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August 1, 2003

16 Min Read
SARS slows business cycles (web exclusive: expanded content)

Delegates from the World Health Organization hold a SARS press conference at Palais des Nations, Geneva, Switzerland, April 16, 2003.

SARS (severe acute respiratory syndrome) struck more than 8400 and claimed the lives of nearly 800 people worldwide by June, since the first reported outbreak in Foshan City, Guandong Province, China on Nov. 16, 2002. Even though the threat seems to be abating for the summer, many IMM readers with customers, manufacturing operations, or sourcing contacts in affected areas say they have been forced to rethink how they interact and communicate with the manufacturers on foreign soil.

SARS has business people in the U.S. becoming homebodies, at least for now (see “Dead in its tracks?”, below). Many large companies have halted travel to China for their employees. One of the first was Procter & Gamble. The Cincinnati, OH-based consumer products manufacturer put out the word the first week of April that travel to China would be suspended until further notice.

SARS watch

For up-to-date information on SARS IMM recommends monitoring these websites:
www.cdc.gov/ncidod/sars/ The U.S. Center for Disease Control (CDC)
www.who.int/csr/sars/en/ The U.N. World Health Organization

Also, up-to-the-hour SARS news can be obtained online through Google News at www.google.com. Punch the “News” button and input the keyword “SARS.”

Gerry Hobson of Hobson Consulting says he has several large OEM customers he is dealing with who have cancelled trips to China. That means that mold programs slated for that country have been put on hold. Instead, these OEMs are asking Hobson to obtain quotes from his clients in the moldmaking business. Hobson represents Mold Craft, a moldmaker in Chaska, MN, and sells blowmold technology as well as components for Progressive Components. He thinks that the SARS outbreak, while tragic for those infected, could be a good thing for the moldmaking business in the U.S. as engineers, either afraid or with employer-restricted travel to China, look to their U.S. sources for molds.

Calls to several large mold shops across the U.S. revealed that quoting is up for most of them, but none could say for sure that it’s the result of SARS and travel restrictions to Asia. Rich Berman, president of Graphic Tool Corp. (Itasca, IL), says he has no doubts that SARS is a factor in the amount of work he’s quoting lately. “Logic tells me it has to be a factor,” he adds. “The good part about [SARS] is that it makes people pause and think twice before they put all their eggs in one basket.”

Rick Lieberman, a buyer for ITW Produx Div. of Illinois Tool Works, says his company wasn’t really looking to source tooling in China yet, “but we had plans to go over there to look at fastener manufacturers,” he says. “We’d planned on going in March, postponed that trip and rescheduled it for April, and postponed it again. [Any future travel] plans are based on the information coming out of—or not coming out of—China.”

Contingency Planning

Dead in its tracks?

Gro Harlem Brundtland, secretary general of WHO (World Health Organization), said that the world has “seen SARS stopped dead in its tracks,” according to an article appearing in the Toronto Star (www.thestar.com) on June 18. Though the death toll continued to rise, the international spread of the epidemic appeared to have halted around that time. But some say the SARS threat is far from over.

Dennis Maki, a University of Wisconsin Medical School professor and reportedly an expert on infectious diseases, warns us that the real danger from SARS will come this fall and winter when people move back indoors.

According to a report in The Capital Times (www.madison.com) on June 12, Maki cited troubling parallels between SARS and the 1918 “Spanish Flu” influenza epidemic, which killed more than 50 million people.

The mortality rate of SARS—12 to 15 percent—is five times higher than the Spanish Flu. For those more than 60 years old, the SARS mortality rate is 45 to 60 percent, he said.

“You never see influenza in the summer. In 1918 it spread all summer and in September it burst on the world. SARS has smoldered all spring. Most respiratory viruses spread like wildfire in the fall,” Maki said.

According to news reports in June, PC makers Dell Computer and Gateway were sticking by their financial forecasts despite SARS slowing sales in other China-based technology markets, like mobile phones. Warnings about the SARS impact on technology were issued by Motorola, Nokia, and Texas Instruments around that time.

