China Supply Chain & OEM Manufacturing – protect your brand and stay competitive globally – Bruce Kaminstein – EP42

“There’s no way that we are going to be able to bring back that manufacturing here. I just don’t see it. But the government may want to regulate and probably should regulate on essential product.”

What you’ll learn:

One of the most glaring issues we have faced during this pandemic is a shortage in supplies, such as protective face masks for those on the front lines. Shortages in our supply chain beg the questions: should businesses move their supply chains away from China and bring manufacturing back to the US? Is this even possible? Here to answer all our pressing China supply chain manufacturing questions is Page One Podcast guest and OEM expert Bruce Kaminstein.

About our guest:

Bruce Kaminstein is founder of Casabella, a global housewares products company recently sold to Bradshaw International. He is passionate about bringing well-designed products to consumers. Kaminstein was the past Chairman of the Board of the International Housewares Association, an organization that represents the $85 Billion housewares industry. As board director, executive, and entrepreneur, he is an expert in domestic and international manufacturing, product development and sales.

Key takeaways from this episode:

  • The resilience of New Yorkers hit hard by COVID-19—2:00
  • What is so special about OEM contracting in China?—6:42
  • How China became the main contract manufacture—9:05
  • Why is it so hard to move the supply chain from China?—11:15
  • Is it possible to bring manufacturing back to America?—15:07
  • How to compete when you share an OEM with other brands—18:03
  • How the trade deficit impacts marketplaces and the US—20:23
  • Bruce’s final thoughts on tariffs and the coronavirus—23:31
  • 3 big lesson Bruce learned when exiting his business—25:22   

Podcast Transcription

Speaker 1: Welcome to the Page 1 Podcast, a podcast featuring a variety of guests and thought leaders, on topics ranging from digital marketing, sales channel strategies, influencer marketing, best-in-class product launches, and all the details about how to accelerate sales. Now here’s your host, Luke Peters.

Luke Peters: Thanks for joining us on the Page 1 Podcast. I’m your host, Luke Peters, CEO of Newair Appliances and Retail Band digital strategy agency. We’re now in a coronavirus world and I know that’s on everyone’s mind, so I’m going to adapt all of the interviews to ensure that you, the listeners are getting the most out of this podcast. You can expect us to get right to the point, provide valuable business insights with the focus on COVID-19 impacts.

Luke Peters: Before I get to this episode, business owners, how are you guys doing with your digital sales? How are they performing? Do you wish you had someone to create a custom strategic plan to grow your online business? That’s what I do. If you’re interested, find me on LinkedIn or luke@retailband.com.

Luke Peters: In this episode you’re going to learn from Bruce Kaminstein on China, the supply chain. Can it be moved? And where do we go from here after COVID-19? Bruce is board director executive and entrepreneur driving strategy, profitability and high-impact growth for retail and consumer brands, has an expertise in domestic and international manufacturing, product development and sales.

Luke Peters: An advocate for developing strong organizational cultures to drive employee retention, experience in M&A and working with private equity investors. He’s the founder of Casabella, a global housewares products company that was recently sold to Bradshaw International, and he’s passionate about bringing well-designed products to consumers. He’s also the past chairman of the board of the International Housewares Association, an organization that represents the $85 billion housewares industry. Bruce, welcome to the page one podcast.

Bruce Kaminstein: Thank you Luke. Pleasure to be here.

Luke Peters: Awesome. Just for the audience, Bruce lives in the East coast, in New York and I thought we’d start there with COVID, Bruce. Are you able to give us a tangible feel of how things were in New York, how COVID has impacted the city? We hear it all the time on the news and a lot of us are in areas that aren’t as heavily impacted. it’d be great to get your thoughts on that.

Bruce Kaminstein: Okay, well Luke, we live in New York City but we evacuated six weeks ago, fortunate enough to have a lake house in Berkshire County, Massachusetts. So we left, though we have a lot of friends. We live right in Manhattan and talk to my friends every day, Zoom, FaceTime.

