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Volume 6   Issue 4                May 2005

Guest Corner

When it Comes to China, This is the Word to Remember
by Tom Gallagher

Adapt: To make suitable to requirements or conditions; adjust or modify fitting. To adjust oneself to different conditions, environments, etc.

We all have had to adapt in our lives. I had to put away my typewriter and learn to operate this blasted computer. I’ve also adapted to my modern cell phone with all those passwords and sequence numbers that I cannot remember but do because, in some way, it makes my life easier and safer. Somehow I have even adapted and survived traveling to China to sell my krypton gas products into the lighting and window industries. 

Doing Business in China
The first thing I had to do was change my name to Tommy G. If you have a name with L or R I seriously suggest you find a nickname if you plan on doing business in China, as this makes introductions much easier. Secondly I had to learn about my competition and the Chinese markets in which I plan to sell. The average Chinese worker receives about $0.50 USD per hour plus three meals a day. The manufacturing company usually supplies living quarters at its manufacturing site for their employees and families. Try finding this arrangement in North America. Lastly, I discovered that the Chinese are acquiring about 40 percent of the world’s building cranes and most of the world’s steel because of the massive expansion of infrastructure that is now occurring in most cities within China. My conclusion is this: any product that is mass-produced in a low-labor-cost country will be exported anywhere in the world and right now China is that country.

Implications for U.S. Manufacturers
Now what does this have to do with the fenestration industry? 

Historically the fenestration industry in North America has been a regional business. Companies would worry about the competition across the county or state and very rarely across the country. Each window and door and component manufacturer had its own geographical market over which it ruled. Well, adaptation is the key word for the future of the U.S. fenestration industry. The North American fenestration market is now the global fenestration market. 

In my opinion, the main competition in North America for insulating glass units (IGU) or components will come from China and other low-labor-cost producing nations.

Currently in China, in its Northern region near Beijing, major international window manufacturers have built facilities to produce thousands of high-quality vinyl dual-pane insulating glass units that are now required to meet the new Chinese energy-efficient fenestration standards. Most of these IGUs will be sold in China for their current construction demand, but North America had better be prepared for these quality, low price windows to arrive soon. Ditto for IGU components. Of course, these windows will first be offered into the new construction market with a quality window of specific dimensions for new housing at a very low price. The replacement window market, I believe, is safe for now, but those who manufacture IGUs for new construction I have just one word—adapt.Competing on a Non-level Playing Field 
I wish I could say that the importation of these IGUs is being achieved on a level playing field, but this is not the case. If window or window component manufacturers of North America wanted to export quality products to China, they will experience a value-added tax (VAT) of 17 percent on all products. This is on top of the 6-percent duty tax into China. Now add the 50 cent per hour wage plus the very probable subsidizing by the Chinese government to these manufacturing companies and you can see that the playing field is simply not level. North America gets a 23-percent surcharge for its products into China keeping the fenestration industry in North America from being competitive. 

It is now time for all North American fenestration manufacturers and their respective associations to adapt.

How to Adapt
Adapt through organization, by reviewing internal production techniques and increasing the efficiency of each department, by reviewing all of your costs and then finding a way to lower them and use whatever means is necessary to survive. Too big a task you say? Impossible to do? Please do tell me another solution. I will quietly sit here by my blasted computer and my tethered cell phone and await your wisdom. If I can adapt and survive at my age so can the fenestration industry of North America. 

Well, it is time for me to get off my soapbox, I have to organize my things and get ready to adapt to some time changes, for you see, I am about to travel to China and sell my krypton and xenon gas. I simply have to survive. 

Tom Gallagher is vice president of Spectra Gases in Branchburg, N.J. He recently gave a lecture at Fudan University in Shanghai, China, on how increased energy efficiency and the world’s aging societies will be the two main factors in the design and production of all future products.

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