Get a better understanding of how offshoring damages furniture businesses and read about a situation where one business fought back. There aren’t that many threats that are severe as offshoring is to American manufacturing. With low paid production in countries such as China, Taiwan, and Indonesia, along with the help of the government, the prices of manufactured items has lowered in the United States.
Furniture manufacturing was seriously impacted in a negative way. American factories shut down and large numbers of employees were dropped from the company. As a result, towns were completely wiped out.
This text traces the story of offshoring’s impact on American furniture manufacturing. We’ll pair it with the story of one Virginian family business that retaliated. Overall, it details how exactly the industry joined forces to challenge the low prices of Chinese furniture as well as their revelation about the fact that their brand was not just a sticker placed under a kitchen table.
American furniture manufacturers experienced a golden age in the early to mid 1900s.
Close to the end of the industrial revolution, the beginning of the 1900s are notable for innovation in the areas of technology and manufacturing. Only the future would see computers, automation, as well as global networks since the people who pushed that initially worked in manual labor. It was the best environment for the then established American industries like furniture-making. Since people were now moving from rural areas into the suburbs and cities so that they would be near new factories as well as the industry that they worked in, the demand for mass-produced furniture heavily increased.
With an immense growth in the railroad system, it became easier to move large parts of furniture with ease. In fact, a furniture manufacturer could cater to clients all across America.
John David Basset Sr. started creating bedroom furniture in Virginia in 1902. He made a lot of money during that time period due to the economic environment. He realized the potential of taking advantage of his land and forests to construct furniture. As a result, he got a loan from his uncle and started to make bedroom furniture. He even shipped it to Canada! During that time, those who made furniture made money from inexpensive labor. Therefore, the cost of production was fairly low. However, even though those factory jobs had low, and mostly unreasonable pay, that’s what most people would rather do during that time instead of working outside in either fields or minds. The first people to work in Basset’s factory earned only five cents every hour!
African-Americans were also paid very little for their work since they were only freed from slavery half a century before. As a result, they were discriminated against, alienated, and treated unfairly.
It was up until 1933 that only a few black people worked at the Basset Factory, let alone for half the price of white people. Regardless, having to pay very little let the Basset family make items for less than their rivals did.
Since the early 1980s, Asia has been gradually overtaking the furniture-making business.
The first half of the twentieth century saw families such as the Bassets, along with other American furniture-makers only complete in the American market. However, since the price of manufacturing in the states started to rise because of a number of things such as regulations about factory conditions as well as labor laws, the not as regulated and lower manufacturing prices started to spread outside of the country.
The first factory owned abroad was located in China. This purse manufacturer opened in 1978. During that period, no one saw offshoring as a profitable business for large and bulky items such as furniture. However, within one year, that idea became a thing of the past. Smaller furniture like cocktail tables became a part of the American market.
In the later years of the 1970s, a person that worked in furniture could make about $5.25 an hour. In Taiwan, on the other hand, a worker would only make $1.40 an hour. It was even worse in China. They only made $0.35 an hour.
Gradually, every furniture manufacturer began offshoring. They’d purchase specific pieces or occasionally a complete item by an Asian business. Then they’d sell that item with their own trademark in the states. Over time, Asian factories just started to offer more than just inexpensive labor. They also started to compete with American factories.
Larry Moh was the first person that made a furniture factory in Hong Kong. He created it with the hope to export the furniture to the American market. He basically just copied the designs of American companies such as Basset, but sold them for about 20-30% less even with the cost of transporting the items at play. Less than ten years later, his brand, Universal Furniture, became the fourth biggest furniture-maker worldwide.
Things went even more south for American manufacturers when China became a part of the World Trade Organization in 2001. As a result, Chinese furniture exports moved up 121% from the late 2000s until 2002.
Asian products are welcomed by consumers and companies.
When Asian businesses began to sell their items in the states, Americans could have bought American items to support local businesses, but they did the opposite. Shoppers happily let in Asian furniture companies into their market since the prices were lower and their opinion of buying abroad changed.
Obviously the shipping from Asia to the states was initially difficult. Also, customer service still had a lot of room for improvement. For instance, how do you fix furniture that is defective from overseas? Americans began to overlook that, though, because it was just too hard to pass up a bookshelf that costed $500 versus $1,000.