Electronics contract manufacturer Flextronics International operates 33 plants in China. CEO Michael Marks believes that if SARS is a short-term problem, there won’t be any problems. But the longer it goes on, the higher it will raise the issue in people’s minds.

The biggest concern involves supply-chain disruptions. That is certainly true for molds, for which OEM engineers spend an inordinate amount of time in China, watching over mold builds to ensure the project’s success. Some have been caught just weeks from mold tryout, and are scrambling to complete the project long distance.

An Asia-Pacific marketing and product development representative of Steelcase says, “Travel is restricted to outside of Asia. Consequently, we are unable to progress with ongoing projects. As engineers, marketing personnel, [and] sales staff from the U.S., Europe, and within Asia, we are restricted from visiting that part of the world.

“Furthermore,” he adds, “due to the importance of face-to-face meetings, particularly when conducting negotiations and finalizing both verbal and written contacts in Asia, the virus has clearly slowed the business cycle.”

How has SARS affected your business?

IMM asked domestic custom molders if SARS had any immediate impact on their businesses or on their future plans. Here’s an edited sampling of what some of you had to say:

  •  Joe Pack, VP sales and marketing at Alltrista, Unimark Plastics Co. (Greer, SC): “The only short-term effect it has had is our willingness or ability to have employees travel to certain areas of the world. We had a mold runoff in Asia and did not send anyone, but elected to have the mold sent to us after runoff. We verified it in one of our U.S. facilities. There were no issues, but normally we would have had a person at the runoff. We have not considered any long-lasting change in our business operations due to this current situation, but as the head of sales and marketing I will say that we do use this as a reason for our customers not to go overseas—i.e., to China. In some of our negotiations this has been a subject.”

  •  John Onzik, president of Dickten & Masch Mfg. (Nashotah, WI): “We will not be sending personnel to China until SARS is history. Otherwise we are still playing on the same uneven field.”

  •  P.C. “Hoop” Roche, chairman and CEO of Erie Plastics (Corry, PA): “SARS has had no impact on us, as we do no molding [in], selling to, nor purchasing from China . . . thanks be to God!”

  •  A custom molder who requested anonymity: “Has SARS affected our business? Not really. But this should be a wake-up call for America. We have become very dependent on foreign products, forsaking our own workers and economic infrastructure. This is really starting to show as you can see at least 46 states are in financial turmoil and we have our largest national debt ever. The Chinese government was trying to hide how bad things really were over there to lessen the negative economic impact. Greed is the real disease plaguing America.”

    Eyewitness News

  •  Neal P. Elli, president of Empire Precision Plastics Inc. (Rochester, NY), who says he was in China during the week of March 10: “I visited almost all the major cities that are currently ravaged by this problem, but heard virtually nothing about it until I was on my way home. Only now are we learning of the devastation and social unrest that it is causing.

    “SARS is not affecting our current business practices. We ship very few parts to China and have no direct manufacturing facilities over there. Our company is ready, willing, and able to work with our subsuppliers in Asia to meet our customers’ demands. We are also looking to non-Asian suppliers to have backup capacity in some areas such as tooling.

    “In the marketplace, OEMs and large suppliers are sending work overseas without giving domestic suppliers an opportunity to look at the work. SARS is a wildcard that is making some companies pause and think before that button is pushed.”

  •  Brad Hilton, plant manager of Emrick Plastics (Windsor, ON): “SARS has not affected our day-to-day business, even though we are within relatively close proximity to Toronto—a 3-hour drive. We currently do not do any business with any Asian countries. The only impact locally regarding SARS has been hospital quarantines. That’s about it. Things are starting to quell [sic] here in Ontario.”

  •  Jason Stull, marketing services manager at Stull Technologies (Somerset, NJ): “Stull has not been greatly affected by the SARS virus, largely because we do not do much business with China or Asian countries. However, we have cut down on our travel to some parts of North America, mainly around the vicinity of Toronto and other parts of Canada for precautionary reasons. In addition, we are taking a closer look when scheduling our travel arrangements to make sure that the destinations are safe to visit.”

