Invacare’s China strategy departs from industry norm

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Tuesday, August 31, 2004

ELYRIA, Ohio - Invacare announced in July that it was opening its second wholly owned facility on the Chinese mainland, this time in Kunshan. Like its Suzhou facility, the Kunshan plant sprawls over more than 40,000 square feet of manufacturing space in addition to offices and test labs.

The two facilities are unique in the HME industry. While most manufacturers operate joint-venture partnerships, contract out to original equipment manufacturers in China, Invacare has abandoned that approach.

“We very much believe in controlling our own destiny, so we want to own our own businesses in these locations,” said Invacare CEO Mal Mixon. “The best way to think of this is that Invacare manufactures all over the world, and now we have two factories in China.”

At Sunrise Medical, management doesn’t believe wholly owned factories in China are necessary. Currently, Sunrise works with six joint-venture partners and contracts out work to one OEM manufacturer.

“If you’re dealing in the kind of stuff we’re dealing in - motors, and concentrators and standard parts - my own personal experience is that you are better off on the partnership or contract manufacturing type of relationship,” said Sunrise CEO Mike Hammes.

In other words, the technology isn’t so complicated that Sunrise feels it needs to set up housekeeping in China. But Invacare has bigger plans for its China facilities than standard products.

In Kunshan, Invacare will start off making personal care products, and later move into some consumer power products. Invacare makes respiratory equipment in Suzhou.

It’s no secret that HME manufacturers who’ve set up shop in China are driving prices. And for some, the battle to drive innovation in the marketplace plays second or third fiddle to such considerations as price and quality.

“I don’t think people are willing to pay premiums for innovation,” said Doug Francis, executive vice president of Drive Medical in Farmingdale, N.Y. “We made a decision early on: If we do develop something unique, we’ll be unique and new just for that period of time. Somebody is going to copy it.”

Pirating, parroting and copying are fairly routine in China. As Mal Mixon says: “The patent situation in China is very fluid.” As Doug Francis says: “Don’t try to control China.”

Drive makes 99+% of its product in China, according to Francis. Last November, the Cleveland Plain Dealer reported that Invacare could be doing half of its manufacturing in China in five years.

Today, Mixon said Invacare has no plan to base 50% of its manufacturing in China but to use China as one prong in a bid to balance quality, cost and the security of supply line.

“We have made a strategic decision that we will never manufacture everything in the same place,” he said. “Even the products we’re putting in China, we will continue to manufacture those same products in Mexico and Florida.”

While questions still linger about the quality of product coming out of China, those questions seem to be diminishing. Still, Invacare is campaigning hard to establish its brand as a hallmark of quality. Working with a joint-venture partner, they believe, could jeopardize that standing.

“When you buy a Phillips or a Sony DVD, what’s important is not the country of origin but the brand on that product,” said Lou Slangen, Invacare’s senior vice president of marketing.

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