Go to any Walmart, Costco, Best Buy or any major retail seller and you are going to find products made in China. Low manufacturing and labor costs: it’s simply cheaper to have goods produced there and then shipped all over the world. Many companies have gone to China as the best way to maintain their profitability, or in some cases even just survive against their competitors.
I spoke with a business owner providing finished steel products and who did the transition to China a few years ago. He said he didn’t want to shutdown his U.S. factory but he had to because of labor costs to keep his company in business. He said despite the costs of loading huge heavy steel cargo onto oceangoing ships and shipping it all the way USA, it was still far cheaper than running his factory in the States and it was what he had to do.
So it’s the way of the modern world market to use China as a major supply source.
How does this affect companies who want to sell their products made in China in to the federal government through GSA’s acquisition path?
Here’s the scoop: China is not a TAA compliant country so if you make a finished product that comes from China, like a flashlight or a hand tool, and want to sell it to the government through GSA…you can’t do that. Another thing you can’t do is take a finished product made in China, ship it to USA, put it in a new package or box of some sort, and sell it to the government. GSA simply doesn’t allow that.
So what’s the work around to get past this trip wire?
There are two solutions:
You can take a series of parts made in China that on their own are not the final product, assemble those parts here in the United States or in a TAA compliant country and then the magic happens: Substantial Transformation
Substantial transformation is the key to be able to sell China made products to the federal government through GSA and be completely compliant. A good example of this is Dell Computers. They take a series of parts that don’t function on their own and assemble those parts in the U.S. into a finished, working computer. At that point the computer they have created is classified as a US-made end product and can be sold to the federal government through GSA with no problem.
Dell: Manufactured in China, Made in USA
There are many other examples of substantial transformation and those companies enjoy sales through GSA while maintaining good margin and still be in compliance. To get those products on your GSA Schedule, we still have to prove the elements of substantial transformation to the Procurement Officer (PCO) at GSA. That is usually pretty easy to do as long as substantial transformation is really happening. The companies we have had trouble with are the ones who want to take a finished product, put it in a new box, slap on instructions or warnings about use, and try to call that substantial transformation.
Many companies have slightly shifted “how” they build their products to be able to get them on their GSA Schedules. For example, still want to sell those flashlights I mentioned earlier? Have the core components made in China but shipped to the U.S. for assembly and packaging, and in doing so you can achieve a genuinely substantial transformation: from batteries, diodes and what have you into a real, working, light-emitting device. Getting a little creative and adjusting your production methods can be a good way to get your products that started in China onto your GSA Schedule and be sold in compliance with good profit margins.
Or, you can have lower production and assembly costs and still be able to sell your products on GSA buy looking to and embracing Taiwan. In August of 2009 Taiwan became TAA compliant. That was huge news in the industry and, as opposed to China, many companies prefer to have their products made and assembled in Taiwan. Taiwan has similar costs for production and assembly labor like China–but TAA compliance means the need to prove substantial transformation doesn’t exist and Taiwan made products can be easily sold on GSA.
Taiwan becoming TAA compliant has been a huge plus in lower cost manufacturing and a great alternate path rather than use China.
Which other countries are TAA compliant?
To check out that list, head to this page and click the TAA button to see a world map of who else you can work with for lower manufacturing and assembly costs.