The Price of Manufacturing in China 

Back in 2017, fabricating her products in China seemed like the obvious choice for Liz Reisch Picarazzi.

Good morning!

Here are today’s highlights:

MANUFACTURING

In the first of a series, 21 Hats contributor Liz Reisch Picarazzi writes that it’s gotten really expensive to manufacture in China: “Back in 2017, the choice in front of me was: Should I stay with my fabricator in Connecticut who isn’t meeting my evolving needs and costs a lot more? Or should I move forward with the contract manufacturer in China who is eager for my business and costs a lot less? I chose the latter.”

  • “I didn’t anticipate a pandemic that would shut down the global supply chain. Or the tariffs that have wavered unpredictably between 3 percent and 25 percent.”

  • “I [recently] sent requests for proposals for production of one of our products to 10 metal fabricators in the U.S. In the coming weeks I’ll be touring shops, comparing quotes, and figuring out which way to go: China, the United States, or both.”

  • “I’ll share as I go, and I welcome questions and ideas from 21 Hats readers.” READ MORE

FINANCE

Ami Kassar says the SBA has begun to fund larger EIDL loans up to $2 million—even to businesses that have thrived during the pandemic: “I do not have beef with the idea of issuing these loans up to $2 million to borrowers who the pandemic has badly impacted. These businesses need the money to recover and survive. However, I am concerned about issuing these loans now for companies that have survived and thrived during the pandemic. Over the last few days, I have met and spoken with borrowers who had their most profitable year in the history of their companies last year and are now having large EIDL loans wired into their accounts. These loans are not a surprise, as the SBA does not require any proof of economic injury to get these loans.”

  • “Borrowers who take EIDL loans should pay close attention to the rules about what they are allowed to use the money for.”

  • “Ultimately, a percentage of borrowers will be audited, and you don't want to find yourself on the wrong end of that stick.” READ MORE

HUMAN RESOURCES

Some 4.3 million people—a record, nearly 3 percent of the workforce—quit their jobs in August: “The phenomenon is being driven in part by workers who are less willing to endure inconvenient hours and poor compensation, who are quitting instead to find better opportunities. According to the report, there were 10.4 million job openings in the country at the end of August — down slightly from July’s record high, which was adjusted up to 11.1 million, but still a tremendously high number. This gives workers enormous leverage as they look for a better fit.”

  • “Almost 2 in 5 workers (38 percent) who quit in August worked in retail or in restaurants and hotels.”

  • “Quitting in manufacturing is not as high as in the low-pay service sectors, at 2.5 percent, but it has accelerated every bit as quickly as factories race to poach one another’s workers and increase production ...”

  • “The labor market is still down about 5 million jobs from where it was before the pandemic, and that does not even account for the job growth that would have normally occurred over that span.” READ MORE

Overwhelmed, understaffed, and without applicants, warehouses face a shortage of workers as they gear up for the holidays: “Warehouse jobs were supposed to be the future of the retail industry, offering opportunities for displaced employees and reshaping the American workforce. Amazon, Target, Walmart and other companies pledged to create hundreds of thousands of these positions at competitive wages — and increasingly with perks like free college thrown in — so they could fill the deluge of online orders that began with the coronavirus pandemic and continues unabated. But the industry is facing an unexpected problem: Far too few people are willing to take on the often-grueling work, according to industry officials and economic data.”

  • “The warehouse industry has already cycled through millions of workers, some of whom say they’ve sworn off warehouse jobs altogether.”

  • “‘People quit every single day,’ said David, who works at an Amazon fulfillment center in Washington state and asked to be identified by his first name only because he fears retribution at work.”

  • “‘The job is brutal: 10 hours on your feet,’ he said. ‘Half the people quit after their first day.’” READ MORE

EVENTS: THE CATALYST SUMMIT

You’ve heard about the Great Resignation and the Turnover Tsunami. As the meaning of work has changed for so many, employers are struggling to find workers (any workers, let alone the right fits for the right roles). It’s clear that we’re long overdue for a new approach. But what should it look like? Join Kinesis and an incredible group of small business leaders at the Catalyst Summit on November 12th to make real connections and create actionable strategies on how to build, grow and nurture a healthy workforce. If you are a purpose-driven owner, founder, or executive who embraces bold new strategies, this event is for you. MORE ABOUT KINESIS CEO SHAWN BUSSE