Bruce Kaminstein: A lot of [inaudible 00:02:49]. I think the thing is New Yorkers are really tough. I think there’s really a generating of such a community. I think there is a lot of respect for government. Cuomo seems to be very high ranking right now in the polls.

Bruce Kaminstein: Seven o’clock every night, my friends all open up their windows and they clap for first responders. So I think it’s really a big sense of community in terms of everyday life. It seems to be enough food. People wearing masks, people going for walks. It seems to be a sense of order. I’m not there. I do plan to go next week, to make a visit to my apartment, which I miss, and say hello to some friends. Social distance of course. But I think people are respecting of the virus and respecting social distancing and it’s just a way of life now in the city.

Luke Peters: Yeah. It is interesting how Cuomo, he’s on TV every day and it’s interesting. He has done a good job as far as leadership goes and just being honest and real. I think that’s why people are gravitating towards him because he just pretty much says it like he sees it. That is pretty cool about opening the windows and sometimes the New York culture and the community, because sometimes you think of New York, at least from me, living on the West coast, you think everybody in New York is rude and fast paced. Of course, I’m just making a general comment. But it is cool to see the community that’s over there.

Bruce Kaminstein: Yeah. I mean new Yorkers are tough. We went through a lot. September 11, Sandy, it’s tough. It’s a tough environment but people love each other. I listen to his press conference most days, it’s on my way to the dump, because we have to take our own garbage out here.

Luke Peters: Oh, funny.

Bruce Kaminstein: I listen to him and when he says, “New Yorkers love.” And we’re tough, and it’s okay to say love, and that’s what New York is all about. And I miss the city. I’m very fortunate to be where I am right now. I can walk outside, I can bike ride, I can do things outside, which is important. Get some fresh air. But I miss the city. I really do. I miss my friends and I hope to get back there soon.

Luke Peters: You have a lot of contacts in the industry. Regarding COVID-19 and the business climate, we all know the general feelings of what’s working and what isn’t. But anything else that stands out to you as far as talking to friends or past colleagues and how their businesses are doing?

Bruce Kaminstein: Extremely difficult. I grew up in the world of selling specialty stores. Big box specialty stores and most of them are closed. So their businesses are tough right now. Obviously everybody sells Amazon, but not making up the difference from thousands of big box stores, that sell your product.

Bruce Kaminstein: So most of my friends in industry are experiencing some really difficult times right now. Very, very difficult times. Fortunately, I retired last month, so I’m not in the middle of it right now but I always keep in touch with friends, and it’s a very difficult time in the industry.

Luke Peters: Yeah, it is. And Bruce, the topic of this podcast, we’re going to focus on supply chain in China and you have a ton of experience sourcing there, here and all over the world, so we’ll utilize that experience that you have and why don’t we start with OEM.

Luke Peters: I think a lot of folks, especially newer people sourcing from China may not even think about what’s so special about OEM contract manufacturing in China and why you really can’t find it elsewhere. You want to talk about that and then why it’s so hard to move the supply chain from China?

Bruce Kaminstein: Yes. When you look at our industry, housewares specifically, I think the number is 80% to 90% sourced overseas. Our industry is people with ideas, that’s how I like to put it. We innovate here and we make product elsewhere. And this has sort of gone over the last 30 years. I’ve been in business now 30 years, before that, it was more like these ideas came along with a factory, and you built your idea.

Bruce Kaminstein: So those ideas were made within the United States or within the country with the brand? Now, it seems in the last 20 or 30 years, the ideas are made elsewhere and we have put most of our time and energy into innovation, and our capital has been put into innovation factories.

Bruce Kaminstein: So that’s why someone with an idea, a great idea of a garlic peeler, a mop or a broom, doesn’t have to spend a tremendous amount of time or energy trying to figure out how to build it. Let’s just understand how to make the product the best product possible and have somebody else worry about it. OEM manufacturers.

Bruce Kaminstein: China has made their whole economy based on this. Branding was not so important for them as opposed to making the world’s product. Making all the product of the world and putting other people’s brands on it. They did that. One of the few countries in the world that really focused on that. Apple computer, when you look at everything that we make, that we build, it’s mostly overseas. This is a trend that’s happened for the last 30 years.

