Outsourcing: Will it come back to bite HME vendors?

Monday, February 28, 2005

YARMOUTH, Maine - Outsourcing product assembly to China has allowed some U.S. medical manufacturers to greatly expand their market presence in a short time. But arrangements like this could inevitably become a disadvantage if enough Chinese manufacturers decide to bypass U.S. vendors in order to take their products directly to the North American marketplace.

There are signs this is taking place. Taipei-based thermometer maker Microlife is the latest OEM to announce that its product line is now reserved solely for its own name and for private label goods sold to retail chain customers. It follows developments that were initially reported in the December 2002 issue of HME News, in which several companies formed initiatives to brand their own identity with HME providers.

Jack Evans, president of Malibu, Calif.-based Global Media Marketing, says if the Chinese strategy becomes a trend, it could send repercussions through the medical industry.

“Once upon a time, everyone bought from Microlife so this represents an end-around,” he said. “If it becomes more widespread, it could turn the industry on its face.”

Milpitas, Calif.-based A & D Medical has purchased stick thermometers from Microlife. Gary Hallick, vice president of the company’s medical unit, acknowledges that “there could be some fallout” from Microlife’s decision. He anticipates that other Chinese manufacturers could follow in the future if it proves successful.

Even so, that’s not guaranteed by a long shot, said Tom Tucker, vice president of sales for DME and respiratory for Mundelein, Ill.-based Medline Industries.

“I can understand them wanting to try and I’m sure there are other examples where OEMs are doing this in the U.S. marketplace,” he said. “But I don’t think they realize what they’re getting into. This is a tough business. A lot of them try it, but ultimately they give up after they find out how hard it is.”

That Chinese OEMs would want to sell direct doesn’t surprise Invacare CEO Mal Mixon, which is one reason why the Elyria, Ohio-based mobility manufacturer owns and operates its own facility in the country.

“If you’re a manufacturer that is paying a third party to make your products, you cease being a manufacturer – you become a distributor,” Mixon said. “We didn’t want to give up control of our products, and we had no desire to create a competitor by teaching them our business. Only time will tell which strategy is right.”

Chinese manufacturers turning the tables on their U.S. counterparts is a big drawback to moving production offshore, but is by no means the only one, said John Box, whose company Colours ‘N Motion continues to manufacture its wheelchairs stateside.

“Because price is driving the decision to make things in China, they are produced in volume, which makes it difficult to make cool, personalized equipment when they are made in such large numbers,” said Box, president of the Corona, Calif.-based company. “So there’s less innovation. But I don’t think people care anymore if something is made in the USA and that’s kind of sad, because it’s hard to compete price-wise with things made in China.”