China Business

Chinese Companies Coming To America: Sometimes The Cure Is Worse Than The Disease

China manufacturing lawyers

Got an e-mail today from Robert Luedeman, an attorney in Des Moines, Iowa. Luedeman wrote to alert me to his recent post on a Midwestern U.S. factory that lost out to China, at least two times over. As Mr. Luedeman describes it in his post, entitled, Broken Promises in the Heartland: Adams Pressed Metals, John Deere, Galesburg, and China, “this is a pretty interesting story, and it presents a cautionary tale for all those small towns in the midwest who see their biggest employer getting ready to pull up stakes or close for good.”

The story involves a company called Adams Pressed Metals Corporation. Adams was established in Galesburg, Illinois, in 1919 to provide stamped metal parts to the automotive and agricultural equipment industry. John Deere Company, in East Moline Illinois soon became one of Adams’ best customers and as John Deere grew, Adams grew. “Deere orders rapidly became the backbone on which the company was built.” Adams would stamp metal parts and send them to a number of small shops in the area for electroplating, baking, and parkerizing before they’d be returned to Adams for shipment to John Deere.

“Matters went from success to success and people around Galesburg grew up, worked for and retired from Adams Pressed Metals.”

Beginning in around 2000, however, John Deere began sourcing parts from a company in China called Tristar Industries, operated by Doctor Johnny Liu. Adams could not compete on price with Tristar and a closing of its plant “seemed imminent.” John Deere, “that penultimately American-as-apple-pie green tractor company did not, it seems think much of an Illinois vendor that had given them over eighty years of good service and fair pricing.”

In stepped Doctor Johnny Liu:

Adams was in deep trouble, and just when things seemed darkest, Doctor Johnny Liu rode to the rescue with a plan to acquire and save Adams with a large infusion of cash-to be matched, of course, with industrial development grants from the Illinois Department of Commerce and Economic Opportunity (DCEO) and and the Illinois Ventures for Community Action (IVCA).
And so it was, or so it seemed. Illinois Governor Blagojevich’s office announced in June, 2003 that loan funding would be provided, and the company would stay in business in Galesburg. The truth of the matter was that at about the time the governor’s motorcade disappeared up the road heading for Springfield, a line of trucks waited to remove all the machinery in the plant, for shipment to China.

Some Adams workers went with the machinery to teach the Chinese how to put them out of work. Adams became a Potemkin village with just enough connection to the heartland to give Deere a fig leaf of plausible deniability to hide their nakedness.

Mr. Luedeman became involved with Adams through one of his clients that had acquired an older plating company that had Adams as a core customer for many years. In 2004 and 2005, Luedeman’s client was doing subcontracting work for the new Adams Metals and not getting paid on time or at all:

And the bills weren’t getting paid regularly. When he [Luedeman’s client] needed money and offered to settle the balance for something less, Adams stopped buying and stopped paying and stopped answering his phone calls — although they were still shipping work to other electroplaters and subcontractors in the area and bitching about the quality of the work he’d done which was never a problem when they weren’t paying their bills.

Soon, the parts “ultimately supplied to Deere . . .were no longer made in Illinois but were being shipped there by Tristar from China.” Luedeman’s client eventually got paid, but then a few weeks ago, Luedeman received a notice indicating Adams had last month filed for bankruptcy, listing zero dollars in assets and “debts in excess of $1 million.”

Luedeman concludes the post with the following:

I’m sure there’s more to this story, but as I said in the beginning it is a cautionary tale for every small town in the midwest that sees one of its larger industrial operations failing. Sometimes the cure can be worse than the disease.

He is right.

Now I know that the big hope in the United States is for Chinese companies to come to the United States and create jobs, but, for the most part, that is a false hope, at least in the near term. China’s advantage right now is in fast and cheap and flexible manufacturing. Its own labor force gives it that advantage. American companies hold an advantage in pretty much everything else. This being the case, the logical construct is for American companies to do their manufacturing in China, not the reverse. Some day, Chinese Toyotas and Samsungs will come to the United States, but that day remains far away.

