Total production started moving. We started having to change. We had to change our facility to try to be quicker, better delivery and specialize in high-tech, large products. And that required a lot of shipping cost, so we could compete and offset the difference in labor.
Talk to me about the logic of that. ... What's your niche, and how do you keep a competitive advantage in the niche you're trying to fill in the marketplace?
Most low-labor markets really specialize in high volumes, in simple products. Our niche and what we decided to attack was we would take the high tech, the large screen, the most expensive to ship that took a lot of technology, because we have a lot of people in this factory over the years and years that are very experienced in technology. I mean, we design our own test equipment. We do all the things that we need to do in-house pretty much. So we started focusing on large-screen, high-transportation-cost products, and also we try to specialize in delivery, making sure that we deliver on a timely basis and low quantities. ...
... When you say you've got an advantage here in building these high-end products ... how do you see your advantage?
... For instance, [for] a 55-inch projection TV, a 40-foot container will hold 28 units; that's all it will hold. So if you're shipping 40-foot containers from China and you put them on a boat, you ship them to California, you still have to ship 70 percent of them east to the Mississippi to get to most of the population of the United States.
So you've not only got the shipping costs on the boat, but you've also got the transportation costs across the United States. And it's 28 units, so transportation costs per container would be $2,500 or more. So you would add at least $100 per unit just to get it to Long Beach.
So if I understand you right, what you're saying is, even with American labor costs compared to Chinese labor costs, you're going to better off if you're doing these big, high-end items?
We're going to be better off for the high-end items. And also, if you're shipping from China, you're shipping, three-, four-week lead times. It takes two weeks to get it across the ocean, so we can cut that lead time down to nearly nothing.
... What's happened to the industry? Has it gone overseas? ...
Well, you know, all the American-owned television companies that we knew and names that we knew years ago have been acquired by multinational companies -- European companies, Asian companies, different companies.
In the wave of things, the first thing that happened in our industry was, of course, the move to Mexico, which lasted for a while. And then the second wave that's happened now is actually the move to not only China, but Asia. ...
You've seen these waves go on here now several times over the last 25 years. Is there anything different about the competition today, the problem today, or is this just the same old problem the industry's had for a long time?
Well, I think the difference today is that there's more competitors. When the wave went to Mexico, that was people that were in the United States taking their factories and taking their abilities and moving people to [Mexico] to build product. It wasn't like there was a lot of new entries into the market; it was the same names, just different locations.
When you started seeing the Chinese move, then you started seeing a lot of different companies come in play, a lot of companies we never heard of that started booming in market share all of a sudden, companies like Apex, who five years ago no one had heard of Apex. But China had so many large television manufacturers that when they could get into the market, they started trying to enter the U.S. market.
So now you don't only have the Zeniths and the Thompsons and RCAs, but you've got the Apex, the Changhongs, the TCLs, a lot of different companies out of China.
So does China hit you particularly hard? When [do] you start to see Chinese imports, and how fast does it come?
Actually, about the year 2000, you started seeing some imports -- not huge imports, but you started seeing some.
From China. By the year 2003, they were increased 1,100 percent in imports. So they just grew at an amazing rate. They weren't here. They were shipping maybe 100,000; now they're shipping millions and millions of televisions all of a sudden from China. ...
So we're looking at Philips, or we're looking at Samsung, or we're looking at Zenith or something like that, and maybe 10 years ago it was built in America; five years ago it was built in Mexico; and today it's built in China. Is that what you're saying?
Built in China and shipped here, and you don't know the difference.
... People talk about China with a sense of alarm. It's kind of different from what it was with Japan, and yet as consumers, we've sort of gotten used to the idea that television sets maybe aren't made in America; they're made overseas. So what's different here? Is there a different sort of competitive threat?
I think the biggest thing that we've recognized is the infrastructure China has. They can build every television that's needed, that's going to be sold in the United States this year. They have the infrastructure in place to do that. And they're not shipping all those today, but they have production facilities sitting with capacities to satisfy the U.S. market today, which to me is pretty amazing that they continued to invest in the infrastructure. They have the production lines ready; they keep doing such dramatic increases. And if unchecked, they would close this market out to any American manufacturer. …
Now, what was it about the Chinese competition that caused you to file a suit? When you spotted the Chinese competition coming in here -- and you're talking big volume, fast growth of market share -- you could say, "Wow, that's competition; that's globalization; that's the way it goes." But you didn't see it that way. Why not?