Luke Peters: Yeah. It’s interesting to talk about it because a lot of times we don’t actually think about this. We just think, okay, China makes it and you can’t find it in India. But why do you think China became a contract manufacturer? Or do you have any thoughts on why that’s their thing and why that wasn’t the thing of say Vietnam or India, it is to some extent, but not like China. Was that like a political thing, or cultural thing or any thoughts on why that became what it is?

Bruce Kaminstein: I think it was definitely political. I think the government saw how to put people to work. They zoned different cities, and the cities were just making product for other people. Ningbo, China, we make a lot of product. I started there, 2001, 2002, was nothing. Dirt roads and now the amount of Ferraris, Porsches and five star hotels. It’s amazing. The country just made it easy to find companies.

Bruce Kaminstein: You had the Canton show, which was just a show, but the world’s OEM manufacturers are there, all the factories are there. I can’t think of another country that has a show like that, highlighting all of the manufacturers and products around China. They did a great job there.

Luke Peters: Yeah. And look, I don’t have the answers, but it is interesting how China did it. Other countries, Mexico is a strong manufacturer, but not like a contract manufacturer. At least it’s not easy for me to go find factories and I’m going to have to invest a lot more in design, in molds, dies, everything else that’s involved in bringing a product to life. Whereas in China you don’t have to, but it is interesting the other countries didn’t see what China was doing and then just say, “Whoa, that works! We’re going to do it too.”

Luke Peters: Maybe it’s because China, they’re state run, the government was investing instead of just letting the private sector figure it out. Is that why you think there was a divergence or is there maybe something else to it.

Bruce Kaminstein: Yeah, no, I think a lot of is what you just said. I think it was a government mentality to make the world’s product. Look at mexico, you would think that Mexico, our back door, would be fantastic at making product. There’s no great trade show there for people like you, me or an entrepreneur in United States to go find an OEM manufacturer.

Bruce Kaminstein: Do they not want to make products for other people? Do they, focusing on their own brand? When I first started my business, we made product in Italy. Italy was probably the number one country for making mops, brooms and cleaning products. They had equipment, it was all mechanized. They made the broomsticks, they had the machines to make the thin poles, the thin metal, which is very, very expensive. They were just so well automated for that. Then, what happened is the dollar collapsed. It just got very expensive to make product there.

Bruce Kaminstein: But also Italy, at that time, was focused on making OEM and making product for other brands. But then, they started just worrying about their own brand and their own market. China just didn’t do that. China just was happy with making other people’s product.

Luke Peters: Yeah. What an interesting thing about Mexico by the way, because you’re right. They’re right to our south, they are known as a strong manufacturing country in several areas. But it’s interesting that this model didn’t take over. There wasn’t some more private investment. I’m sure there’s reasons for it. But anyways, there’s a lot to that.

Luke Peters: It is interesting that this seems to be a China only thing. Is that the main reason why it’s hard to move the supply chains away from China? Are there any other reasons?

Bruce Kaminstein: I think it’s very hard to find companies that want to make OEM product, bottom line. I think the margins are thinner, if you were an investor would you want to make your product for other people or would you want to slap your brand and innovate for yourself and get more margin?

Bruce Kaminstein: I think it would be the second part of that answer. To go make somebody else’s product is very competitive, you’re going to price it out with other people, other companies. So the margins are thinner, for sure, as opposed to putting your own brand.

Bruce Kaminstein: So when you look around the world, there are not a lot of OEM companies making other people’s product, as I see it. Now, we used to make plastic buckets and totes, and we still do, in the United States. There are injection molders in the United States. That’s all they do, is make OEM product. There’s a lot of them.

Bruce Kaminstein: We have a machine and you pump out plastic product. It doesn’t really matter what brand you put on it. That doesn’t exist for other types of manufacturing as I see the United States.

Luke Peters: Yeah. I got a really, really smart friend. When the tariffs came in, they hit us both. He’s got a business too, and he goes, “I don’t mind the tariffs as long as they stay around for 30 years.”

