Offshore Competition: a Shanghai Lab's Perspective
Posted Apr 28, 2011 in Labs & Profiles
China is the largest developing country in the world. With its GDP (gross domestic product) measuring an annual growth rate of 9.4% over the last 25 years and its economy predicted to quadruple to $4 trillion by 2020, it's becoming a major force in world commerce--including the U.S. dental laboratory industry. Simplified logistics, such as economical next-day shipping and easy communication via the Internet, have paved the way for Chinese labs to service the U.S. market. And the substantially lower labor costs in China translate into very competitive prices for U.S. labs. One of the Chinese laboratories that is marketing to the U.S. is DentUSA, a full service, 300-plus-technician laboratory in Shanghai.
LMT talked with Steve Li, general manager, to learn about his operation and why he feels the U.S. is a viable market for his laboratory.
LMT: Why would a U.S. laboratory consider using your services?
Li: First, I would like to clarify our business model: we're only working with laboratories. We're not trying to work directly with U.S. dentists so we're not competing with U.S. operations for their customers.
Like any outsourcing arrangement, we offer a solution to staffing problems and workflow fluctuations. Many laboratory owners can't find technicians and they're losing business because they have to turn work away. By using our services, they can better control their staffing needs.
As a full service laboratory, we provide all the latest technology and products so labs that work with us don't have to invest in new materials, equipment or training. They can provide more choices to their dentist-customers and thus gain a competitive advantage.
Shipping is not a problem because Shanghai has the most complete flight schedule of any city in China and FedEx, UPS and DHL deliver five days a week. The Shanghai customs office is open seven days a week, even on major holidays like Labor Day and the Chinese New Year.
Because of the lower labor costs, our prices are very competitive, less than it costs to produce a restoration in the U.S. China's incredible manpower resources are squeezing even Mexico, formerly the low-wage darling of manufacturing. Here's why: in 2002, the average hourly manufacturing labor rate in China was $0.64, in Mexico, $2.30 and the U.S., $15.80 [rates are in U.S. dollars]. In China, non-wage labor costs such as health insurance, retirement plans, etc., are roughly 40% of the hourly rate, whereas in Mexico, they are three times the hourly rate. Overall, manufacturing labor in Mexico costs almost eight times more than in China.
LMT: Despite the shortage of technicians in our country, some U.S. laboratory owners and managers are concerned about the idea of taking potential jobs away from the U.S. and taking money out of our economy. How do you respond to them?
Li: I don't think the labor market will suffer as people speculate. The U.S. labs we work with haven't decreased their staffs because they still need technicians to handle rush cases and repairs and service the customer. We cannot provide the kind of service and care that U.S. labs can offer their clients. We know our limitations.
Laboratory technology is becoming more and more of a service-oriented, value-added profession and we're simply offering an alternative business model: by having our laboratory handle the manufacturing end of your business, you can focus more on servicing your customers. Again, we are not directly competing with the U.S. laboratory for its customers. Our approach is to work with them, not against them.
LMT: They also question the quality of work being produced offshore. Certainly quality means different things to different people, but how do you address their concerns?
Li: We function much like a U.S. laboratory because we work with ADA- and CE-certified products, import all of our materials from the U.S. and Europe and receive product training from major U.S. manufacturers and suppliers. We hire English-speaking managers to train and supervise our technicians. They all have at least 15 to 20 years of experience working with U.S. laboratories. They read the prescriptions and can easily call or e-mail the laboratory customer if they have technical questions.
LMT: Some laboratory owners are concerned about the health and safety standards in China. What are you doing to ensure the safety of your technicians as well as U.S. technicians, dentists and patients?
Li: The Chinese government has recently classified dental laboratories as type 2 medical device manufacturers, meaning that they must be regulated in order to control the safety and effectiveness of the materials they use and the restorations they produce. This means that laboratories need to register with the government and obtain a permit of operation. It has also developed infection control guidelines, which are modeled after the U.S.'s Bloodborne Pathogens Standard and European regulations. Our government wants laboratory technicians to have regular physical exams, wear gloves and masks, implement infection control procedures for all incoming and outgoing cases and have annual/random bloodborne pathogen exams.
LMT: We've heard from a couple of laboratories that have received your CD and letter marketing your services. What has been the response among U.S. laboratories?
Li: The CDs are generating a high level of interest and we're getting lots of inquiries. Outsourcing is a global trend and whoever can adjust faster will come out ahead. More and more business-minded laboratory owners in the U.S. are starting to consider our services. Not all of them necessarily go full speed ahead, but at least they are testing the waters to see if our kind of operation can fit into their business model.
LMT: How many units are you fabricating for the U.S. market?
Li: This is our first year in the U.S. market and we have sales representatives in 15 states. We're receiving a couple of hundred cases per day, five days a week.
LMT: What type of pricing and turnaround do you offer?
Li: We work with labs in the U.S., Europe and Asia and our fees vary depending on the region and the lab's volume of work. We try to work with our business partners to come up with a very competitive price structure for both of us. We keep most cases in our lab for two days so when you add overnight shipping time on both ends, the turnaround time is a week. For example, if a U.S. lab sends a case on Monday, it arrives in Shanghai on Thursday and ships out of our lab on Saturday to arrive back in the U.S. on Monday. The U.S. lab pays for shipping one way and we pay for the return shipment. We also explain how to properly fill out the proforma invoice for clearance through customs.
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