Here’s a great example I found showing why many of the entrepreneurs and small business owners in the United States really are the wave we need to ride out of terrible economic times.
This is the story of Mark Krywko. He and his son Jason are the founders of Sleek Audio, a Florida company that offers high-quality headphones.
Any good business owner wants to keep their margins low – and that’s usually done by finding a way to make the cost of creating your product as cheap as possible. It’s also common knowledge that when it comes to electronics like audio devices – China is pretty good place to get that done.
But last year, Mark Krywko reached a turning point.
Writer Brendan Koerner does an excellent job telling the Krywko’s story in an article on Wired.com. I’m just going to give you an overview here, but I suggest you read the whole thing.
Krywko got fed up with flying to China and dealing with a host of issues from manufacturing mistakes to shipping mishaps. On one of those long flights back to the states, he and his son decided to bring the operation home to Florida.
It didn’t take them very long to find a manufacturer for their product. In fact, they ended up partnering with a maker of computer equipment located just a few miles away from the offices of Sleek Audio. Now instead of taking an international flight, Mark and Jason take a 15 minute drive to see their earphones being made.
That doesn’t mean it’s less expensive, but Koerner writes that it has meant that Sleek Audio has been more successful.
“Each earphone costs roughly 50 percent more to produce in Florida than in China. But Krywko is more than happy to pay the premium to know that botched orders and shipping delays won’t ruin his company. And so far, the gambit appears to be paying off: Based on enthusiastic customer response, Sleek Audio is now projecting 2011 to be its most profitable year ever.”
Last year, many major corporations based in the U.S. saw record profits. Yet paychecks for American workers remained meager and big businesses added few jobs.
That could start to change. As wages in China are starting to rise, labor isn’t coming as cheap as it used to. Koerner writes, “the system has started to overheat. Manufacturing wages more than doubled in China between 2002 and 2008, and the value of the nation’s currency has risen steadily.”
But while the situation is changing for major corporations, it’s even more of an issue for the American small business owner.
One entrepreneur told Koerner that companies like Apple can easily get a Chinese factory to do what it wants. “But without that kind of power, you’re just another customer and they don’t really care,” explained New York small business owner Paul King.
That’s lead to a big quality problem for products made in China. I’m sure you’ve noticed that the phrase “They just don’t make things like they used to” rings very true these days. Headphones are a great example. I’d bet those big old earphones you bought in the early ’80s still work. But the stylish ones you bought from the electronics store got a short in the wire two months after you bought them.
Koerner says poor quality from factories in China is what’s to blame.
“Like Sleek Audio, countless US firms have received long-awaited shipments only to discover that the products are too flawed to sell. This problem is due largely to China’s success: Factories are so overbooked that they have no choice but to favor their biggest clients. The smaller customers can end up facing long delays or hastily assembled products (or both).”
So for many SMBs – having products that are “Made in America” is starting to make better business sense.
Many small to mid-sized companies are finding ways around the cheap labor temptation that comes with offshoring and outsourcing. In the case of Sleek Audio, robots are doing the work that assembly line workers would do in China.
“After all, Chinese labor may be cheap—but a robot works for less,” writes Koerner.
At first that may seem like U.S. workers are still getting the raw end of the deal. But the truth is – the more money that stays here in the U.S. economy – the better.
Koerner talks about many other benefits that smaller businesses have discovered when they bring production back home. But he also says the days of offshoring won’t become a thing of the past any time soon.
“The largest companies will continue to manufacture overseas more often than not—the raw economics still demand it…And even if dozens of little companies decide to stay in the US, they can never create as many manufacturing jobs as a Fortune 500 behemoth—especially if the smaller companies are using robots.”
Koerner may be right. But what if more and more small businesses started focusing on the homefront? Instead of the “dozens of little companies” who choose to keep things in the U.S. – what if hundreds then thousands then tens-of-thousand started a trend that fueled this economy?
The U.S. Census Bureau says there are close to 4.5 million small businesses in the country that employ between 1 and 99 people. That’s out of more than 5,885,000 that have any employees at all. Another 25-million are businesses are one-person operations.
If more and more of those companies start to grow, more and more jobs will be created. But if we just throw up our hands because we think there’s nothing we can do about jobs being shipped overseas – then nothing is going to change.
Here are some facts from the Small Business Administration on the effect smaller firms have on our economy:
- Represent 99.7 percent of all employer firms.
- Employ just over half of all private sector employees.
- Pay 44 percent of total U.S. private payroll.
- Have generated 64 percent of net new jobs over the past 15 years.
- Create more than half of the nonfarm private gross domestic product (GDP).
- Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
It starts with everyday people supporting small businesses in their communities. Then we need more small business owners to do the patriotic thing and keep the work here. I would again strongly encourage any small business owner to check out the article Made in America: Small Businesses Buck the Offshoring Trend to discover more.
Watch the video below to find out more about Sleek Audio.
+Kasey Steinbrinck honed his writing skills as a TV producer and newspaper reporter. He now blogs on personal finance and the economy for Check Advantage. Visit the site today to find cheap personal and business checks including Quicken Checks as well as unique personal checks like our Patriotic Checks and Retro Checks. Contact Kasey to request free content for your blog or website.