... We were concerned about the rapid increase that the Chinese were having coming into the U.S. market and the growth in just a short period of time, the price competition from some of our customers. They would call us and say, "You've got to get $100 improvement out of the set or we're going to lose shelf space, and you won't have this product to build."
This is like Philips saying, "If you don't cut $100 from your sets, Wal-Mart's not going to give us the shelf space"?
There's a customer that won't give them the shelf space, so we were seeing that pressure. And of course, with the Internet today, you could go to the Internet and you can see what televisions cost in any major retailer, and you can see who you're compared against. And the first thing we saw was the Chinese products.
They were killing you on price?
They were killing us on price, and so that really drew a lot of attention, because we started laying people off and losing jobs, because we couldn't make $100 cost improvement in a very short period of time.
So you're saying the Chinese were able to come in and undercut practically overnight by a big jump? ...
Yeah. I mean, our market has a 5 percent, 6 percent price of degradation every year. That's happened ever since I've been in this business.
Prices, costs going down.
Prices, costs going down. But we're starting to see the Chinese product at 15, 20 percent and lower.
Lower. And you know, we've learned to deal with 5 percent, and we've learned to make cost improvements for 5 percent for years and years. But when you start talking 15 or 20 percent, you can't take enough people out or make enough cost improvements to get that in a very short period of time.
So you got alarmed?
So we got alarmed, yes.
And then what? ... Was there something fishy in the competition you saw from China?
This business is a very low-margin business to start with, and we know that. But when we started looking at the competition, and we compared feature levels and screen size, and we know what labor costs are, we know what material costs are, we know all the different shipping costs, we know what that is. So when you started adding all those things together and you said, "OK, Chinese have lower labor; we'll discount it for that labor, but we're going to add shipping costs," and you take all the other costs and add them together, you know there was no way that they could be meeting those price points on a fair playing field.
And I can't explain what was going on, because I don't know what goes on inside of China, but I did know that when you take a tube cost, what it costs to make a cabinet, what it costs for electronics, and you put it all together, you can't sell it for less than you make, and that's what it looked like to us. So that got our attention.
So we got together ... with a law firm and said, "This doesn't look right," and they looked at it, and of course Georgetown Economic Services got involved and looked at it and came back and said: "No, we believe this is a reasonable case. We think that there in fact is dumping going on." ...
So when you looked at the Chinese behavior in the marketplace, what did you think was going on?
Well, we thought they were dumping products, which was in the United States market, which was selling below cost, which would put other competitors in the market out of business.
And that's illegal?
And that is illegal. That is illegal. So that's why we employed the law firm to look into it further, to make sure that they felt like what our hunch [was] or our thoughts [were] were reasonable. And we believed it. And after some investigation by the law firm with some other companies in the United States, they confirmed it. They thought it was a very good case.
Now, let me get something straight, because when you talk to people about China, they say: "Oh, my gosh, they've got real low labor costs. Our folks are making $10, $15, $20 an hour, and they're making 25, 35, 50 cents a hour, and there's no way you can compete." Are you telling me that you can compete with China so long as it's a level playing field and they're playing fair, even though there's a labor-cost disadvantage?
Sure, yeah. We believe that from everything that we've looked at. When we looked at all the costs, the labor content [that] would cover television is not as large as a lot of people think.
What is it?
Well, if you're talking about an analog television, [a] 25-inch analog television, there's three-tenths of an hour in the final [assembly] at most. So if you're paying 10 bucks an hour, say you're paying 15 bucks an hour -- labor, benefits an hour, it's five bucks. If they're paying 50 cents an hour, what's the difference? Five bucks is not much when you start considering.
Now, when you've got it complete in China, you have to put it on a boat, and you have to put it on a rail or a truck when you get to the U.S. So that part of it we felt like we could compete with. ...
So you're saying even if the Chinese had real low labor costs, that wouldn't be enough to offset the transport cost and so forth?
Not on large products, we don't think so, no. And we've proven it, that it wasn't.
OK, so what do you think? Do you have an idea what the Chinese were doing, how they were doing this?
Actually I don't. There's a lot of speculation. I've had a lot of people tell me different things, but no, I don't really know exactly. You hear a lot of arguments about the currency, the devaluation of the currency and different things, but I can't tell you, because I don't have the inside on that, and [there's] no way for us to really find that out.
All you know is when the net output comes out, it can't have been done. You can't make water [go] uphill. You can't produce for the price they were saying they were producing for.
