Asian Manufacturers Put Suppliers on Edge: ASI’s Tim Andrews

There is growing concern in the promotional products industry that companies outside the U.S., particularly Asian manufacturers, may be gaining ground in their attempts to bypass the domestic supplier to sell directly to both distributors and end buyers. The issue has raised serious concerns among suppliers. Yesterday, PROMO P&I spoke with the president of the Advertising Specialty Institute, Tim Andrews, to get an update on the issue on the eve of his departure for the Hong Kong Gifts & Premium Fair in Hong Kong. ASI, based in Trevose, PA, has 18,000 distributor members and about 3,000 supplier members.

ANDREWS: Most people are concerned that Asian manufacturers will bypass suppliers in the U.S. and sell directly to distributors. There is some concern that they will bypass both suppliers and distributors and sell directly to companies. [Another] concern is they will cherry pick the very largest orders and buyers and leave the smaller dollar profit orders to domestic distributors and suppliers to service. [The concern is] they might swoop in, take all the good orders and leave the other orders for domestic people.

One of the things that we try to remind people is that this is not the only industry where these kinds of concerns have occurred and certainly there are ways to manage it. We try to remind people there are lots of examples where industries flourished. Certainly the industry might change, but it doesn’t mean the industry can’t flourish and the people can’t make a good living.

PROMO P&I: What evidence are you seeing that this is actually happening?

ANDREWS: I wouldn’t say that we see much evidence of it occurring yet. But there certainly is a lot of concern about it and I think it’s been growing the last couple of years as China becomes a much more visible player. Much of the manufacturing in the U.S. has shifted, of course, to China in the promotional products industry, so I think there’s a lot of concern that some of the Asian manufacturers will try to sell direct, although again we haven’t see much actual evidence of it. It’s more concern, than it is actual activity.

PROMO P&I: Are there any trends that could impact Asian manufacturers?

ANDREWS: There is some concern about European manufacturers, but in Asia, the low cost of production makes people more concerned about Asia than other parts of the world. That said, there are a couple of trends in Asia, specifically in China, that may in fact slow some of the concern. First of all, the wages in China have been rising slightly, more so than people may be expecting. Secondly, commodity prices have risen pretty dramatically in the last few months. And whether you’re manufacturing in the U.S. or in China or in Asia, you can’t avoid the fact that the price of oil is now $58 plus per barrel, and oil and petroleum are very big drivers of the manufacturing of many of the products in our industry. [If the prices start to rise] it might make other places, like Mexico or the U.S., more attractive or slow some of that migration. Obviously you can manufacture some products in China much more cheaply, but then you have shipping expense and the time to ship it. You also have to have warehousing here so that you have the product when someone needs it on a two-day turn. Those things all just add to expenses. There’s a balancing act between whether it makes sense, and it’s cheaper to do it there, or do it in Mexico or Canada or the U.S. or somewhere else.

PROMO P&I: What is ASI’s position on this issue?

ANDREWS: We’ve looked very carefully at our supplier member requirements and we have reiterated to our membership that only North American companies can be members of ASI as a supplier. We stand by that membership requirement and we feel good about it. We think that that domestic distributors in North America are best served by doing business with a supplier that is based in North America that can source their product, service their needs and deliver product when they want it to their customers. We feel very strongly about that.

PROMO P&I: Have any Asian manufacturers approached ASI?

ANDREWS: A number of companies outside North America ask to join ASI as supplier members really on a weekly basis and we tell them they can’t. Only supplier members of ASI can advertise in our magazine and only supplier members can exhibit at our trade shows, they want to join so they can advertise and exhibit, but we turn them away.

PROMO P&I: Are the Asian manufacturers making any headway in dealing directly with American distributors or end buyers?

ANDREWS: There are certainly some large distributors that are making arrangements with Asian manufacturers to purchase product directly. We absolutely see that. Sometimes though, distributors who attend these shows and make arrangements with suppliers in Asia are misunderstood. They’re simply there to get ideas that they then try to execute through domestic suppliers. Certainly there are some end buyers that go direct to Hong Kong or to China, but the most concern in our industry is among suppliers [who are] worried that manufacturers are going to come directly through either the distributors or the end buyers.

PROMO P&I: What can ASI members expect to see over the next six months to a year regarding this issue?

ANDREWS: Asian manufacturers will get more aggressive in trying to reach out both to end buyers and to distributors to seek their business directly. I think that producing product and getting it to the U.S. more quickly is going to be a continuing trend. While five years ago, it may have taken quite a long time to get product from China to the U.S., that time is getting shorter and shorter. I also think that distributors are going to start seeing—and they’ve already started to see this—price increases that domestic suppliers have passed along to them because their oil prices and commodity prices are going up. Asian manufacturers have been trying to hold the line a bit more, take some more costs out and avoid increasing prices, but I think there is some concern that in six to nine to 12 months we’ll see some price increases coming out of Asia that we haven’t seen before. And that’s certainly one of the areas I’m going to explore this week in Hong Kong.