There’s been a lot of talk lately about companies moving to onshoring, or shifting their manufacturing away from Asia and back to the United States. Bicycle maker Kent International is one company that successfully made the transition. A fourth generation, family-owned business from Parsippany, N.J. that’s been in business for over a century, Kent markets its bicycles and accessories through large retailers, including Toys “R” Us, Walmart and Amazon. We spoke with CEO Arnold Kamler, pictured above with his son, Scott, president of the firm, about his company’s onshoring experience.
CEOB: How much did the cost differential change from China to the U.S. that made the decision profitable?
AK: When we looked at the possibility of U.S. assembly and manufacturing four years ago, we calculated that our cost to produce a bicycle in the U.S. was about 25% higher. Our calculations now indicate that this differential is about 10% and by 2017, we should be able to produce a bicycle here cheaper than in China.
CEOB: How is that affecting your profit margins?
AK: We are a private company and have no pressure from shareholders. However, this will eat into our corporate profits for the next few years by as much as 20%. The good news is that our business is still growing and we are doing very well.
CEOB: Did you have to change any suppliers?
AK: We are not cutting back on our import purchases. The business which we are developing in our new factory in South Carolina is aimed to steal business away from our competitors. We are using most of the same component parts suppliers and have only made a few changes at this point.
CEOB: Where did you choose to locate your factory/facilities and why?
AK: We thought that the Southeast represented the most efficient area for shipping. We studied Georgia, North and South Carolina and Florida. The programs of South Carolina and Georgia are virtually the same. We chose South Carolina because of a very aggressive push by the government and particularly Governor Haley and her staff.
The benefits include a wonderful training program called Ready SC, in which the local government will screen workers and then train them for us at their expense and we still have the option to hire or not hire after the training is complete. There are multiple tax breaks which come into effect after our stated employment levels and factory development costs are realized.
When I was touring South Carolina and found the city and building I thought would work for us, it had no access to natural gas which we need for our painting operation, so we were going to walk away. Four hours later, I was having dinner and received a phone call from Gov. Haley. She asked me that if the state and county agreed to extend the gas line four miles to our factory, would we have a deal? I told her yes and here we are.
CEOB: How much will Kent be able to shorten its delivery turnaround?
AK: Actually our lead time will not shorten in the short-term, as we are using mostly imported parts. In 2016, when we begin stamping, robotic welding and painting and also production by ourselves of several key component parts, our lead time should be reduced by about half.
CEOB: What challenges did you have overseas that will no longer be an issue?
AK: We have been purchasing all of our bicycles from Asia for more than 40 years now. In most countries in Asia and particularly China, working in a factory is considered a job with low esteem. People are quitting factory jobs in China and taking office jobs at lower salaries. As part of our long-term culture in the U.S., working in a factory is considered a fine way to make a living. Also, the cost of natural gas and electricity is three times higher in China and there are periodic shortages of electricity.
CEOB: What U.S. legislation/regulations do you now have to abide by that didn’t apply overseas?
AK: Things are changing very quickly in China with regard to emissions and our main customers have required our factories meet many different ethical standards, so this is really not an issue. Although the federal laws on emissions are not that difficult to meet with the modern technology of painting and preparation, the equipment we are buying will meet even the most stringent standards that exist in any state.
CEOB: What lessons did you learn overseas that you bring back with you?
AK: The main thing we have learned is to keep pushing the factory management for continual improvement and efficiency and be very quick to add new machinery that reduces labor content.