And China's a closed economy, so it's hard to get information about what they do sell products for in China. In this whole dumping case, we had to have a surrogate country where products were shipped out of China and sold to compare to how they were sold in the United States to see how the pricing compared. And that's one of the ways that we proved that they were in fact dumping.
You talked about this explosion occurring in the Chinese share of the American color-television market between 2000 and 2003. What's pushing that? Why is that happening? ...
If you look at color television, the color television today is so much cheaper than it was 20 years ago. There's not a lot of things in life that get cheaper every year, but consumer electronics tend to do that. I think the large retailers push for lower and lower prices, and they promise large volumes for lower pricing. So I think the retailers really push, and they push the manufacturers to try to find any kind of savings they can. And if it's outsourcing to China, then that's one way to get the market share. ...
Large retailers are pushing for lower pricing. The king of the retailers is Wal-Mart. Are you saying Wal-Mart is leading this thing?
They advertise the lowest prices, so yes, I'm sure Wal-Mart's one of the leading companies that do that, that push for that low price.
But specifically, [do] you think Wal-Mart pushed to get the production in China?
I think Wal-Mart pushes to get the lowest price they could possibly get. I don't really know the details about how they go and discuss with their suppliers, how they buy. But I know that they have huge volumes, and I know from my past experience that they promise you huge volumes for a lot of price concessions. And so a lot of people do a lot of things to get volume, because volume cures a lot of sand in a manufacturing facility. If you can do a lot of volume, you can cover a lot of overhead and things that happen.
You make television sets for other labels -- for Philips, for Samsung, for Zenith, whatever. ... You're not talking to Wal-Mart directly. I'm just wondering about whether or not within the industry, you get feedback from the companies you're producing for, and they've got to get this kind of price cutting, or they've got to move to China, or they can't keep the Wal-Mart shelf space.
Sure. One of the biggest negotiations you have when you're talking with your customer -- and in the past we always had yearly negotiations -- they would tell you, "This is the price point this product needs to be at on the shelf," and we would work to try to meet that cost point for them.
And where were they getting the price point?
They were getting them from the large retailers or from their own market research that would say, "Last year this product was $279 on the shelf, and it's got to be at $249" -- you know, [from] their sales and marketing people. So they would work from that angle.
So Wal-Mart is saying to Samsung or Philips or somebody like that: "Look, we've got to hit a $249 price point. You've got to get it to us for that, knock off our margin." And then that producer is saying to you, "We need it from you so we can hit that price point"?
We've got to get it to that price point, and that would come from a lot of large retailers that would come and say that exact thing. ...
All right. So now you've got a picture there, and you go and file this case charging the Chinese with dumping. What happens? Do you see the big-box retailers? Do you see the multinationals show up? Are the Samsungs and the Philips and the other foreign brand-name producers in there with you in this case or not?
Well, actually, no. They weren't with us, and we had some discussions with management of all the different companies in the U.S. that were not only television, but television-related. And many of them just told us that their headquarters overseas wouldn't let them support it, so they could not support the dumping action.
They didn't exactly tell us why. I would expect that some of the feelings that we got from them was that they had factories in China, and they were also trying to go to the Chinese market and sell products, so they didn't want to do anything to upset the Chinese or create a problem for them.
... There was even an article in the Chinese People's Daily which the Chinese authorities said, through the organ of the Chinese People's Daily, that the Chinese government did not want any of the multinationals that were manufacturing in China and in America joining your case.
Yeah, there was a lot of leverage placed by the Chinese government.
A lot of leverage placed?
A lot of leverage. The Chinese government put a lot of pressure on a lot of people.
To fight your case?
To fight our case, yes.
Well, they succeeded in the sense that they got a lot of people to keep quiet.
Yeah, they did have a lot of people keep quiet, and it was creating a problem for us, because it's hard to bring a dumping case when you don't have all the factories or companies supporting that in the U.S. So you had one small company, and although the local management I felt like supported it, they couldn't publicly support the case.
And where was Wal-Mart in your case? What side did Wal-Mart come down on?
Wal-Mart chose the side of the Chinese. And basically Wal-Mart spent a lot of time and effort at the International Trade Commission hearings testifying against us and our case.
So they're testifying against you. I thought Wal-Mart was a "Buy America" company.
Well, I think that's the old Wal-Mart that we used to know when Sam Walton was alive. I don't think today if you walk in to Wal-Mart and you probably did a count, you wouldn't find a lot of American products in Wal-Mart. I think they've changed that direction over the years.