Luke Peters: He’s so smart. He’s thinking, if it is stable, stability is the main thing. He’s like, “If they stay for 30 years, then eventually people will know, okay, we can go invest in other areas.”

Luke Peters: But then when you don’t know if they’re going to come or go. That’s, I think, the problem with finding new countries to invest in and that’s the conundrum we’re at right now. What are your thoughts? It was really interesting what you said earlier. You said, “We innovate here and we make it there.”

Luke Peters: And that is a cool way to think about it. But then it leads to some other problems. I mean we have trade deficits. Let’s talk about that a little bit further down in this interview, but first we’re going to have supply chain problems like we have right now with COVID where we don’t even make enough masks for the country or we don’t make enough parts to make equipment because the supply chain is so long. Is it important do you think to move the supply chain back to the US? But then maybe more important, is it really realistic to actually move it back to the US?

Bruce Kaminstein: It’s the question of the day. It is such a pertinent question right now, when you look at the masks being made in China and all the protective equipment made in China. It’s a very interesting question. Should the government regulate where things are made for essential health product.

Bruce Kaminstein: Should the government get involved in that decision? Because it’s not just a question of cost, I can make a mask for 20 cents in China, or is it 30 cents here. But is it for the benefit of the country to make it here and pay that 10 cents more. I don’t know, I just throw out some numbers. But that’s the big question right now.

Bruce Kaminstein: I don’t believe that we should be making all our product here and go that way. We cannot take, for example, the houseware industry, 80 billion dollars and start to think we can make product here. It’s impossible. When you look at a typical houseware company, look at yourself, look at large companies that produce gadgets. Garlic peelers, can openers and food savers. Look at all the different types of materials.

Bruce Kaminstein: How many different types of machines, the know-how to make product here. They didn’t have to worry about that. We don’t have to worry about that. The companies here worry about making, not producing. Innovating great product and somebody else to make it.

Bruce Kaminstein: There’s no way that we are going to be able to bring back that manufacturing here. I just don’t see it. But the government may want to regulate and probably should regulate on essential product. Health wise, we are seeing your shortage of it, amazing to me. It’s amazing to me, for example, Aspirin, Advil or Ibuprofen was being made in China. We don’t make it here. These are big questions that need to be answered.

Luke Peters: Yeah. The whole talk on pharmaceuticals made there but not here and raw materials for these apparently are all coming from China as well.

Bruce Kaminstein: It’s amazing to me.

Luke Peters: There’s a lot to that. What about as a businessman? You probably ran into this more than I did. Your products, when you founded Casabella, I believe they were on the smaller side. I’m talking about dimensionally and then on my category we’re selling a lot of appliances and kitchen electrics. So they’re on the bigger side. Right now we are seeing some companies come in and sell, they’re competing directly from China.

Luke Peters: It’s a China brand or they’ll come in here and there’s obviously huge companies like Midea, but other Chinese factories are making that decision to go away from OEM or at least compete directly with brands that they’re supporting on OEM. That’s always a big topic. What are your thoughts on it and how have you guys weathered that storm in the past?

Bruce Kaminstein: We never bought off the shelf product from a Chinese factory, not just Chinese, or anywhere in the world, unless it was a consumable type of product. Like a sponge or a glove. We always liked to add something that we get a patent on, or we innovated. It didn’t necessary need a patent.

Bruce Kaminstein: So we don’t want to compete with the Chinese, I don’t want it. Never wanted to buy an off the shelf product because then I felt like I’m not adding value as a company, the way that we should be. My job was to innovate and produce it somewhere. And by the way, if that factory ever did get caught selling our product, hell to be paid. We don’t withstand that, at all.

Bruce Kaminstein: They are getting smarter right now with Amazon, we all know. And they are now starting to establish their own brands around the world, and not just China. That’s why it is really important to innovate, to do something different.

Luke Peters: Yeah, and that makes a lot of sense. We all know, all the listeners know that that just takes more time. I guess you just got to plan further out on your product roadmap.

Bruce Kaminstein: Yes.