On top of that, people no longer cared for long-lasting items. They didn’t mind that Asian items weren’t as quality made nor as durable as the ones made in the states. Anyways, they didn’t plan on giving their grandchildren their bed frames. That outlook heavily impacted the American furniture manufacturing market. By 1998, one third of all of the wooden furniture that was purchased in the US came from overseas.
American businesses started to use Asian items as well. Retail chains made a lot of money off of them since their low prices overrode the cost of shipping. Asian factories were equally just as happy to work with them, so they gave them compelling prices.
American furniture-makers were even interested in moving production from the states to Asia. Offshoring did give them great discounts on labor costs and it gave them a lot more profit, which let them be able to go up against other Asian sellers.
Asia let American businesses make items at a much lower cost and let consumers also benefit from it with lower prices. So what’s the issue?
Importing often excludes fair competition.
The issue with American businesses is the fact that they don’t just have to compete with lower costing items when rivalling with Asian imports. It’s actually just the essence of the competition that isn’t just. Inexpensive imports can make a series of price competition that, in the end, buries companies into the ground.
Domestic businesses end up having to import so that their prices remain competitive to that of competition from abroad. Therefore, a lot of them just can’t compete and end up going out of business. For instance, Kincaid Furniture had 12 factories and over 4,000 staff members at the beginning of the 80s. Sadly, though, they weren’t on the best side of the price war so they had to begin importing. Their top selling item, a dining room chair, sold at $220, but Universal Furniture copied them and sold it for only $39. However, despite beginning to import, they still couldn’t compete with Universal so in 1989, they had no choice but to go out of business.
What made the situation even worse was when Chinese factories started to be sponsored by their government. American businesses could only dream of that ever happening to them. As you can see, Asian manufacturers had a lot more advantages when it came to labor, but they still had to purchase the materials, so the government decided to help them out.
Take a look at China, for example. Their export policy revolves around making the standard of living for their own better. In order to accomplish that, local businesses must go into the American market, so their prices need to be low if they want to be able to compete. However, since having low prices meant that you may lose money, the government made subsidies to allow those companies to be profitable.
Is it possible for American businesses to compete in this situation? Suppose they take their business offshore, they’d still have to break even and they wouldn’t get help from their government so they’d have no choice but to still sell at a higher price than that of Chinese businesses.
Offshoring and importing have had dreadful effects on the plight of American workers.
American manufacturers don’t have it the easiest when it comes to competing with imports from abroad. However, the biggest loser in the entire situation is the American factory worker. Since more and more businesses are offshoring more parts of their production, the greater the number of people in the states are ending up without work. It is for this reason that it is important to speak up in conversations revolving around the topic of foreign trade. You shouldn’t be focusing on management and the board of directors when it comes at the cost of a worker at their factory.
One by one, American furniture producers have had to close their local factories. This has left a huge number of factory workers without work. Ever since China became a part of the World Trade Organization in 2001, 63,300 American factories have had to shut down which has left five million American workers without pay. On top of that, many of those displaced workers couldn’t find work once their factory shut down. A few claim that getting let go of is just something that everyone has the possibility of facing. You just need to get yourself together and get a new job. In real life, though, factory workers find that they don’t have many other options to choose from. For instance, if you’re an accountant that gets let go of, you can just find another accounting position elsewhere. However, if you are let go as a factory worker, you can’t really go anywhere else since all of the factories are shut down.
Although there are work training programs available to assist people with going into a new industry, a lot of past factory workers don’t use them to their benefit. Since they worked in a factory for most of their lives, the don’t have enough skills or the confidence to get a job in another industry. They may also just be too busy trying to get all of the money that they can get from various part time positions.
Not to worry though, there is still some good news out of all of this sad information. Becoming a casualty in a globalized economy doesn’t happen because of fate.
American business has a right to be protected by law.
There’s just something so wrong about the anticipation of factories closing down and an epidemic of unemployment thanks to unjust competition. However, that’s not only wrong. It’s also illegal.
