeople said the bank wasn’t perfect but it was an invaluable tool for countering Asian competitors, particularly Chinese companies that receive state support. DSC Dredge’s Sinunu said the Chinese are “eating our lunch” in Africa, which now boasts seven of the world’s 10 fastest-growing economies.

“I think that would be a horrible thing,” Sinunu said, referring to shuttering the bank. “The Ex-Im Bank is one of the very few things that I can shoot from my quiver to be successful. Getting rid of the Ex-Im Bank would be an absolute disaster for American companies that want to do business overseas.”

Executives from the small firms generally praised an initiative by the Obama administration to consolidate the Commerce Department and six trade- and business-related agencies into a single, more effective body and the president’s goal of doubling American exports by 2014. But they said American government export-promotion efforts still pale in comparison with those of China, Korea and many European countries.

The U.S government does not do enough to support American companies when they have designs stolen or counterfeited overseas, they said. The Commerce Department does not have enough staff based overseas to help American businesses, and post-2001 restrictions on granting U.S. visas to foreigners, particularly from predominantly Muslim countries, alienate overseas customers.

The executive who asked not to be named praised Korea’s government for fiscal discipline, creating exceptional education systems and providing vast loan guarantees for Korean companies that are trying to export.

“I think it’s relatively ingenious,” he said, “to take their government money and utilize it to provide really good financing.”

The awards – and the places these companies have found customers – show that the gravest threat to America’s prosperity isn’t the rise of middle classes overseas. It is Washington’s blind adherence to dated ideologies that handicap our innovative small businesses. The world is changing, but Washington is not.

PHOTO: An employee poses with newly released “dragon totem” models of Zippo lighters to celebrate the upcoming Dragon Year in Beijing, January 13, 2012. REUTERS/Soo Hoo Zheyang

Comments
12 comments so far | RSS Comments RSS

Well, I used to buy TRIM fingernail clippers, those made in the USA, but somehow somebody convinced these people to start manufacturing overseas.
At that moment I stopped buying them again, the overseas made were of so bad quality, never the same.
Zippo could have done the same to save some costs, but they didn’t.
Prada and Hermes could have done the same.
As you see, the problem is not the selling price, it’s the greediness of certain CEO’s and shareholder’s willingness.
TRIM people, go back to manufacturing in the USA.

Posted by hanlong | Report as abusive
 

Now that was a good read. Thank you, David Rohde. The US government should do more to improve US exports. Why don’t we? And let this serve as another example of why we must push back against extremism in our political parties, and this incredibly stupid notion that compromise is bad. No candidate running for political office who expresses an unwillingness to work across party lines should garner a single vote. We can’t vote for these kinds of candidates and then complain about government’s inability to get things done or even our lackluster export market. We have to start thinking and stop basing our opinions on sound bites and propaganda. And anyone buying into Grover Norquist’s philosophy that government should be shrunk until it’s small enough to drown in a bathtub is rejecting our Founding Father’s philosophy of governing. Do we really want to abandon Jefferson for Norquist?

Why shouldn’t our Federal government adopt programs that work in other countries? Why shouldn’t our government do things that will increase US exports and jobs? We’ve demonized government to the point where we’ve made it the enemy, but in doing so we’ve made ourselves the enemy. After all, this is a Republic that practices democracy. It’s our government; at least it’s supposed to be. We just have to figure out what government can do that works and avoid that which government is bad at. And they’re not bad at everything, like the U.S. Export-Import Bank. Few in the Tea Party even know what it is. All they know is that it’s government and, therefore, must be bad and should be cast out.

There’s a company I’m aware of that has developed a totally new kind of lighting technology. The light quality is very similar to an incandescent; the bulb contains no mercury; it’s highly energy efficient; it’s dimmable; and it cost about half the price of an LED. It’s innovation at its best. It’s an American-based company, but they turned to China to manufacture their bulbs. The company, Vu1 Corp, has been struggling to get loans just to get themselves through initial production so they can get their product on store shelves (they have a sales agreement with Lowes) and start generating revenue. Our government should approach them and offer them help in return for manufacturing their products here. Heck, why not?

Posted by flashrooster | Report as abusive
 

For each one of the above export success stories, I can give you ten more examples of companies that have either failed or sent manufacturing jobs across the border. The real facts are that, since president Obama set a goal of doubling exports within 5 years, the trade deficit has worsened by nearly 40%. Total exports have lagged the president’s goal for six consecutive months. The manufactured goods component has lagged the president’s goal for 10 consecutive months.

The U.S. has no control over exports. The U.S. cannot make itself into a Germany as the president would like because Germany has one thing the U.S. can’t have – a patsy trade partner in the U.S. that is willing to suffer a huge trade deficit. There is no other “United States” out there willing to do the same for us.

The only way to rein in the trade deficit and bring back manufacturing jobs is by shifting focus to the trade variable over which we have total control – imports. The U.S. must return to the sensible application of tariffs to assure a balance of trade. Anything less will yield the same results we’ve experienced for 36 consecutive years – a cumulative trade deficit that now totals over $11 trillion.

