It seems that every day another American company is making headlines for moving its production operations to China. Lower costs, decent quality and greater quantity are three little gems every manufacturer is constantly chasing to bulk-up the bottom line. The idea is one that has continued to spark the interest of companies of all sizes, each becoming more open to the notion after witnessing the success of others.
owever, as with any new frontier, a few brave soles must always venture out first; test the waters and give the all clear sign for the others standing on the shore. For the world of towing tractors and OEM manufacturing, it was Harlan Corporation.
Harlan has always been a family owned company and it took the father and son team of James and Jamie Kaplan to get the proverbial ball rolling on the China project.
“My father traveled the world while in the military and when he got out, his degree was in international business,” Jamie explains. “He loved traveling and so throughout the history of Harlan we’ve always chased the low cost producing country. We produce in 18 different countries so China was the next horizon.”
With the advantage of James’ degree and after a helpful tip from a friend, Jamie and his father made plans for their first venture into the East.
“In 1986 I was finishing up my last year of college and my best friend was a year ahead of me and was living in China,” Jamie says. “He kept saying ‘oh you’ve got to come here, this is the new horizon for low cost producing and high quality. You have to come here I’ll introduce you to people.’”
So go they did, and during the trip James and Jamie met the head of Nanjing Motors, in Nanjing China.
“They were my first really big contact,” says James. “They were making everything but mainly they were making axel components, axel housing, things like that. I always felt very good about China. I was never nervous. They assigned a young man to the account...and I had a good relationship with him.”
Jamie was equally confident in the China venture, and for good reason. According to a 2002 study by Judith Banister, China is a “manufacturing powerhouse” with 2002 figures showing nearly 100 million manufacturing employees in the country, while the US, Canada, Japan, France, Germany, Italy and the UK had a combined total of just 52 million. According to the Banister study, China has seen the numbers of manufacturing employees double since 1978.
“That’s where the world market is going to be so if you don’t go in now and be aggressive, you’ll get shut out,” Jamie advises. “The Chinese will get so good at making their own products and it’ll be done at such a low cost, the next thing you know they’ll be coming back to America and we won’t be able to compete with them.”
A bumpy ride
James and Jamie got off to a strong start sourcing in China but after a few years, their relationship with their Chinese partner began to falter and Harlan was loosing out on its profit share.
“They took that young man off the account and assigned him on something else, that was about 18 years ago, and once they did that things really went bad for me quality-wise,” James explains.
After the fallout, James and Jamie realized Harlan needed its own operation in China in order to control product quality.
“We were making all kinds of components for off-road vehicles,” explaines James. “The more business we did the more factories we had working for us and the more factories we had working for us the more quality issues we had, so finally we just said ‘we can’t have this’ and that’s when we set up our own facilities there.”
Jamie was in agreement with his father and also cites poor quality control as the motivating force behind their decision.
“It was a combination of things like delivery and quality control,” says Jamie. “They think a 20 percent rejection rate is acceptable where we believed 0.20 percent rejection rate is [ideal]. What happens is your lot production is never done on time because they’re always sorting out the bad parts and then they’re always late.
And they never fix that. The main problem that we had was with some key componentry being late and shutting down our production, so we decided to open our own factory and control the quality to have on time delivery as well as good quality.”
The company also ran into some issues with Chinese manufacturers lifting its design patterns.
“Yes we’ve had some problems,” admits James. “But now [the Chinese government] has some good laws in place with punative damages and they’re enforceable by the court. So it’s easier today to enter into contracts so that doesn’t happen.”
To fix their financial and quality control issues, James and Jamie hired their original account manager from Nanjing, Liu Sheng to run the company’s Nantong sourcing office.
“You know you’re always vulnerable in China,” James explains. “That’s another reason we have our own factory. You want to copyright your name as much as you can and once you apply for that your protected as far as your name. But copying, that’s the thing in China…everyone wants to copy, so we have a lawyer on retainer there.”
Today Harlan’s two locations in China include their sourcing/buying offices in Nanjing and Nantong as well as a factory in Nantong, which opened in 2005. The company is able to keep a closer watch on its business operations in China after it began sending US employees over in 2001. The employees permanently based in China are able to touch base with the American-based employees through routine business trips to ensure everything has been communicated correctly.
“We have someone over there pretty much every month,” James says.
Through operations in both China and the US, Harlan can machine at either location as well as fully fabricate frames. Working with the Kansas City sales and customer service team also includes the Harlan employees in China who manage relations with more than 80 factories. Harlan’s China factory is also manufacturing the Harlan drive and steer axels as well as the Rockwell version. The facility also builds the Harlan Streamline tractor for the Chinese and other Asian markets.
“We’re also manufacturing componentry for anybody,” James adds.
For larger companies, setting up shop in China is a somewhat simple process, but for small companies like Harlan, James and Jamie warn there can be some potentially dangerous set backs.
“You have to be someone that does not get disappointed easily because China easily disappoints you with their quality standards,” Jamie warns.
“Don’t have a Chinese partner,” offers James. “It can be a problem, a big problem. I just look at so many companies that had joint ventures and they didn’t work out very well. For a huge company dealing with another huge company in China it may work out all right but for a company our size it’s just not a good idea.”
Despite the bumps along the road, both men are glad they’re in China. James and Jamie also see room for their company to grow by leaps and bounds.
“I just see [the China venture] growing tremendously,” James says. “One thing interesting about China, they’ve got a very good government that really is interested in businesses growing. They give you a lot of good direction and they’re really good to work with and it’s an interesting country to work in. You have a lot of good labor there, they’re well educated. You know that’s our biggest problem [in the US], we need a lot of skilled machinists and trainee machinists and that’s difficult to find, where in China it’s easy…you get all you want.”