Luke Peters: And it’s easy to just buy off the shelf. It is a lot easier. But you’re right, there’s more value creation when you innovate. Let’s move on to trade deficits because the thing is, part of this conversation, China’s the shop that’s making all these things.

Luke Peters: It’s near impossible to move away for some categories. And I’m going to say specifically electronics, it’s really, really difficult. I talked to somebody, in her product they need an LCD display. She was telling me there’s literally nowhere else in the world you can get these LCD displays and companies can say that for a lot of components.

Luke Peters: So even if they want to make somewhere else, they still got to bring in the LCDs. Then we have these trade deficits. It’s interesting because even in the eighties and nineties the trade deficits were the big talk and our budget deficit ended up being a big problem.

Luke Peters: Whereas now our budget deficits probably, I don’t know where we are, 20 trillion or more. People were talking about it being a problem when it was three trillion and now it’s 20 trillion. It’s unbelievable. What are your thoughts on the trade deficit, either how that impacts us as a country or how that should change our future plans in our supply chain?

Bruce Kaminstein: I am a free trader, I think that one of the problems, a big problem, is that China doesn’t accept our products. And I do agree that the current administration are trying to level the playing field a bit, for sure. Because we should be able to export just as easily as we can import. There are a bunch of markets around the world that have been protective of their own product, and hence I don’t think their product is just as good as product in the United States, by protecting it.

Bruce Kaminstein: We here have the best product in the world because we have allowed us to innovate and make product anywhere around the world, and bring it back here with relatively low duty and custom duty. So this trade deficit, it’s been the way that we’ve been surviving for the last 30 years.

Bruce Kaminstein: We allowed it to do, we’ve allowed it to happen. We have not put huge custom duties, and we have allowed people to innovate here and make product elsewhere. Now what I don’t agree is that China should allow us to export also, Brazil should allow us to export also, but the same duties are coming but both ways. That’s what I really believe in and that’s what I would strive for, is equal playing field.

Luke Peters: Yeah. And it is amazing how the Chinese government really has held strong on that and it still is. I don’t think even if I want to send returns back, defective products back to factories. They still have to get like approval from the local governments and it’s just a different way of thinking and doing business. But it is a challenge.

Bruce Kaminstein: It is a big challenge. We should be exporting more, because we innovate here so much. Not possible without huge duties going into the country, this specific country. Even Europe.

Luke Peters: Yeah. I know you’re not a big fan of tariffs, is there an answer? I don’t know. We have all these smart people thinking about it but there doesn’t seem to be an answer to solving the trade problem, or even defining clearly what the trade problem is.

Luke Peters: I guess the easiest part is A, there should be free trade between all countries, otherwise things break down. When one country won’t let you export to them, the US is the most open of all the countries. But is there any one final position, comment or thought that you think would make the situation improved or better?

Bruce Kaminstein: I don’t have it, Luke. I don’t know the answer. The tariffs have been destructive, in that it has caused more of a war between the retailer and the supplier. It has caused a huge tax on the American public because you just have to increase the cost of your product.

Bruce Kaminstein: That’s what it really did. I am not aware of what’s happening in terms of, is China loosening their export? Is China loosening their export duty, their import duties? I’m not totally aware of where we are there, but they’ve been destructive here. Also, the unpredictability of the tariffs. Going up and down. I remember last year I was on CNBC. August, I remember this clearly. The administration put on a 15% duty. First it was 20%, or I think it was even 25% coming in on goods for September. So you had to react in 30 days.

Luke Peters: Yeah, I remember that.

Bruce Kaminstein: You know your supply chain, you have things ordered 120 days out.

Luke Peters: Yep.

Bruce Kaminstein: So what do you do? It’s a big scramble. It was a huge waste of time, and I guess not realizing impact that it would really have. Negotiations with the retailers. Margins of companies here, that innovate, that had to let go of people because all of a sudden they got a 15% cost increase. All of a sudden overnight. Didn’t make sense to me. Not the way to do it. It’s a long term strategy on how to level out the playing field. That’s how I think it should be.

