RELATED CONTENT

Mike Hundert
President and CEO, REM Eyewear
and Base Curve Eyewear

Mike Hundert recently authored an essay, The Cost Of Goods In A Rapidly Changing Country, on the changing paradigm of manufacturing eyewear in China. Here, Hundert follows up after an around-the-world trip in October and November.



 
Mike Hundert
“Change.” The mantra of the year here in America, and a direction celebrated around the world.

Oh yea; be careful what you wish for.

Since I wrote an essay last August on the changing paradigm in the costs of manufacturing eyewear in China, circumstances have dramatically changed. What a difference three months have made since my last visit to Asia.

Factories had been focused on raising prices to offset the changing global dynamics of currency and raw material costs fusing with the new demands of government and labor for higher wages and social benefits. Cries have been loud, and compromises difficult. Throughout this year, cracks in Humpty Dumpty’s shell were clearly visible as factories faced the prospects of low or no profit for the first time in many years, with some even forced to close.

Fast forward (only slightly) and you come to September’s great revelation, “the global credit crisis,” and its accompanying crisis of confidence. The abrupt halt to consumer spending caused by fact and fear that has led to the collapse of personal wealth has turned the story faster than a frame polishing wheel.

Already, it is claimed that the downturn and new business rules have claimed over 10,000 factories in the industry-rich southern China region of Guangdong. That has left millions of citizens out of work, many of whom were just rising to a new consumer class. And this is just the beginning.

It does appear to be yet another Perfect Storm. This one combines the effort by government to protect workers and create a burgeoning consuming middle class. The strategy to move from a total export-based economy to one in which its own citizens consumed more of what they make was beginning to work. The combined drop in demand at home and abroad, with that of skyrocketing manufacturing costs has knocked ol’ Humpty right off The Great Wall.

Now what?

Politicians are quick to point out that if American automakers close so will thousands of feeder companies that provide goods and services before the keys are cut. So to is it for the eyewear infrastructure. And even the survivors will face challenges like none before.

When eyewear manufacturers see their orders dwindle, while their operating costs escalate there will be factory closures. Of that you can be certain. That in turn will kill off many component and subcontract suppliers. And those feeder companies may fold first, leading to production disruptions, delayed deliveries, products killed, and factory survival that much more challenging.

It happened to us in the 1980’s. The factory making our top selling frame, the carbon graphite model many of you will remember as “Polaris,” closed down overnight. At the time REM was selling more than 13,000 units of that model every month (a remarkable volume then and now). One day they simply stopped replying to our faxes (we were very advanced for the time). Then I learned the owners disappeared in the middle of the night, fearing an organized crime syndicate, or some such story. We were out of stock for months and sales of those models never fully recovered from the supply chain choke.

Even with great diligence this can happen to any supplier today. So much of our goods depend on the supply chain infrastructure that one link in the chain being broken can cause great disruptions.

This is today’s danger. As we’ve seen, tomorrow promises one thing for sure -- surprises. This is the time for great management to stay focused, and superior leadership to demonstrate exceptional vision.