    Outsourcing Continues

  •  Don Hardin, sales manager at Fabrïk Molded Plastics (McHenry, IL), says his company views SARS as a very serious situation and is taking the appropriate measures with regards to travel and internal policies. But he adds that the company’s future plans remain unchanged.

    “Today’s economy is a global economy and our long-term strategies have not changed, but we recognize the importance of having a well-balanced portfolio of North American suppliers, as well as offshore sources,” Hardin says. “We will continue to purchase tooling from our offshore suppliers and are currently expanding our capabilities in low-labor-cost countries through strategic alliances.”

    “Our existing business with China is mainly the sourcing of injection molds. We also export molded parts,” says Leo J. Montagna, president of Lee Plastics Inc. (Sterling, MA). “We have been in touch with our mold source over there, and they’ve told us that mainly shipping seems to be affected, noting longer transit times and higher costs.“

    Multinational Micromolding

  •  Stu Kaplan, president of Makuta Technics Inc. (Columbus IN), which specializes in micromolding: “We have not been affected by the SARS outbreak. We are still shipping parts to China. However, I recently spoke with the management of Sansyu Hong Kong, our sister company. They have 40 people, the normal staffing, running 120 Sumitomo molding machines similar to ours. Two weeks ago, they were all healthy, but were, as they put it, ‘very, very nervous.’ Fortunately, our Sansyu Precision system of automation enables the factory to operate with fewer people handling parts.”

  •  Charles A. Sholtis, CEO of Plastic Molding Technology Inc. (Seymour, CT), another multinational custom molder: “Yes, SARS has definitely had an impact on our business plans at PMT. Sourcing molds and establishing a molding presence in the Asian region has been postponed until next year. Travel plans have been cancelled. We are seeing some business being sourced here instead of China.”

Machine suppliers' SARS remedies

We asked molding machinery suppliers how SARS was impacting their business and travel plans. Their responses echoed those from other members in the molding community-travel's down, anxiety's up.

Christoph Schumacher, marketing and corporate communications, Arburg GmbH + Co. (Lossburg, Germany): "Our business has not been affected by SARS, as far as direct sales of machinery and equipment goes. There are other global economic influences of larger importance affecting sales. But, of course, we are reducing trips to Asia, trips from Asia to here, and travel within Asia."

Bob Koch, president, Boy Machines Inc. (Exton, PA): "SARS has not affected Boy Machines' business, as it is almost solely conducted in the U.S. I cancelled one trip to Toronto because of SARS, but it was an optional, relatively unimportant trip."

Steve Schroeder, president, Epco LLC (Fremont, OH): "We would be very careful and very reluctant to send personnel to areas that have major cases of SARS outbreaks without obtaining more information on the disease and the probability of infection for visitors."

Guido Radig, marketing director, Krauss-Maffei (Germany): "Yes, SARS has had an impact. Fewer worldwide business trips are planned, particularly to Asia and America/Canada. We will handle the business more by telephone or by e-mail. Our local representatives will take care of our customers in China through our offices in Shanghai.

"If the rate of infections increases in China, Singapore, and Canada, then the impact on our global business will be disastrous. The effect of AIDS in Africa is much more serious, comparatively speaking, but SARS concerns important regions of our business, and the transmission speed of SARS can be very serious. There is nothing available yet to kill the virus. The speed of globalization by traveling will slow down long term, as far we can see it."

Paul Caprio, vice president, Krauss-Maffei (U.S.): "From the U.S. perspective, the SARS epidemic only created a concern for traveling to Toronto when the WHO put that city on notice. During this time, we planned to take care of our customers on a employee volunteer basis. This meant an employee that did not want to travel there could decline.

"We did not worry about supporting our existing customers there, because we have employees living in Toronto that could handle the work if required.

"As for business in Asia, the concern was and is high, but like in Toronto, we have employees and fully staffed offices already in existence in those areas that are heavily affected. We have no intention of stopping our business in these areas at all. Unfortunately, this becomes part of their daily life because our employees live and work there.