Luke Peters: Yeah. And I think another way to look at COVID, none of it’s good, but a lot of companies in our business that had 25% tariffs, they’ve already leaned out their companies, before COVID even arrived. They had to. All of a sudden their cost of goods got hammered, and so they were already thinking and doing half of the things that companies, all of a sudden, had to do now.

Bruce Kaminstein: Yeah.

Luke Peters: I’ve seen that with a lot of my friends. Hey Bruce, why don’t we move on and finish up here with, you founded, grew, amazing company. And then after 20 years you exited. A lot of business owners listening here and everybody always has to think about, or hopefully plan for that day. What are three things that you learned about that transaction that you can share with, or help, other housewares brands that are eyeing the transaction?

Bruce Kaminstein: Okay, good question. By the way, it’s 30 years, I was in business for 30 years [crosstalk 00:25:58].

Luke Peters: 30 years, sorry about that. Wow.

Bruce Kaminstein: No, it’s okay. Yeah, a long time. I’ve been through a lot in this industry and I love this industry. I think there’s three important takeaways for selling a company or trying to figure out an exit strategy. Number one, I think it’s really important to have good innovative product in the pipeline for years. And what is that? And how to innovate and I think that’s really, really important.

Bruce Kaminstein: I don’t really have experience of just being a commodity buyer or seller of product. So we always had, in our pipeline, a decent amount of innovative product. Something really different. That’s important to a buyer of a company, especially for the future. We were working on, it just launched yesterday at Target, a really cool new line called Infuse Cleaning.

Bruce Kaminstein: It works on a cartridge system, saves a lot of plastic. Worked on it for four years and it just came to life. So I think that’s really important. Two, I think maybe even more important is your brand. How do you strengthen your brand? How do you make your brand the best possible brand in the industry, and in your segment?

Bruce Kaminstein: That’s really important in how you position your brand and how you support your brand. The third thing I think, especially looking after COVID, is diversification of your customer base. Whether it’s exporting to different countries, whether it’s grocery stores, [inaudible 00:27:38], E-commerce. A good balance of everything, so you’re not relying on one or two channels. You have a whole basket of markets.

Bruce Kaminstein: And export is important, it really is. I think those three things are really important looking at business right now. And of course basic things, books being really organized. Your margins are strong, if they’re not strong you can prove why. There’s a simple answer. All these things are really important.

Luke Peters: That’s a great list right there. And I’ll quickly summarize, have innovative products, and in the pipeline. Build the best brand in the industry and be diversified in your sales channels. It’s super important and all for different reasons. You’re more diversified if you’re working with banks, they like that even if you’re not having an exit.

Luke Peters: And building a brand nowadays I think, probably could or should be, obviously the comment on having good profit margins that’s going to be important for any investor, but building a brand is like a big moat for any company, a big protective thing.

Luke Peters: And especially now, as we talked about earlier, with Chinese companies selling direct, and with Amazon out there, you got to own your customer as much as you can. So couldn’t agree more there. I think that’s a great way to finish it. And Bruce, how can listeners, if they want to get ahold of you is there a preferred way to contact you? Maybe LinkedIn or something like that?

Bruce Kaminstein: Yeah, LinkedIn. I’m looking at my LinkedIn. That’s a good way to contact me.

Luke Peters: Awesome. Listeners, you can learn more about Bruce there and he’s got a couple of CNBC interviews, which is pretty cool to kind of talk about trade and supply chain, you can get more information there and we’ll have those links in our show notes.

Luke Peters: Thanks again Bruce for being a guest on the Page 1 podcast, and also want to think you the audience for listening today. And again, if you’re a busy CEO, leader of a company and you are not performing where you want to be on your digital sales, I can help, get ahold of me. The Retail Band does exactly that for clients, and you can find me on LinkedIn or luke@retailband.com. I hope you enjoyed the interview today. Really appreciate your reviews on iTunes and we’ll see you guys the next time. Thanks.

Speaker 1: Thanks for listening to the Page 1 podcast with Luke Peters. If you enjoyed this episode, please help us out by leaving us a rating on iTunes. Want to double your online sales? Check out www.retailband.com and don’t forget to join us next week with our next amazing guest.