April 2008, TruckingInfo.com - Cover Story
'A normal life without Chinese products isn't possible." That's what Sara Bongiorni concluded after her family spent a year trying to live without buying anything made in China. She even wrote a book about it, "A Year Without Made in China: One Family's True Life Adventure in the Global Economy."
Chinese merchandise was the only option for many things. "Try finding birthday candles that aren't made in China," she wrote. "Or a coffeemaker, a toaster or a baby doll like the one my husband wanted to buy for our daughter."
It's not just toys and birthday candles, and it's not just China. Increasingly, truck parts are being made overseas, in China, India, Poland, Vietnam, Brazil and other "low-cost countries." If quality is monitored properly, advocates say, this helps make parts more affordable. But there are also plenty of counterfeit and substandard parts coming from these areas of the world.
Why Global Parts?
Many quality, name-brand companies have started manufacturing parts in low-cost countries for sale back here, or contracting with firms in these countries to produce parts for them. But perhaps even more importantly, they want to tap into the fast-growing markets in these countries. There also are some companies in low-cost countries that export products, some good, some bad, to North America. And there are some who are producing shoddy counterfeit versions of name-brand parts.
"I don't think there's a company in North America or Europe that isn't looking for low-cost-country opportunities," says Joe Mejaly, vice president/general manager of ArvinMeritor's aftermarket business, "whether being domestic for that marketplace or as a producer of components for their European or North American business."
There's only so much growth in North America today, explained Deepak "Dee" Kapur, president of International Truck and Engine, during his keynote speech at Heavy Duty Dialogue preceding Heavy Duty Aftermarket Week earlier this year. "We're seduced by the size of the market." China is the biggest example, with companies clamoring to set up shop there, he said. "I almost characterize it as a frenzy."
And if you want to sell, say, engines to a big vehicle maker like First Auto Works in China, it's a lot more cost-effective to build a factory there than to send engines over on a boat from the U.S.
Air-spring maker Firestone Industrial Products has traditionally been a North American company. In the past five years, however, it has expanded globally, with a manufacturing facility in Poland that's supplying truck and trailer OEMs in Europe, a manufacturing operation in Brazil, a joint venture in China, and a new joint venture that just broke ground in India.
"The big reason for doing it is to support the local markets in those areas," says Jon Kimpel, marketing manager. "We have the manufacturing there, so we can respond a lot faster as those areas grow. And in places like Brazil, Russia, India, China, we're seeing quite a bit of growth."
Scott Burkhart, vice president of the Bendix Controls & Modules Group, points out that, "we have a global presence because our customers are global. Our customers have really required us to follow them, as they move to various locations, and we've done that. And we use those locations to supply the homeland market [in that country] and to export where it makes sense."
Low Cost Luster
The other big reason for manufacturers to set up shop in countries like China or India is to take advantage of lower manufacturing costs, especially for labor.
"One of our member companies has done a number of surveys with installers and has determined that as long as their name is on the box and standing behind it, the installer doesn't really care about the country of origin," says Tim Kraus, president of the Heavy Duty Manufacturers Association. "So they have product manufactured for them, and they have their own manufacturing operations overseas."
The parts most likely to be made in low-cost countries for export to the U.S. are high-volume, price-sensitive, labor-intensive items that are lightweight so they can be economically shipped. This may be a finished part, or a piece that goes into a part that is assembled in the U.S. So it's quite possible that even when you're buying something that is "made in the USA," some piece of it came from overseas.
"It would be less than prudent business practice today to not look at sourcing some of your parts or elements that go into your parts, you have to look around the globe," says Bendix Communications Manager Barbara Gould. "You have a responsibility as a supplier to provide the maximum value to your customer as well as to be true to your own business obligations. So you need to look beyond the traditional venue of looking in your own country."
Major distribution chains and private labelers also look offshore for opportunities to obtain parts more cheaply, explains an October 2007 Motor and Equipment Manufacturers Association report on direct importing. "It is no secret that many major brand-name manufacturers have shifted manufacturing production from domestic plants to lower-cost offshore facilities. Some have even migrated from company-owned facilities to outsourcing. So why shouldn't the distributors bypass the middleman by importing direct?"
The report warns, however, that when products are imported like this, distributors and importers now bear many of the costs and liabilities that manufacturers normally would, including quality testing, product support, warranty and liability. There are many distributors and importers that don't fully realize this, and when there are problems with the product, they - and often you, the customer - are left holding the bag.
