Interview: Drive's Harvey Diamond assesses the market

Sunday, April 20, 2008

PORT WASHINGTON, N.Y. - Drive Medical CEO Harvey Diamond is probably about as tuned in as anyone to the challenges and advantages of doing business in China. About 90% of his company's products come from that manufacturing hothouse. Last month, Diamond talked with HME News at length about the rising costs that manufacturers face in China, and why those costs and others have begun to translate into higher product prices for HME providers.

Why the cost of doing business in China has increased significantly over the past six months:
Several factors have contributed to this, Diamond said. First and foremost, the value of the U.S. dollar has dropped significantly in relation to China's RMD. For a long time, the dollar was worth 7.9 RMD, but over the past six months or so, it has dropped to 7.1 RMD. Every time the dollar drops one-tenth of a point against the RMD, it raises a U.S. manufacturer's costs 1.38%, Diamond said.
The Chinese government has also reduced the amount of money it rebates factories for exported goods. This, in turn, has increased the cost of many products manufactured in China.
Additionally, as China has begun to enforce human rights for workers, some factories have reduced business hours to limit overtime pay. The result: The lead time between order and delivery of product has expanded from 30 to 45 days to 90 days or more, Diamond said.
There's a fourth factor not related to China that's also driving up the price of HME products: The costs of aluminum, steel, copper, chrome and other commodities are skyrocketing.

The possibility of future price increases for HME products:
"Anyone today that tells you prices are not going up is not telling you the truth," Diamond said. "It's unfortunate that at the same time as competitive bidding that these elements are causing prices to increase. We are keeping our fingers crossed that it will get better. I believe it will level off; the question is when?"

What he's hearing from providers:
"Dealers realize that prices are up. They are hearing the same thing from everyone: Prices are up, prices are up, prices are up. For all of us in this industry, whether you are a provider faced with competitive bidding or a manufacturer, margins are down. The volume is up because of the graying of America, but the margins are down across the board."

"Let's be honest. We were in an industry where commodes, wheelchairs, walkers, beds and on and on were decreasing in price for many years--while everything else you bought was increasing," Diamond said. "Now, unfortunately, they are increasing."
Even with the cost of doing business in China rising, it's still the best place to source quality products at a good price.
"The value is still there," Diamond said.

Last word:
"The world out there knows what is happening," Diamond said. "When you go to Wal-Mart, on items you bought a year ago, you are going to see a tremendous increase in price. It's happening on every consumer product. On top of that, the price of oil and transportation costs are going crazy. It's a tough time right now. I believe--and every one of my fellow manufacturers, if they are honest, believe--that we have a rough nine months in front of us, and no one knows what's going to happen next year."