In addition to Glidewell Laboratories, Newport Beach, California, and three other U.S.-based laboratories, Jim Glidewell owns Smith-Sterling Dental Laboratory in Cartago, Costa Rica and Pacific Edge in Tijuana, Mexico. Smith-Sterling was opened by a dentist from Florida in 1995 and Glidewell purchased it in 2004; however, the Mexican facility was built from the ground up and opened in June, 2005. In Part II of our interview with industry pioneer Jim Glidewell, he tells us what led to his decision to open laboratories outside the U.S. and the effects of this business model.
LMT: Why did you decide to purchase your own facilities outside the U.S. and what went into the planning and feasibility studies?
Glidewell: We felt that we were losing a lot of our business to low-cost offshore competitors. It started almost 10 years ago and seems to have coincided with the formation of large dental groups across the country. The pressure was on their business managers to continually lower costs; some have a legitimate need for low prices because they service the lower income sectors of our communities.
From a self-defense standpoint, we wanted to create alternative facilities. I chose Costa Rica and Mexico because they are close to home and share the same time zone. I knew the labor rates would be higher than they would be in China, but the proximity was a big plus. Also, I wanted to open two locations because I wanted to be sure I ended up with one good operation; I didn't know which would survive. It seems that both have, although we still have a long way to go to reach profitability.
With Smith-Sterling, we simply purchased an existing laboratory, so all the hard work had been done; also, Costa Rica is a fairly easy place in which to do business. In Mexico, I've started from scratch and the legal paperwork is daunting. The Mexican regulations--if you follow them meticulously as we do--are very tedious. Unlike Costa Rica, Mexico is a member of the North American Free Trade Agreement (NAFTA) and that means that a lot of paper changes hands on every transaction.
When looking at the feasibility of a project like this, it always looks promising if you only consider the labor savings. But you give away some of the savings in extra shipping costs and also for professional oversight (since I'm not on-site, I hired an outside auditor to perform monthly accounting reviews). This has been invaluable to us and saved a lot of headaches.
The other expenses are related to the inefficiencies of phone, delivery and electrical systems; building facilities; labor laws; water availability; and many other necessary infrastructure needs. There is nothing like the good old USA for efficiency of services when compared with any other place on this planet.
LMT: Tell us about what the Costa Rican and Mexican labs are like now--how big are they and whom do they service?
Glidewell: Currently, we have 208 employees in Costa Rica and 82 in Mexico; about 70% of those are technical jobs and the rest are management and support positions. However, the amount of work we have in Mexico does not necessitate 80 employees. Right now, we really only need 35, but we're always in a training mode to ensure we're ready for additional work, and that's why it's hard to make a profit in the early years. For anyone planning a foray into this marketplace, I'd suggest planning on three years before seeing a return on your investment, and only if you stop growing and stay at some predetermined size.
We offer fixed restorations and bite splints at both labs and our customers are 60% dentists and 40% laboratories. We market to the U.S. only. There is already a competitive dental market in Costa Rica and since it's a Zona Franca, or Free Trade Zone, we're not allowed to do business there. The Zona Franca status allows us to bring materials in duty free but local labs do not have that ability, so the law protects the local labs from that disadvantage.
We have domestic reshipment stations in Miami and San Diego where we repackage and send the cases going to Costa Rica or Mexico for more efficient and economical shipping.
LMT: How are these laboratories distinguished from your U.S. facilities?
Glidewell: Our Mexican and Costa Rican facilities have a completely different name and identification from our U.S. operations and their prices are about 30% lower. They operate independently and share no operational areas except the use of our marketing team. We never send work from our facility to theirs. We lose customers to our labs in Costa Rica or Mexico occasionally, but that's why we opened up--we lose them, but we've still got them!
LMT: How does doing business there differ from the U.S. in terms of culture?
Glidewell: There are differences in culture and there's sometimes a more corrupt way of doing business when you step across our border and land in a different country. There are some customs that can cause you to trip up easily, for example, offering bribes. Don't do it. If something seems to be a roadblock and you think you can quickly bribe your way around it, you are probably right. You will make the immediate problem go away but set yourself up for an endless stream of further problems. The bribed official quickly tells his "associates" about how quickly you folded and you will encounter a long list of "problems" to overcome.
LMT: What are some of the other difficulties of doing business outside of the U.S.? How about the rewards?
Glidewell: It is a long way overseas; it makes communication very difficult. I'd say that management is the biggest obstacle; get the right people and everything will go pretty much how you want. I have hired local managers to handle the business operations and hired U.S.-trained managers to run the technical side of the business. In fact, I have never visited either lab, but have a team of professionals that visits very regularly. It's important to let them have their own style of management and not micromanage.
As far as the rewards, I'm not sure yet. I have $7 million invested and am just now starting to see the light at the end of the tunnel, or is that another train?
LMT: Hopefully it's the light! You mention the importance of hiring the right people. How do you handle recruiting and training?
Glidewell: There is a lab school in Costa Rica but I'm not aware of one in Tijuana. However, we prefer to train in our methods of production anyway; in fact, the crowns from our Mexican and Costa Rican labs look like the crowns from our California facility because the technicians use the same materials and education videos, except they're translated into Spanish. Although there may be a slight difference in the quality and level of communication--especially for larger, more complex cases--the main difference is that our Mexican and Costa Rican laboratories have a longer turnaround.
Recruiting is fairly straightforward; unemployment is high in these developing countries. It does make you feel good, creating employment for the unemployed; however, we do not live in a vacuum and, in reality, a job created outside of the country causes the loss of a job at home.
LMT: Speaking of a loss of jobs, there's a lot of mixed feelings about offshore facilities in our community. What do you say to laboratory owners who feel sending work outside of the U.S. is unfair or contributing to the demise of our industry?
Glidewell: I think they have a valid point of view. As I have said, every job gained overseas is a loss of a job here. Dentists are driving the demand for low-cost restorations because they are being driven by insurance companies--whose main support many times are the unions whose members are the ones to lose jobs. We opened in response to loss of work primarily to Chinese operations. Their fees are much less than ours are; our lowest-priced crown from outside the U.S. is $65.
LMT: How big of an impact do you think offshore outsourcing will have on our industry in the long run?
Glidewell: Offshore is just the scare du jour. The future of the laboratory industry is the move toward automated methods of production, and I believe that's the biggest threat.
Consider this scenario: today, the average technician produces about $7,000 of work each month. With the new systems, I believe that one technician may be responsible for between $12,000 to $20,000 per month. This means that--if the dollar sales do not change--fewer technicians will be needed to make more units. And I believe that fees also may come down as a result of digital manufacturing, maybe not initially but within seven to 10 years because the process will become more of a commodity.
Also, these new methods will require us to learn new skills that will change the definition of what a technician is. We are going to have to be computer literate and think in a CAD/3D world. Intraoral scanning and digital impressions are coming. Manipulating those digital files and making crowns and bridges from them without a model is coming. Large, centralized processing centers like the ones that dominate the eyeglass industry are coming. Money to establish those centers will be plentiful from the venture capitalists. Does this sound like the industry we know?