Saturday, October 07, 2006

Global Trade: A Midwestern Story

Yesterday I met with my friend Larry, who is - among other things - a small business owner. With his permission, I'm going to tell you a little story about a recent business experience he had.

Larry's family business, started by his father years ago, is involved in blending and selling spice mixtures. It is a small business with a handful of employees and long traditions in his hometown in the Midwest. Not only have they kept the same employees for years, they have also kept many of the same customers for generations.

But times are changing. They needed some updated equipment - a spice mixer, which was going to require additional capital investment. The alternative would be to hire more employees and run the smaller mixers for two shifts, but that was something no one really wanted. (The employees did not want that change in their work life and patterns; management did not want the higher overhead costs associated with labor.)

Larry has always been a buy-American kind of person. He is a veteran, loyal to the U.S., and in his politics, he is conscious of the need to protect the little guy from big business and from big government. Sometimes, that puts him in a quandry about what to do politically - and that is surely understandable. But I digress.

When it came time to shop for the super mixer they needed, Larry followed his instincts and met first with a U.S. manufacturer. This is a specialized piece of equipment, and it must meet certain specifications. The machine they had met those specifications, but it was over his budget by several thousand dollars. He decided to hold off and do some more research, perhaps finding a used one or a lesser alternative that could still do the job better than his old mixers.

Ultimately, he found another supplier who showed him a mixer with - get this - more features, more power, and better durability. And to sweeten this deal, it cost $5,000 below the other machine. Unfortunately, it would have to be shipped - from China. This company had stopped manufacturing here and now focused on marketing machines from its Chinese source.

Despite the misgivings arising from his traditional approach, Larry ordered that Chinese machine. He later told the U.S. manufacterer what he had done, and why. The U.S. manufacturer responded in two ways: (1) he would have taken less for the machine (but not that much less, and moreover, he didn't tell Larry that until it was too late) and (2) disbelief as to the fact that the Chinese machine was made better than his, or that it had more features.

Now we get to the other part of the story. Larry's employees, who were skeptical of the need to get a bigger, stronger, mixer, soon had an opportunity to fill an order that was bigger than the company had ever done. They fired up the new machine and filled it in an afternoon with the staff on hand. Everyone got to go home at night satisfied. Moreover, the company lowered its cost advantage, allowing higher sales. And that additional volume led to bulk input discounts, which added additional profits to the mix.

Despite the fact that a U.S. manufacturer lost out in this story, it is important to recognize that there were real winners here. Larry got to same some much-needed capital, which he can now use to improve other aspects of the business. Larry's employees also got job security that they could not have otherwise enjoyed with a less-secure company. More volume and more profits mean more opportunities. And in this case they got to enjoy better working conditions by having equipment to help them do their work more effectively. Somewhere, on the other end of the semi-trailer full of product that they loaded that afternoon, a customer got some spices they needed to serve their customers - and at a better price than they would otherwise have been able to get before Larry's company lowered their prices.

This is the possibility that global trade presents. Each of us has a choice: do we want to realize that possibility, or do we want to shake our heads in disbelief. Something tells me that the disbelief route is not the way to go.

Happy Saturday.


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