China is growing by the second. At least it seems that way. It has transformed into a black hole of sorts, sucking in tons of steel, companies and jobs. Rockford Toolcraft Inc. president and owner Jerry Busse compares China’s effect on U.S. manufacturing to fishing. "We’re fishing in a lake with fewer fish--none of us like it. A lot of people have gone out of business," he explains.

Through a bit of perseverance and ingenuity, the surviving U.S. companies have become modern-day Davids in the face of a giant. Busse and several other U.S. forming and fabricating companies have headed off "fewer fish," also known as declining business, by offering niche services not easily found in Asia, expanding their business, better utilizing their workforce and improving internal processes.

Busse, whose company is based in Rockford, Ill., has expanded his metal stamping operations almost every year since he started the company in 1976. "We haven’t laid off anyone; we’re doing everything we can to remain competitive," he says. "The impact [of China] is that there are fewer jobs to bid on in the United States. The projects that are left here are under severe competition. The profit margins are razor thin at best because so much work has gone offshore."

BEGNEAUD Mfg. Inc., Lafayette, La., a forming and fabricating company, is also faring well despite not getting involved in China’s burgeoning economy. Company founder Don Begneaud says his business is doing well because of its niche--delivering custom parts to North American customers quickly and efficiently. The fruits of his company’s labor resulted in a 22 percent jump in revenues from 2006 to 2007, and it has seen growth across the board in all the industries it serves. Its clients, located primarily in the United States as well as Mexico and Canada, are in everything from oil to aerospace.

Begneaud doesn’t anticipate exporting to China or setting up operations there. "We’re not involved in China, and it has not been detrimental to us," he says. "Our customers in the oil fields are getting parts produced in China. I see a lot of the more mundane stuff going to China."

His welding and precision cutting company also offers design services for manufacturing using 3-D modeling software. Using Solid Edge software, the company can create an electronic model of an assembly frame based on the CAD drawings of the customer. One example of a job this type of modeling software was especially useful for was the framework that a major air conditioning company used for refrigeration units on tractor trailers. BEGNEAUD laser cut the tube and pipe to specifications, complete with hole and design for quick and easy assembly. While its core business model is not based on refrigeration work, the company’s contract manufacturing facility is flexible and can accept work from a variety of industries.

"Some of our parts end up on BMWs as well as tractor trailers," he says, adding that he is interested in doing more work for European companies.

"Welding has been a big thing down here in the oil field," Begneaud says. "It requires craftsmanship and skill, but a lot of those workers are retiring. We have employees with those skills."

Joe Moretti Jr., co-owner of Service Metal Fabricating Inc., Rockaway, N.J., says his company’s broad range of customers, along with its ability to produce small quantities of a lot of different items, keeps it growing. His job shop machines and laser cuts parts for hundreds of customers from OEMs to semiconductor companies and treadmill to barbecue grill manufacturers. "China is not in the game to do those [small] quantities, and they don’t do the custom work we do," he says.

The 80-employee company is seeing a half million dollars a year in sales growth. Sales in 2007 hit $12.5 million, up from $12 million in 2006. Moretti says the majority of the growth comes from the medical and pharmaceutical industries; the semiconductor market comes in second.

He admits, though, that if China didn’t exist, companies like his would have more opportunities to bid on work. He also realizes he makes parts that end up on products that go to China or on products that contain parts from China.

Busse of Rockford Toolcraft wants to stem the tide of companies expanding to China. "I’ve been very vocal about this for 10 years or more," he says. "I feel there’s something basically wrong with an American company that has developed its product very well . . . then moves to another country, trains people and brings it in duty free for a nice profit. It’s cheating. It’s quick profit for a few people.

"At the end of the whole story, we’re going to be very dependent on some foreign countries," he adds. "We won’t know how to make anything anymore. This skill took [us] 100 years to develop."

Taming the dragon
Although some U.S. fabricating and forming companies are holding out from doing business in China and focusing solely on North American customers, China’s rampant growth and low wages have prompted others to embrace China to stay solvent and prosper.

Koike Aronson Inc., Arcade, N.Y., is one of those companies. Its president and CEO, Jerry Leary, calls China "a double-edged sword" because his company sells to Chinese companies and competes with businesses from China in the global marketplace.