"I think what it really boils down to is, who is distributing the parts, what kind of reputation do they have, and do they stand behind what they sell?" says Wayne Stockseth, president of Parts Distributing Co. (the wholesale division of FleetPride), which buys from 28 countries.
"We have an office in China," Stockseth says. "We have five engineers on staff. We have our own drawings we submit to manufacturers, we have testing labs over there - we use the same procedures the OEMs do" when it comes to controlling the quality of parts being manufactured overseas to sell in North America.
The Quality Question
One of the big concerns about parts or other products made in low-cost countries is quality, as anyone who read headlines last year about Mattel's recall of toys made in China can tell you.
Closer to the issue of truck parts, the National Highway Traffic Safety Administration last year ordered 450,000 light vehicle tires recalled after Foreign Tire Sales, the New Jersey company that imported the tires, discovered the tires had been manufactured without a gum strip designed to keep the tread from separating. The tires, manufactured by Hangzhou Zhongce Rubber, were blamed for at least two accidents, one of them fatal. The Rubber Manufacturers Association notes that Foreign Tire was a small company working directly with an offshore manufacturer and had limited oversight, as the tires were shipped directly to wholesalers.
"I think there's no question that there are suppliers in Asia that range from dirt-floor factories all the way to Class 10,000 clean rooms that really have beautiful facilities and are doing all the right things," says Brad Van Riper, senior vice president and chief technology officer at Truck-Lite.
Firestone Industrial Products has looked into sourcing some components from low-cost countries, Kimpel says. "What we found was a lot of people that respond very fast, and the product looks good, but when you do in-depth testing of it, it's not what it looks like it is." For example, he says, when they tested samples, they found metal plates made to go on top of the air springs couldn't meet spray tests required by OEMs to measure resistance to corrosion.
Consistency is also a problem, he explains. "Any time we look at a supplier, like from China, for example, it's that repeatability on the manufacturing side" that is often at issue. "If they've done something once, can they do it over and over again" at the same quality level?
While low-cost labor is often touted as the place where savings can be had in manufacturing in low-cost countries, there is some concern about cheaper, substandard materials being used.
This is definitely an issue when it comes to lighting, says Truck-Lite's Van Riper. "The materials might look the same, they might be the same color, but where a lot of the cost is perhaps saved is the strength and the performance of the materials. Lights are 80 percent material and maybe 10 percent labor, [so in lighting], materials tend to be what's at risk." Substandard materials could mean melting in routine applications, rapid weathering creating stress cracking or discoloring, or LEDs that don't put out the correct amount of light.
"The danger in [global sourcing] is from a quality standpoint," says Bendix's Burkhart, "ensuring that regardless of where the component is manufactured, it's to the same standards that we require no matter where it is, either internally or externally from a supplier."
Most reputable, name-brand companies that manufacture products or have outsourced some production to these countries maintain strict quality controls to make sure the product is just as good as its North American counterpart.
Norgren Global Vehicle Technologies, which makes components that go into fuel systems, air systems, cab controls and more, does limited offshore outsourcing of some high-volume component parts, such as castings. It is looking into doing more, including in China, but carefully.
"You don't become a competitive organization simply because you have an offshore sourcing strategy," says John Adami, vice president of North American sales. His company requires the use of ISO 9001-certified suppliers, no matter where they're located.
"But certifications aren't good enough - you can go out and buy those. You have to go there, you have to have people there on a regular basis, monitoring the supplier. It's a huge investment."
The Counterfeit Problem
Another issue that plagues the world of global parts sourcing is counterfeits. While there certainly are counterfeits that are manufactured in the good ol' USA, according to the MEMA Brand Protection Council, the majority of counterfeit parts in North America are imported. A large percentage is produced in China, accounting for more than 80 percent of the goods seized at U.S. borders.
"If a product is manufactured in a factory in China or India or Bolivia or wherever it is, and it's done in a factory where the manufacturing process and quality is under the control of the company that is going to be selling the product, those are going to be pretty good products," says HDMA's Kraus. "On the other hand, if there's someone who's right down the street who wants to make a copy and sell it to the same customers cheaper all they gotta do is steal one part and copy it."