10 responses to “Chinese Companies Coming To America: Sometimes The Cure Is Worse Than The Disease”

  1. Thanks for the free plug. I remembered from one of my earlier conversations that you were a Pioneer (that’s Iowaspeak for a Grinnell student) and a tip of the hat to that fine institution as well.
    Fact of the matter is, you know my blue collar roots are sunk deep in the soil of this country, and had that not been the case I might not have been overly concerned.
    But one of the features of life in the midwest and small town America in general is a sort of naive optimism, and it’s tough to see an 80 year old company and all the people who worked there get shoved to the wall and whipsawed by Deere and over the cliff by carpetbaggers.
    We don’t often get to see the results of macroeconomics and trade policy up close and personal, and that is, of course, a message that’s not getting through to Washington.
    In most of my legal work my tasks are more or less localized and immediate, and I rarely get a view of big issues, warts and all.
    But there it is. It all works out in the end we are told, but the individualized cost is one of disaster and penury for the people who are on the short end of the stick. That’s the takehome from the story.

  2. I’d place a lot of the blame on John Deere for not working with their suppliers. Far too often, the American approach tends to be to go with whoever has the lowest price (not necessarily lowest total cost), and not bother to partner with their suppliers.
    Toyota, however, has a different approach – they view their suppliers as partners, and work with them to lower the total cost, instead of just dumping them. It’s not surprising that Toyota is now the world’s largest auto maker.
    US governments at all levels don’t help. But still, in the end, the majority of blame has to be with company management – Machine Design a while back had a short article on a company making cleaning supplies, of all things (mops, brooms, etc) that managed to stay in business in the US by adopting modern (Japanese style) production techniques – IIRC, management’s first instinct was to move production to China.

  3. The more US companies cut costs and outsource from China, the lower the quality goes. And yet the Japanese and Germans keep beating Detroit into the ground.
    I don’t suppose the upper management at John Deere has considered this. I can’t imagine the kinds of horror stories we’ll hear about defective lawn and farming equipment.

  4. Thanks for the free plug. I remembered from one of my earlier conversations that you were a Pioneer (that’s Iowaspeak for a Grinnell student) and a tip of the hat to that fine institution as well.
    Fact of the matter is, you know my blue collar roots are sunk deep in the soil of this country, and had that not been the case I might not have been overly concerned.
    But one of the features of life in the midwest and small town America in general is a sort of naive optimism, and it’s tough to see an 80 year old company and all the people who worked there get shoved to the wall and whipsawed by Deere and over the cliff by carpetbaggers.
    We don’t often get to see the results of macroeconomics and trade policy up close and personal, and that is, of course, a message that’s not getting through to Washington.
    In most of my legal work my tasks are more or less localized and immediate, and I rarely get a view of big issues, warts and all.
    But there it is. It all works out in the end we are told, but the individualized cost is one of disaster and penury for the people who are on the short end of the stick. That’s the takehome from the story.

  5. I’d place a lot of the blame on John Deere for not working with their suppliers. Far too often, the American approach tends to be to go with whoever has the lowest price (not necessarily lowest total cost), and not bother to partner with their suppliers.
    Toyota, however, has a different approach – they view their suppliers as partners, and work with them to lower the total cost, instead of just dumping them. It’s not surprising that Toyota is now the world’s largest auto maker.
    US governments at all levels don’t help. But still, in the end, the majority of blame has to be with company management – Machine Design a while back had a short article on a company making cleaning supplies, of all things (mops, brooms, etc) that managed to stay in business in the US by adopting modern (Japanese style) production techniques – IIRC, management’s first instinct was to move production to China.

  6. The more US companies cut costs and outsource from China, the lower the quality goes. And yet the Japanese and Germans keep beating Detroit into the ground.
    I don’t suppose the upper management at John Deere has considered this. I can’t imagine the kinds of horror stories we’ll hear about defective lawn and farming equipment.

  7. “China’s advantage right now is in fast and cheap and flexible manufacturing. Its own labor force gives it that advantage. American companies hold an advantage in just about every other area. ”
    The advantages of the trade between US & China outweigh the disadvantages.The question just lies in the way.Welcome to AmeriChinaB2B( www acb2b com ) to begin your business trip of China.

  8. “The more US companies cut costs and outsource from China, the lower the quality goes.” – Classics !
    Generally speaking the price reflects quality

  9. “China’s advantage right now is in fast and cheap and flexible manufacturing. Its own labor force gives it that advantage. American companies hold an advantage in just about every other area. ”
    The advantages of the trade between US & China outweigh the disadvantages.The question just lies in the way.Welcome to AmeriChinaB2B( www acb2b com ) to begin your business trip of China.

  10. “The more US companies cut costs and outsource from China, the lower the quality goes.” – Classics !
    Generally speaking the price reflects quality

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