Based on the guidelines accepted by those in the World Trade Organization, it’s against the law to dump. In other words, a country’s government is not allowed to run businesses at another location out of business by making their prices less than the price of production or less than the ones made by that location’s local market. If a country is able to verify that dumping caused domestic businesses to close their factories or has caused rates of unemployment to increase, then that situation of dumping is illegal by WTO standards.
Local factories have the right to safety against artificially-priced Asian imports so if an American company can verify that illegal dumping occurred, then they have the right to ask for government help.
The safety that the WTO provides works alongside laws like the Continued Dumping and Subsidy Act of 2000. It collects compensation fees, or duties, onto the most terrible dumping offenders. Then, the fees that are collected go straight back to the American companies that are impacted.
Therefore, for instance, if the three top factories in China negatively impacted 20 American businesses by dumping, those 20 factories would get new duties charged onto those three Chinese factories to fix the damage that has been done to their companies.
As you can see, the law helps out American companies when you’re competing against inexpensive foreign imports.
American producers can fight against competition from Asia.
Since American businesses know that the law is there to help them, why won’t they go to court over it? They can definitely attempt to go against dumping with legal help, but it’s not very simple to do.
In order to commence a Commerce Department investigation on dumping, businesses have to get petitions from over half, over 51% to be exact, of the industry. It’s also expensive to research and pay for legal costs. Those costs are pretty difficult to overcome when the businesses that you are competing against are already so focused on decreasing prices and costs.
However, that doesn’t make it impossible!
A great example is when John D. Basset III, the grandson of the first Basset founder, battled without stopping to begin an investigation against the People’s Republic of China. A lot of his coworkers made fun of his attempts and some business partners even ended deals because they weren’t happy that he was attempting to end the low-cost parade.
However, John kept on going. He spent a lot of time speaking over the phone, at meetings, as well as at conferences. He’d also give interviews and speeches and attempt to get people to be as passionate as he is on the subject of saving American jobs.
It took him close to a year, but he did it. In October 2003, he got 57% of what was left of the American furniture producers to file a petition against the People’s republic. Therefore, the Department of Commerce began to investigate and figure out whether the Chinese factories were actually dumping. This gave John and his co-petitioners the right to make money from the duties set on the largest dumpers.
Thanks to his perseverance, American businesses can compete against foreign ones regardless of their low prices. They no longer have to go offshore as soon as things go south. Businesses can come up with better solutions to fight back against cheap imports.
In John’s situation, he used the duties that he got to update his plants and he figured out way to make it more efficient and as a result, become more competitive.
Offshoring can be good for business’s bottom line, but so can protecting local jobs.
What drove John D. Basset III to go against dumpers? Did he have a better chance of shutting down his local factories in order to just take his production offshore and reap the benefits on an island?
A company doesn’t only make money. They also carry value. As the head of a business, you need to ask yourself what it is that your business does. Does it make profit or does it do something else? Ever since the 1980s, most furniture manufacturers have taken their production offshore, which has closed most American factories. They’ve moved from importing just specific pieces of their items by taking the whole production process to Asia. They just stamp the name of their brand and ship it to the states.
In that case, whose item is it even? Is an American brand still American if their item just has their name regardless of the fact that it was made overseas, by foreign staff members and by using foreign materials? Most likely not.
Businesses have a responsibility to their staff as well as to the community. Furniture-making businesses have traditions and often times, those factories have had workers from generations of factory staff. They’ve all depended on the company to pay them.
Take a look at the Bassets. Their company started in 1902. Even though family feuds made John D. Basset put some space from the initial family company and instead became the head of his uncle Vaughan-Basset’s company, he kept feeling responsible for his staff and worked hard, keeping the company’s interests first. With his hard work and perseverance, he was able to keep 700 positions in just Galax, Virginia!
The rampant import of furniture from Asia has cause thousands of American factories to shut down. It has also left millions of them without work. However, it doesn’t have to be like this. Businesses can stand up for their staff and their communities as well as fight against the negative impact of globalization. The new phenomenon called Small Giants is beginning to appear in the American business world. Small Giants are privately owned businesses that don’t follow the typical algorithm for making money at any price. On the contrary, they are motivated by their passion for the item and really pay attention to the quality. They also care for their staff members. The writer has researched 14 Small Giants to better explain how this strategy has helped them garner their current success.