Andy Cifranic, Bendix brand manager, notes that "as we expand our manufacturing worldwide, there are additional risks," and one of those is counterfeiting. "We have many processes in place to protect ourselves and make sure we retain control of those products. The problem that we see is not where the counterfeit products are manufactured, but who's doing the manufacturing. Most of the counterfeits are being made in low-cost countries, because when you are simply copying someone's work, you're going to go where it's cheapest."
Counterfeit parts are sold at 50 percent to 80 percent of genuine pricing and are estimated to deliver only about 20 percent to 30 percent of their value, according to MEMA. But even worse is there can be safety issues, as has been the case with fake brake linings and lighting that does not comply with federal safety regulations.
Norgren Global Vehicle Technologies recently learned first hand about "the scary side of globalization," Adami says. They were contacted by a distributor, an existing customer, hoping to get a discount on a popular locking fuel tank cap now that it was being made in China. Only one problem - they were not making it in China.
"When they sent us this sample part, we found it was a knockoff of a fuel cap that we make here domestically," Adami says. In fact, it was a full counterfeit, with the same logo, same part number, and stamped "Made in Seattle" - although the bulk shipping box indicated they were actually made in China.
"The China cap was a horrible, horrible, piece of engineering," Adami says. Fuel caps are supposed to meet a number of Federal Motor Vehicle Safety Standards, which the counterfeit would have failed miserably. The breather vent designed to help prevent a vacuum buildup wouldn't close properly. Neither would the pressure relief valve, designed to open and reduce pressure in case of a vehicle fire. The genuine cap includes a special thermal alloy that melts at a certain temperature, again helping to prevent explosion in case of a fire. The counterfeit was made of pure lead, which doesn't melt until twice the temperature and is environmentally hazardous. DOT requirements state that the caps have to survive a drop from a height of 10 feet; the counterfeit shattered during simulated testing. And it leaked.
The net result? In case of an accident involving a fire, these counterfeit fuel caps could mean an otherwise avoidable fuel spill - or turn the fuel tank into a bomb.
Norgren is trying to track down the importer, and is working with distributors to ensure they're not selling the counterfeit product. "There's little to no value in us trying to identify the Chinese source of manufacture and get them to cease and desist," Adami says. "The consensus is if you find them and if you succeed in disrupting their production, it's just going to move somewhere else."
One of the reasons manufacturers are looking to low-cost countries and distributors are importing goods from places like China and India is that customers want cheaper prices. But when you buy on price alone, you may not get the kind of quality you need.
"The predatory pricing is killing me," says Jim LeClaire, president of Transportation Operations Professionals, a service that offers maintenance problem solving and advice for smaller companies trying to bring parts to market. But the parts distributor part of his business is struggling. "In some cases, I can't buy from my source as cheap as what I can buy a look-alike product on the street or over the counter."
Why are so many customers buying cheap parts from overseas? "Some customers are misled; some know it," LeClaire says. "Some of them shop on price, some don't care. Some of them 'turn it and burn it' - they're using it on a vehicle they're going to shove out into the secondary market."
LeClaire recently had a customer who had thought he was getting a great deal on a factory replacement part, a fan drive, from another source. "I had to take the whole thing apart and redo it," he says. "There was only one piece that was original equipment parts - the rest was offshore parts; they were literally junk parts."
All of us are guilty of wanting to save money, whether it's on truck maintenance or a sports coat, says Bruce Plaxton, BGP Marketing Solutions. With the financial pressure truck owners are currently under because of the economy slowdown and skyrocketing fuel prices, it's only going to get worse.
It's not just truck owners, he says, who are turning to offshore and off-brand parts because of price pressures - it's also truckstops and other service outlets, distributors, marketing groups, OEMs. "On one product line for one major OEM, 65 percent of their product for that line is brought in from Asia or private label," Plaxton says. "I was at a truckstop about a year and a half ago and they had just gotten two skids of parts in from an independent parts marketer. I saw them open both skids. The only part in both skids that was a national brand was a Meritor clutch. Everything else was in a white box."
What To Do
As an end-user, you largely have to rely on others to make sure products manufactured overseas meet quality and safety standards. But there are some things you can do to make sure you get quality products - overseas or not:
1. Buy from a trusted source. "If you find someone on the Internet offering a pallet load of unnamed product that you can pick up at the dock in California, that's probably not genuine product," explains Bendix's Cifranic. "Typically manufacturers don't sell that way. You're not going to be able to buy them by the boxload from a guy you met in the corner at a trade show. If you've got a good relationship with an existing dealer or distributor, keep it."