Well, you're taking the position that your company and your industry in America is being damaged by unfair trade practices by the Chinese. What did [Wal-Mart] say, that you weren't being damaged, or the Chinese were playing fair?
Well, actually, they used several arguments. One of their large arguments was that the products that the Chinese were shipping into the United States were not really in competition with the products that we built here in our factory; therefore they weren't harming our business. But that was easily disproven just going to [Wal-Mart's] sale papers or their Web site. ...
They always have the day-after-Thanksgiving huge sale and blowout [with] all these televisions. And they were really using that example, saying, "Well, that television didn't compete, and it really didn't hurt the market." And it was kind of a difficult argument I think for them, even though they did a good job trying to present it, because it was hard to explain that if someone bought a television day the after Thanksgiving that they were still in the market to buy a television anyway.
When Wal-Mart says their billion-dollar television blowout doesn't affect the market, what's your response?
Well, that's, of course, nonsense, and I don't think anybody could really, through any questioning at all, they could justify that argument. But that's maybe the only argument they had.
Why is it nonsense?
Well, I think it's nonsense in the fact that if you're in the market to buy a color television and you buy one at the Thanksgiving Day sale blowout, you're not in the market anymore. They were arguing that they didn't harm that market any; that yeah, you were still in the market. And we couldn't understand that argument whatsoever. It was kind of interesting the way they tried to present it.
You don't deal with Wal-Mart directly; you deal with them indirectly through the companies you're producing for. [Was that] your most direct kind of connection or confrontation with Wal-Mart?
Actually, yes. And we tried to make sure that those customers, big-box retailers, don't know Five Rivers, and Wal-Mart testified actually that we really couldn't be a real television company because if we were, we would be trying to sell to Wal-Mart. And actually there were several SKUs that were built in this factory on Wal-Mart shelves that they didn't know, and we couldn't tell them, because we didn't want to have the chance of them canceling orders to our customers.
So what you're saying is Wal-Mart didn't even know you were actually producing sets that were winding up on their shelves under other brand names?
Wal-Mart doesn't know; the customer doesn't [know]; a lot of people don't know who produces the set. So yes, they didn't know. ...
Was this dumping case critical to the survival of your company? If you had had a bad case or you'd lost this case, would you have shut down?
Absolutely. There's no doubt in my mind that if [we] had lost this case, this factory would not be in business. ...
You're fighting. You're hanging on in really tough circumstances. Why is that so important?
Well, you know, the biggest thing that I kept arguing and I believe strongly is [that] it's not free trade; it's fair trade, number one. And we're here to create jobs for our people in Greenville, Tenn., and on a fair, level playing field. If we can't compete, then we go out of business like anyone else.
But if it's unfair and it's illegal and someone's doing something to damage or put these people out of a job, we're going to try to do something to keep these jobs. If you look in my factory, our average age of our workforce is 50 years old or older. I've got a lot of older people working [in] this factory; they're going to have a hard time finding jobs that pay the money we pay with benefits. Today those jobs aren't there.
A lot of economists tell you these are jobs people don't want; they're going overseas and outsourcing. Those economists haven't been to Greenville, Tenn. They haven't talked to these ladies that work on these production lines. They haven't seen the clean environment that it is. This is not a sweatshop by any stretch of the imagination; it's a place that a person can work, and they can work until they're 65 years old and retire. ...
A lot of production is moving to China. Why don't you move to China?
Well, it's interesting that I had some Chinese people approach me and try to convince me that that was smarter than filing the dumping case, and spent a lot of time, actually contacted me several times, and tried to convince me we should move to China.
I'm not interested in providing jobs in China; I'm interested in providing jobs here. And so our whole argument is on a level playing field; we should be able to compete, and we think we should. We can. And if we can't, then we go out of business, and we all know we gave it our best shot; we did the best we could. But give us a level playing field, and give us a chance.
And you know, we're not into imported products here. We're an American-owned company. We're trying to produce jobs for Americans.
You've looked around; you've seen what's happened in the industry. ... Has the United States government had an intelligent trade policy which gives American manufacturers a chance? Or have we sort of stumbled along and gotten ourselves into a jam as a country because we haven't figured out what a smart strategy is?
I'm not a protectionist person and don't really believe in [protectionism], and I don't really view this as being protectionist. I view it as making things fair. And again, as I mentioned at the International Trade Commission hearing, it's not free trade; it's fair trade. That's all we're asking for.
Well, you're asking that free trade be fair.