Pete Murphy
Author, “Five Short Blasts”

Posted by Pete_Murphy | Report as abusive
 

A few points to consider:

The reports of the death of US manufacturing has been greatly exaggerated. Depending on whose data you believe, the US is the world’s #1 or #2 manufacturer in terms of total output, and way ahead of the Chinese in terms of manufacturing productivity.

The model we’ve followed for years is developing new products and industries, wringing fat profits during the introduction, growth, and early maturity phases of the product life cycle and then ceding those products and industries to someone else. The IBM Lenovo pc business is a good example. Making laptops is cool and all, but would you rather be in that marketplace on the front end or the back end? We’ve been successfully doing the Joe Schumpeter Creative Destruction thing for many years.

People like to invoke the tariff card. It sounds good on paper, but I am unable to cite an instance where tariffs have helped a mature economy in the long term.

Posted by jambrytay | Report as abusive
 

something i forgot, a significant chunk of our trade deficit is energy which doesn’t have anything to do with manufacturing.

Posted by jambrytay | Report as abusive
 

Increasing our import tariffs would be a good start. They are at the lowest level since America was formed over 200 years ago. (Historically around 25%. Currently at 1.3% and dropping). We have the Walmart / Target / Nike lobby pushing for even lower tariffs. China’s average tariff against the U.S. is 20%. Our average tariff against China is 1%.

Don’t forget also that tariffs, as laid out in the Constitution, were intended to be the primary source of revenue for our Country. And historically they have been. What we don’t collect in tariffs, we have to make for in income tax. So with low tariffs, we have fewer domestic jobs and those jobs are taxed harder. No wonder we’re in the mess we’re in.

Raise the tariffs. The trade war is centuries old. We can either surrender (like we’ve been doing) or we can fight back. The United States is an enormous market and we are in a strong position to charge foreign companies for access to that market.

Posted by AlkalineState | Report as abusive
 

the Zippo lighter is an American military fighting mans’ icon, no matter where its made, same as riding the Harley Davidson (made in Japan) in a military funeral on Memorial Day

Posted by running | Report as abusive
 

This article is pathetic.

Small business will not save the US economy, unlike what you suggest.

Perhaps you should have focused on the real issue, which you glossed over in one sentence, “Last week, 41 American companies received awards at a little noticed White House ceremony.”

The White House is the problem, yet you reward them for holding this pathetic ceremony.

The US economy has for more than 30 years been increasingly losing high-paying manufacturing jobs overseas due to free trade and favorable trade legislation that rewards large companies for moving overseas.

Yet the White House has on its jobs council members of some of the largest corporations in the world, and obviously takes their advice regularly.

So, instead of doing what they should be doing — safeguarding the US economy by protecting American workers’ jobs — they hand out pathetic propaganda awards to small businesses who have managed to survive.

I’d say tell them to get their priorities straight.

Why didn’t you?

Posted by Gordon2352 | Report as abusive
 

Talking with an older CEO recently, he gave me the impression that ‘country’ used to be prioritized over profit. When you start to look at some of the insane profit margins these days, it just makes no sense. Something like the iPad is making Apple roughly $300 per unit. If they even could bring that production to the US (they really cannot because it is so insanely streamlined in China) they would be making roughly $220 per unit.

So the issue is that even if the could bring it home, they would simply raise prices instead of taking a loss. A loss that would still make them insane amounts of money. And that is why I strive to get an idea of cost before I buy anything. I’m not interested in being part of the problem.

This greed has no better example than the housing crash. At the very tip of the spear, if you will, were real estate brokers/agents. They often lived in the very neighborhoods where they sold homes to people that could obviously not afford them, or were not on a solid monetary footing.

That is the epitome of stupidity and greed. They quite literally pooped where they ate. And that is all corporate America is doing at this point.

Posted by mrmouth | Report as abusive
 

I don’t think American producers put enough energy into really figuring out foreign markets.

Costco has been doing incredible business in Japan bringing a lot of US made products. Granted, it isn’t all American made but a significant volume is. They don’t rely on the lying Japanese media or academia to understand out what will or won’t sell in Japan. They figure it out on their own.

There is a lot of potential in overseas markets but I don’t see many American producers really making an effort to find it. I find too many American companies relying on local companies or partners. If those partner companies knew how to bring those products in they would have jumped on the opportunity already. Too often it isn’t a matter of opportunity as much as the partner’s incompetence.

Posted by Tejicano | Report as abusive
 

At least part of the problem is that no one knows what “American” is any more. Is it anything more than paying taxes to the IRS?? Anyone can write a check. Does that make them an American? Does the US Government want to have anything to do with people who are not rich?

This place is just too big, too diverse, too fragmented and with no identity. And we are no longer a people.

Posted by usagadfly | Report as abusive
 

@AlkalineState – Very well said.

And I agree. America needs to enact tariffs again, as we had from our nation’s inception, and all during our long rise to economic preeminence.

Posted by AdamSmith | Report as abusive
 

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