Some fleets solve the problem by buying only name brands directly from the manufacturer's rep, or at least from a trusted distributor. Maverick Transportation, for instance, purchases all its parts through the OEM of choice on a consignment program.
Reputable, name-brand manufacturers are going to closely monitor quality of parts they're making or bringing in from low-cost countries because they have a reputation to protect, says ArvinMeritor's Mejaly. "It's all about your brand and the recognition of what that brand has to offer. So I think for a fleet to feel comfortable, they should recognize who in fact is supporting that part number. Are they buying it off an 81/2 by 11 sheet of paper, or are they buying it from a company that has a reputation of delivering a quality, acceptable product?"
2. Look for visual cues that something is amiss. Minor markings on a product can be telltale differentiators between a real and a fake part. Are the part numbers and RMA codes on the part accurate? If you are buying a particular brand name, make sure the name of the company is on the product. Take a close look at the packaging. Is the brand name spelled correctly? Are the colors what you expect from the original manufacturer? Is the printing job poor?
3. It may sound like a clich, but if a deal sounds too good to be true, it probably is. "When you look at the real competitors, and they're all within a valid price range, there's reason behind that pricing," Cifranic says. "When you find a product that's a huge discount, a large discrepancy, step back and wonder" about the provenance of that part.
"There's more than just the price" to consider when buying parts, LeClaire says. "There's the support, the sales, the service, longevity, warranty - that all comes back in spades at the backside.
"You invest this type of money [in a vehicle] and you're making your living with it, and you're going to cheap out? What's the cost benefit for anybody? Maybe it's 50 cents or $50 or $500 cheaper, but what's the cost of doing business, of a breakdown, of being able to get parts? Can you risk your company's image in an accident or, God forbid, a court of law" if a part bought solely on price causes a crash?
"I still remember those Fram commercials," LeClaire says: "You can pay me now, or pay me later."
The Next Toyota
Eventually, some globalization experts predict, companies from low-cost countries will become major suppliers of quality products to U.S. consumers - much as companies from Japan, such as Toyota and Sony, have become trusted brand names.
"The idea that anything made in China is junk when I was a kid, that was what people thought about anything made in Japan," says Tim Kraus, president of the Heavy Duty Manufacturers Association. "Quality is a process. They'll eventually figure out if they make bad stuff it's not going to sell very well. There's a tremendous amount of Western influence taking place in the low-cost producing countries, because there are a lot of companies over there teaching them how to manufacture things."
Chinese car firm Geely, which makes a $3,900 model, has said it is aiming to export to the U.S. market by 2010 (although the price would likely double in order to comply with Western safety and emissions standards). Dexter Roberts, Businessweek's Beijing bureau chief, reports that in the past, Chinese carmakers "have found their niche either by helping the big brands from abroad make their cars, or producing ultra-low-cost cars known as much for their low quality and shoddy design as for their rock-bottom price." But that's changing. At the Shanghai Auto Show last year, he wrote, "much of the attention is focused on an unprecedented lineup of higher-end Chinese-branded autos."
And it's not just cars. China's First Auto Works, which already has entered the Mexican auto market and has joint ventures with Mazda, Toyota and Volkswagen, last year introduced a premium heavy truck. It bills its new Jiefang J6M premium long distance heavy tractor as "the first premium world class heavy tractor to be independently designed and built by a Chinese truck maker."
The European-style cabover features synchronized Eaton and ZF transmissions, and the press release claims that "the J6M puts China on the global stage for the first time as a serious contender in the premium long distance truck segment with established brands from Europe and the United States."
TMC Tackles Counterfeits
While there are plenty of quality parts being made in low-cost countries, there seems to be a large number of counterfeits, as well. The Technology and Maintenance Council of the American Trucking Associations recently set up a special task force on counterfeit parts.
"If there are industrialized countries that do not have strong laws protecting intellectual properties, it quickly becomes problematic," says Kenneth Calhoun with United Engines, Little Rock, Ark., chairman of the new task force.
The task force will collect data on known counterfeits and distribute "How to Spot a Fake" information to its members.
"In addition, we hope to serve as a conduit to get the end user, the distributors, and the manufacturers talking when there is a suspect part," Calhoun says. "A key component will be ongoing educational efforts for all segments of our organization."
Also participating in the task force are representatives from the U.S. Chamber's Coalition Against Counterfeiting and Piracy and the MEMA Brand Protection Council.