"For the most part, China has had a positive impact on our business," says Leary, whose company has undergone dramatic growth in the past five years. Chinese competitors "have hurt us mostly in our smaller ends, but we’re seeing a lot more activity in our bigger lines." In addition to selling its products, Koike Aronson also purchases some supplies from China.

 Koike Aronson manufactures high-quality welding, positioning and thermal cutting equipment for major construction equipment manufacturers such as Caterpillar, John Deere and Boeing. Near the end of 2002, when Leary joined the company, Koike Aronson, a subsidiary of the Japan-based Koike Group, was debt-burdened, losing money and customers, and seemed to be on the verge of extinction.

But since then the company has tripled its sales, more than doubled its number of employees, eliminated its debt and has become the most profitable business among the seven Koike subsidiaries in the United States. Koike Aronson’s record 2006 performance was topped by a 25 percent improvement in 2007, and double-digit growth is expected in both 2008 and 2009. Koike Aronson now has some 2,000 customers worldwide, and about 30 percent of its sales occur outside of the United States.

China represents about 20 percent of its export business. The company’s growth into China began in 2004 and has been paved by a Koike subsidiary based in China and by a technical agreement Koike Aronson has with another Chinese firm.

Leary credits the company’s turnaround to its new strategic plan, improved processes and a strong work force for helping "refocus the way the whole business was run, from the manufacturing floor through distribution." The improved performance helped the company justify a $1.4 million, 11,000-sq.-ft. expansion that was completed in 2007 and a $2.2 million, 20,000-sq.-ft. expansion that will be completed in April 2008.

The new space has enabled Koike Aronson to manufacture new laser cutting machines, which previously came from Japan. Leary says the lasers that came from Japan used to take up to a year for delivery. When the new line opens, delivery times will be 12 weeks "and greatly reduce shipping costs."

Keep a watchful eye
John B. Byrd III, president of the Association for Manufacturing Technology in McLean, Va., in his article "U.S. Manufacturing: Challenges and Opportunities" wrote that trends in China cannot be ignored by even the most astute and profitable U.S. company. He wrote that the average hourly cost for a fully qualified manufacturing employee in China, including benefits, is about $5 compared with about $25 in the United States.

He stated that machine tool purchases during the last six years in the United States and Germany have acquired about $30 billion in machine tools. In that same period, China has acquired $50 billion. "They are building for the future," Byrd said. In 2003, for the first time the United States imported more durable goods than it manufactured.

So what is the solution? "In the future, we can’t look at just optimizing machines, we’ve got to look at optimizing factories," Byrd said. He added that countries around the world are losing manufacturing jobs and the only way the United States will prevail is to increase exports or find ways to become more competitive so it can reduce imports. Additionally, he subscribes to lowering the corporate tax rate to raise the country’s competitive advantage.

In September 2007, the FFJournal staff mailed 900 surveys to forming and fabricating companies and OEMs. The staff heard back from 13 percent. The survey showed some changes in the marketplace, especially between the OEMs, such as the companies that produce stamping presses or laser equipment, and general metal fabricators.

For this year, fabricators anticipate a 44 percent increase in customer orders while only 31 percent of the OEM respondents anticipate the same. Compared to last year’s survey results, customer order expectancy between the OEMs and fabricators almost did a complete reverse. OEMs looked for a sales increase of 67 percent and fabricators predicted only a 30 percent increase.

Responses from OEMs and fabricators were mixed regarding business. Several comments from the OEMs indicated that foreign competition is driving down sales. "We have one large program that is about wrapping up," one respondent said. "We expect to be able to replace that work, but don’t anticipate growth for a couple years."

Still, American companies, such as Rockford Toolcraft, have taken savvy steps to keep their business growing. The company has more than 75 customers in a wide range of industries in the United States, Mexico and Canada and has begun to specialize in heavy-gauge stamping. On average, it stamps more than 1 million lbs. of parts a week for everything from playground equipment to heavy truck components.

The company has purchased a new press line that stamps heavy-gauge parts. Rockford is focused on these large parts because the manufacturing of lighter-gauge parts has been shipped to China. "Heavier parts don’t ship as well," Busse says. "We’re trying to adapt to the situation to survive. You have to adapt to survive."

Begneaud moves his company forward by investing in his U.S. employees. He has put considerable resources into in-house training. He offers his 76 employees hard skill training (skilled labor), soft skill, or character training and apprenticeships.

"If you do a good job for your customer, profits will follow," he says. "You have to reinvest in technology and in your people." FFJ