LOGISTICS

How one logistics boss is navigating the global supply chain: “Mr. Baker is the logistics boss at MGA Entertainment, the company behind L.O.L. Surprise dolls, Little Tikes cars and other popular toys. His job is simple only in description: Retrieve the items in time for the holidays by overcoming a jammed-up global supply chain that is holding them hostage. In June, when new toys typically exit factories for cargo ships and stores world-wide, hundreds of thousands of MGA dolls, play sets and accessories were piling up in factories and rented warehouse space in and around China’s port city of Shenzhen. The volume of waiting toys would require 1,400 40-foot containers and cargo space aboard vessels. Mr. Baker didn’t have a good handle on either containers or transportation.”

  • “His boss, Isaac Larian, founder and chief executive of MGA, issued near daily reminders: ‘Christmas is on December 25.’’’

  • “‘I feel like my team is down by five points with 10 seconds left on the clock,’ Mr. Baker said. ‘We’re just running out of time.’”

  • “The extra costs, everything from warehouse space to higher freight rates, were adding up. MGA had to notify customers that prices would be going up. L.O.L. Dolls that cost $10 would sell for $12; larger dolls in the line would go up to $35 from $29.”

  • “‘I feel like I’m 92,’ Mr. Baker said.” READ MORE

POLICY

The battle over vaccine mandates has caught companies in the middle: “On one side, Monday’s executive order from Texas Gov. Greg Abbott forbids any private entity to require its employees or customers to get vaccinated. On the other hand, the Biden administration is working on requirements that private-sector workers be vaccinated or tested weekly at businesses with 100 or more employees. Texas is one of a number of Republican-led states with top officials who are opposed to federal vaccine mandates. The prospect that the federal mandate could apply in some parts of the country and not others is expected to complicate business decisions about vaccine rules, especially companies that operate in multiple states.”

  • “‘Employers, like most businesses, want to minimize uncertainty, and certainly this isn’t helping,’ said Todd Logsdon, a labor law expert at Fisher Phillips, a law firm.”

  • “Some large Texas-based employers, such as Southwest Airlines and American Airlines Group, have said they won’t follow Mr. Abbott’s order. The airlines, which are federal contractors, said they must abide by the Biden administration’s order.”

  • “The Greater Houston Partnership, which represents some 900 companies including Exxon Mobil, JPMorgan Chase, Chevron, and Accenture, said Tuesday that Mr. Abbott’s order would make it more difficult for Texas businesses to operate safely.”

  • “Legal experts say they expect Mr. Abbott’s order to be challenged by businesses.” READ MORE

STARTUPS

High-rise farming operations are sprouting in unlikely locations: “There are now more than 50 companies in the vertical-farming category, from New York to California. Several, including AeroFarms and AppHarvest, have already gone public, but the opportunity keeps growing as the technology improves and more geeks and quants find their way to it. Vertical farms supply less than 5 percent of the nation's produce­--mostly lettuce, microgreens and herbs today--but the industry's trailblazers hope their produce portfolios will expand as costs decline and their products delight the palates of consumers. ‘I think you are going to see vertical farming displace a much broader set of crops,’ says Bernie Engel, associate dean of research and graduate education at Purdue University's College of Agriculture.

  • “Unlike traditional flatland farms, Bowery and Fifth Season deliver branded goods to retailers such as Kroger, and sell directly to consumers themselves. Bowery counts 850 retail customers and expanded revenue 600 percent last year.”

  • “Fifth Season began the year supplying 25 stores and will finish with some 500. ‘We are reinventing the entire supply chain,’ says Fain. ‘You can't just be good at growing.’” READ MORE

THE 21 HATS PODCAST

Should I Open My Books to My Employees? This week, in episode 80, we talk about open-book management, which its proponents call the only sensible way to run a company. To test that theory, we bring together three skeptics (Jay Goltz, William Vanderbloemen, Dana White) and three true-believing practitioners (Michael Kiolbassa, Chris McKee, Bob Schwartz) to discuss what it really means for owners to open their books: Do employees know what the boss makes? Do they flee when the numbers turn red? Do they expect to have a say in big decisions? What emerges from the conversation is an intimate look at how six smart business owners run their businesses—a look that even those who have no interest in open-book management will find fascinating.

If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren