China syndrome

[daniel_leavitt2000]

So I was reading some Z scale threads over at trainboard when Joe from MTL mentioned this:

I don't think we have been wringing our hands over the track program or dragging our feet Jim. We lost our MFG in China and to make a switch is not something you do overnight. We considered bringing the tooling back here, but the Chinese government forbids any tooling made in country to be sent back to the owner. Imagine our surprise when we heard that nugget. Read anything you want into that.

So that means that 95% of all models are held captive in China. I hope our manufacturers have all their CAD files ready to retool the molds should China become unsustainable.

[sirenwerks]

In perhaps some mean way, this is fitting. I'm not a buy USA fanatic, but not only is the Chinese production scenario becoming unstable, incomes are starting to rise in China, further lessening the savings that can be had. I don't imagine the Chinese legal precedent being spoke of suddenly appeared. The rush to enlarge profit margins by sending production to China had drawbacks many manufacturers decided to ignore, and now they come back to haunt them.

Still, I think not only will modelers have to readjust their expectations by swallowing some price increases, manufacturers need a reality check. I was just perusing the Atlas website looking for a particular product and saw they're selling laser cut garages for their newer plastic house kits - for $42 for a single garage. That's outrageous in my eyes, and inexcusable. It would be a questionable price even if it included the house too, IMO.

The good thing is that these prices will likely push more in the hobby into more modeling, less buying of ready made.

[up1950s]

I find that not surprising . They did the tooling from MTL plans , so that makes the tool there own . Had MTL requested the tool to be made for MTL's use , that would be entirely different . By calling it a MTL owned tool , China implies it will not be used for another manufacturers model . Had MTL specified they wanted it upon request China might have passed on it or charged a fatter fee . What I find a surprise is MTL's surprise about this . True they do most of their stuff in the USA , but they do it because of a choice not to farm out because of everything undesirable and this .

[Mark5]

So I was reading some Z scale threads over at trainboard when Joe from MTL mentioned this:

So that means that 95% of all models are held captive in China. I hope our manufacturers have all their CAD files ready to retool the molds should China become unsustainable.

Do we really know this for a fact? It's not just model railroad stuff made in China ...

[wm3798]

Not a confirmation by any stretch, but I have read that any US company that produces anything over there has to set up a Chinese corporation to actually "own" the business.  This would include General Motors and Apple, as well as Atlas and Horizon et al.

I believe this includes tooling that is made here and shipped there, too.  So all those old Trainman cars they used to poop out in New Jersey are probably now held hostage by Chinese bureaucrats, too.  Perhaps Bryan and/or Craig can fill us in with details that will bring us a little closer to the truth.

Lee

[asarge]

Do we really know this for a fact? It's not just model railroad stuff made in China ...

I have a couple of clients who are in the hobby/craft business and they say the same thing. There are 3 options to keep some control of the tooling.

1 Go to the expense of setting up a manufacturing business in China and staff it. However even then as Joe stated tooling made in China is almost impossible to get out of China.

2. Do all the work except for assembley and decorating in the US. Manufacturer has control but still has to get a China or someone else to assemble the product.

3. Do it all in North America. Complete control but most expensive.

Atlas is probably being held hostage by Kader and there might be some popular models that we will see very little of in the future. The rumor is they may have something to announce this week or next. But I would stress it is a rumor and it may still be awhile before anything new gets announced. Kader is a big problem for model railroading unless you really like Bachmann. Other facilities can take up alot of the slack, but the hobby might just be seeing some major changes because of the Chinese.

[SkipGear]

I think Horizon has already moved much of their production out of China. All of the their RC aircraft have been coming in with boxes boldy marked "Made in Vietnam". Other items are coming from Taiwan. They may have been a little ahead of the curve and could be the reason their products are coming more or less "on time".

[Puddington]

While not model railroading, my former employer was very close to setting up a factory in China for large format roll to roll printing of linerboard until they "read the fine print" regarding tooling; ie: printing plates. If the tooling lands there, it stays there. Not a tenable position for printing unless you don't mind either using and destroying the tooling to avoid it's "loss and re-use", or committing the life cycle of a project to that facility.

China's business practices will eventually have to change or will be they will start to lose ( and they already have) their advantage. "Democratic" advances, wages, benefits, safety and political interference are draging them into the 19th century; the move to the 20th and 21st century are coming soon for China and they are not going to enjoy their unfair advantages for much longer.

[JoeD]

We have had limited exposure in China thankfully, but I was not aware that you couldn't move tooling...if it was on the contract, the it was in invisable ink.  We did have a car designed at SDK when I first joined MTL and we were able to get the tooling send here for us to run when they messed the project up...so you can guess our surprise now.  Also, the rush to china is partly due to trying to get a better margin, but also in response to the pressure from customers to keep prices low.  Our track system would have been twice as much at market if we did it here and that would have inhibited purchasing.  Hard choices these days. 

In perhaps some mean way, this is fitting. I'm not a buy USA fanatic, but not only is the Chinese production scenario becoming unstable, incomes are starting to rise in China, further lessening the savings that can be had. I don't imagine the Chinese legal precedent being spoke of suddenly appeared. The rush to enlarge profit margins by sending production to China had drawbacks many manufacturers decided to ignore, and now they come back to haunt them.

Still, I think not only will modelers have to readjust their expectations by swallowing some price increases, manufacturers need a reality check. I was just perusing the Atlas website looking for a particular product and saw they're selling laser cut garages for their newer plastic house kits - for $42 for a single garage. That's outrageous in my eyes, and inexcusable. It would be a questionable price even if it included the house too, IMO.

The good thing is that these prices will likely push more in the hobby into more modeling, less buying of ready made.

[Bob Bufkin]

So just where is the next country to do this?  China is getting like Japan used to be when they were the top dog on this stuff.

[MichaelWinicki]

Our track system would have been twice as much at market if we did it here and that would have inhibited purchasing. 

That's the one right there.

For those who want things made in the US, that is the reality of the situation...

[MichaelWinicki]

So just where is the next country to do this?  China is getting like Japan used to be when they were the top dog on this stuff.

That's a great question Bob.

I think the post about Horizon Hobbies and what they are doing, i.e. getting stuff sourced from Vietnam and Taiwan is a tell-tail sign.

However I think, the whole cycle of "Let's move production here because it's cheaper" is going to get shorter and shorter for each country/area of the world.

The world is getting smaller and it doesn't take workers long in any country to get the "itch" for more... better pay, a car, a larger living environment, better choices in food and entertainment.  

Then you have the governments who need to pay for increased infrastructure, which increases taxes to the populace and in turn causes them to seek additional pay increases.   It's a circle that will keep going around once it's given a gentle "shove".

Japan had advantage for about 40 years.  China's is going to be shorter.   Vietnam and Taiwan's will be shorter still.

[asarge]

Do we really know this for a fact? It's not just model railroad stuff made in China ...

One of my clients is starting some production in India. Draconian regs not as bad as the pro-Chinese China adn they do good work. The downside is the quality of the production by the workforce is a big learning curve so it may be awhile. Also, costs are higher due in part to the way they do business with all the layers of management. The quote from the client was that "for detail oriented hobby's, they have a way to go, but it works for simple mass produced stuff."

The other client has moved to Vietnam and the Phillipines. Vietnam likes more detailed and craftsman style work and mass production is something they are just beginning to grasp. The Phillipines is a possibility, but a reliable workforce/labor pool and government corruption remain issues.

[sd75i]

    I get the price increase to a point, but atlas stuff has had a price increase for each release for the last ????? years?  It hasnt been little ones either.  Do you think people will bail on model railroading or will it just be a Rich Man's hobby?  I might just have to play with what I have now and stop entertaining thoughts of getting more stuff.


  dave t

[Mark5]

The price increases are fairly simple to understand, given the 25% change (increase in cost per dollar) in the yuan since 2006 and other factors.

We were spoiled for many years (decades?) when the yuan was artificially held at a fixed exchange rate by the Chinese (this heavily favored their export situation).