Be fair, exactly. ... We're fighting for not only free trade, but fair trade, and actually a lot of it is the same thing. We want an opportunity to compete on a level playing field, and then we can free-trade all we want to as long as we're all on a level playing field, we're all following the regulations, we're all following everything that we need to follow. But what we can't compete with is things that we don't know about, of why pricing is cut down and coming in from other countries.
Well, how can the Chinese afford to sell a product for less than it costs to produce?
I don't know that. I don't know. I know that I had one Chinese businessman tell me that our dumping case did his company a favor, and I couldn't understand that. And I asked him; I said: "How I could do you a favor? You're in the television business." He said: "I'm a small television company. Large companies had advantages in China that my company doesn't have." And when I tried to get him to explain it, he wouldn't really explain it, but he says there's regulations and loan policies and things that happen in China that are an internal part of Chinese politics, and he said a small [company] doesn't have the same advantage.
So he's suggesting that large Chinese companies are getting subsidies or loans or price breaks or lax regulation, whatever, that's giving them some kind of cost advantages.
Exactly, but when I asked him more details, he really wouldn't elaborate.
Now, who are these Chinese who came and talked to you and suggested you move to China? Were these Chinese businessmen? Were these Chinese television companies? Or was it the Chinese embassy or Chinese trade officials?
No. Actually, the one person that kept contacting me, I think he was a Chinese businessman. He was in Chicago. He called me on the phone. He called me probably 15 times over a period of time, and he kept making the argument that "I can help you set up your production in China, and you can make more money." And I said, "This is not about making more money; this is not about that." And he kept making the argument, and I talked to him, because he makes very interesting arguments that I kind of enjoyed listening to.
But one argument he made, he said, "Tom," he said, "American people say they want to buy American, but," he said, "really they don't." And he said, "If they did, why would Wal-Mart be the world's largest retailer?" He said they don't buy American; he said Americans really buy price. He said even though they want to feel patriotic, and in their hearts maybe they really want to be that way, he said they really have a hard time when it comes to voting with their pocketbook. And he makes a good argument, actually.
Let me just ask you one thing, though, apropos about what you just said. Is he suggesting to you that the profit margins would be much higher for you if you made your product in China than if you made it in America?
Absolutely. Absolutely that's what he told me. His argument was, "Even if you win this case, you're really not going to win in the long run, and it would be more profitable for you to set up in China." ...
So the suggestion is that the Wal-Marts of this world are making a bigger margin on products they're getting in China than on products they're getting made in America?
Why would an American company fight American companies and American jobs unless it was for their own profit? I don't understand that. Why would Wal-Mart and other companies actually testify to support jobs in China instead of American jobs unless there was some benefit to them?
Tell me about the specific experience you had with one of your customers, saying to you they need $100 more off the price of a television set you're making for them. What did your customer say to you, and what did you do, and what did you find out?
Well, right before one of the staff hearings at the International Trade Commission, one of our customers called and said: "You're building the products, 50-, 55-inch projection TV, and if you don't figure out a way to reduce the cost by $100, we're going to lose the shelf space. And if we do, you'll lose the production. So you've got to try to find a cost improvement."
And we knew where that set was being sold, so we went to the Web site, Wal-Mart Web site, and sure enough, on the Web site, right next to the product that we were building was a 50-inch Apex television, [and] actually Apex is made by Changhong in China. And they had just reduced their costs $99.
So they were $200 cheaper than their competitor. They were already cheaper, but actually they drove it down another $99, and that forced our customer's marketing group to say, "If you can't get the price [down], we're going to lose the shelf space."
So Wal-Mart was giving the word to your client ... "Cut it by $100 or we're not selling you anymore"?
Absolutely. I mean, the competition took it down.
That's direct. It's China vs. America; it's Wal-Mart vs. the supplier. And you're caught in the middle.
Absolutely. When our customer comes and they need some price improvements, we have to try to follow, because if we don't, we're going to be out of the market, and that's jobs. So we try to find every way we can, but it's reasonable cost improvements we can handle, cost improvements like that that you can't.
So it's a struggle for survival against the Chinese?
It's a struggle for survival against the Asians -- not only Chinese, but Malaysians also.
But the Chinese are the ones that are huge volume?
They're huge, and they have prepared for huge volumes.
Is it going to get worse?
I think it will. I think their infrastructure is really starting to develop. A lot of people say, "If we don't do something, America is not going to be the manufacturing power of the world." I really believe that we're probably not the manufacturing power of the world today; we just don't know it. And I think China is.