"We have several American customers that have facilities in Asia. I know that they are continuing to do business in these regions, and the Americans themselves are not anxious to travel there at this time, but I am not aware of anyone refusing travel.

"We also have issues traveling to the Middle East due to the situation there. Again, we work on a voluntary basis on sending people there if required. Thankfully, most of the work in this region is also handled by local people, so the customers are not affected in a negative way."

Nissei Plastic Industrial Co. Ltd. (Nagano, Japan): "With the spread of SARS, Nissei has immediately implemented prohibition of business trips from headquarters to Hong Kong and the homecoming of family members." That's how the official word from Nissei's HQ begins.

Officials continue, saying, "Moreover, the company has supplied germproof masks, clinical thermometers, and goggles at once. The range of business and service activities has been restricted in Shanghai as well. The company is taking measures to force company members returning from a business trip to Taiwan to stand by at home for 10 days.

The company has called off its planned exhibition at ChinaPlas 2003, scheduled for Beijing in September 2003. And it is considering the cancellation of its exhibit at TaipeiPlas 2003 in Taipei, Taiwan, R.O.C., which also will be held in September.

"A decrease in order receiving and sales is forecast due to the slowdown of operations of local manufacturing plants in China," Nissei officials say. Seventy percent of Nissei's production is for exports-40 percent of which is destined for the Chinese market.

Tim Glassburn, Toshiba Machine Co. America, Injection Molding Div. (Elk Grove Village, IL): "I know one of our customers that has a plant in China and has asked our serviceman to hold off making a scheduled trip to their plant until things clear up."

Finally, a machinery rep who wishes to remain anonymous says, "Several companies that I know of have curtailed any and all travel to China and other locations in Asia. Not that I can blame them.

"My partner has a cousin working in Hong Kong who says that the actual numbers of sick people there are much higher, and that this whole thing is having a devastating effect on everything there. He claims that the Chinese government is still playing 'hide the weenie' with this whole thing. He plans on not going back, even if it means quitting his job.

"Other than the human misery that SARS is inflicting, the consensus of molders that I speak with is that SARS may be the best thing that has happened to them when it comes to things 'Chinese.'

"I personally feel that in addition to SARS, we should have another dock strike at the same time, to really drum home the point that there is a downside to dealing with someone far away who does not have our best interests at heart. Seriously, so far it has just been too easy to move things over there, and people have to be aware that there can be serious interruptions in our economy for all kinds of reasons if we persist in this type of activity.

"Maybe this whole situation will at least slow down the 'sucking sound' of jobs leaving for China. I am sick to death of what is happening to our industry while many go to China in pursuit of the quick buck."

Thixomat cancels Shanghai conference

SARS is definitely impacting the molding business-even the magnesium molding business.

Thixomat Inc. (Ann Arbor, MI) has cancelled its annual TXM technical conference, which was scheduled for Shanghai, China October 20-23.

It was to be cohosted by Thixomat and the Chinese Magnesium Assn., whose annual meeting was scheduled for those same dates. The CMA meeting has also been cancelled according to information received by Thixomat.

"We plan to reschedule our China conference hopefully as early as next year," says Steve LeBeau, Thixomat's VP.

SARS brings in business for some

Pro QC International North America Inc. (McHenry, IL) is an independent, third-party supplier of global engineering and quality, some of which reduce the need for travel. According to Michael L. Hetzel, VP/Americas, the SARS situation has increased business and defined a shift in service bookings to upfront services in the supply chain process.

"Where we typically were booked into supply chain activities that were already established by client travel and direct negotiations, we now are frequently booked to negotiate and establish the supplier relationships on behalf of our clients while they stay in their offices," Hetzel says.

Pro QC has 120 employees stationed across Taiwan and China, with offices in Taipei, Beijing, Shanghai, Ningbo, and Shekou (Shenzhen) along with other Asian cities and countries.

"Now many of our clients book our services to conduct negotiations on their behalf and move us directly into the supplier qualification, order placement, source inspection, and project management activities without ever leaving their offices, while demand for our turnkey strategic sourcing services has also greatly increased."

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