Friday, August 2, 2013

Trolling For Hate: Why The Knife Industry NEEDS to Make Stuff in China

Introduction: Set Sail 

I love the idea of a craftsman, like Steve Karroll, hand making my knife.  I like the idea that somewhere he is sitting at a grinding belt using his eyes and his hands to craft a razor edge on my EDMW.  It makes me feel connected to things I own and the people that make them.  I also like the idea that in Golden, Colorado there is a small team of dedicated craftsmen doing much the same.

The reality is, however, that in the modern globalized world this is simply not the most efficient way to run a business.  To survive in the modern world, even in the relatively niche world of high performance gear, you need to have a global perspective.  You need to make some things overseas and in the gear industry that means places like Taiwan and China.

I have to break the news to you: we are not the folks that keep gear companies afloat.  No matter how much we spend we aren't a large enough market to sustain a company any larger than say, Chris Reeve Knives.  If that is your game then great, but for the KAI USAs and the Spydercos of the world to survive they need to produce gear for a wide range of audiences.  Sure we all like the blank check, blue sky, cost no object production knife like the Jess Horn Spyderco or the Kershaw Tilt, but if we want these products to be made in the future, they have to be subsidized by the production and sale of the Tenacious and the Cryo respectively.  This is not a purely gear industry issue, either.  Studios wouldn't survive on Oscar movies alone, they need the big budget explosion fests that we are treated to this time of year to pay the bills and make those movies possible.

This is why we gear geeks need to have stuff made overseas.  Without it the knife industry would shrink and possibly die.  There isn't enough profit or capacity to make things purely in the US on a scale that would allow companies like KAI, Spyderco, and Benchmade survive.  The reasons are complex.  

Capacity and Competitive Advantage

China looms over the horizon, beyond the edge of the sea, a new rival for a new century.  But unlike the Soviet Union, China's rivalry is primarily economic.  Their massive factories, significantly lower labor standards, and virtually zero environmental regulations all give them some advantages over the US, but these are really just minor things, bullet points for political parties.  The real advantage is simpler, less sexy, but vastly more meaningful--capacity.  The billion or so people that live in China represent a huge labor force.  Additionally, because of years of insular economic policy, they are just now experiencing the boom in technology and manufacturing that the US experienced in the last fifty years.  In essence, the growth we have experienced in fifty years China is doing in 15.

But economists will tell you an important fact about this capacity.  While great, it is not as sophisticated as what we have or what the Japanese and Europeans have.  The US, Japan, and Europe make incredibly complex goods--cars, planes, ships, high end machines and medical equipment.  China's capacity is still not capable of doing these thing as well.  While China has more capacity, the US, Japan, and Europe have a competitive advantage over China.  Simply put--US, Japan, and Europe make medical imaging equipment and nuclear reactors for energy production while China makes, at is most sophisticated, iPads.  I love the iPad, don't get me wrong, but the principle of competitive advantage means that the economies should always strive to make as high end a good as possible.  The US COULD make iPads (and will again according to Apple), we have the ability, but doing so makes very little economic sense.  There is only a finite amount of manufacturing capacity in the US and you can use it to make iPads with their 300% margins and $400 price tags or an MRI machine with their 3000% margins and $100,000 price tags.  Same factory floor space, huge difference in profit.

As sophisticated as our gear is, it is not in the same league as a car or a plane or an MRI.  Thus, by simple economics, it makes more sense for some of our stuff to be made in China.  They can make and do a pretty good job.  Plus they have a huge amount of excess capacity.  All of our gear, based on simple economics, should be made in China.

But business is really never about simple economic principles.  We are proud people.  We are country of tinkerers and inventors.  It is in our political DNA.  The Constitution, as drafted by the Founding Fathers, had nothing about the right to bear arms or freedom of speech (those were amendments to the original document after all), but it did have a section on patents and inventions.  Inventors are as much a part of the American Spirit as the cowboy.  And so, despite the principles of economics, folks like Chris Reeve and Sal Glesser and Les De Asis still design, make, and assemble knives in the USA.  We like them for it.  We buy these knives, despite a higher price tag.  We seek them out because of their country of origin.

High Wire Act

The US based knife and gear business is one of very thin profit margins.  The pressure on factory floor space is huge--can you really go to a group of investors and tell them you are going to use this building to make $300 hand assembled titanium framelocks when you could just as easily build parts for the Boeing Dreamliner in the same space?  The factories that are dedicated to making knives in the US are either very small, like CRK, or they are maxed out in terms of capacity.  New factories, because of the pressures of competitive advantage, just aren't being built.  Finally, the factories that did come on line in the past 30 or so years, such as the one owned by United Cutlery, weren't successful and were ultimately sold for parts.

Thus there are a small number of modestly sized shops and a few large factories, all of which are essentially maxed out in terms of production capacity.  As a knife maker you can't build a new factory.  The economics of the situation won't let you.  You can try to squeeze out more capacity from your existing sources, the small shops and already existing factories, but that is a process of diminishing returns.  Or you could go overseas.

We have seen it happen time and again.  Company after company takes their stuff overseas to be made.  I realized the trend was irreversible when I saw that AG Russell, perhaps the quintessential American knife maker, was making new knives almost exclusively in China.  The economic realities are harsh in one sense--the space for new large scale knife making in the US is all but gone--but good in another sense--our country is still leading the world economy because we are making more high end stuff.

The issue is pretty simple: if you run a business making gear and you want to have any sort of volume at all you need to make stuff in China.  If you want to sell to Wal-Mart you have to make stuff in China.  If you want to sell in Home Depot or Lowes you have to make stuff in China.  If you want to have a large presence in a major retailer you simply have to make stuff in China.

Local Impact and Market Positioning

How many local knife shops are there around you?  More or less than there were twenty years ago?  I would be willing to bet no one answered MORE.  Gear is increasingly sold for the lowest dollar in the big box stores or to a niche audience (us) via the Internet.  It comes down to this--makers of gear have to decide what they want to do: try to make a ton of profit by competing in big box stores for shelf space or make some profit selling to us.  A few companies have made their choice clear.  You won't be seeing an Sebenzas on the shelf at Home Depot.  Gerber on the other hand seems to have voted in the entirely opposite direction.  They went all in on big box, mass market Chinese made stuff. But for other companies the decision is less obvious. 

If your SOG what do you do?  Spencer Frazier seems to have decided to bifurcate his line, selling Flash I and Aegis knives at Lowes and Amazon and then sell his Vulcans and Visionaries to us.  Benchmade and Spyderco seem to be doing the same thing--Benchmade's subsidiary brands, HK and Harley Davidson, are all or mostly made in China while Spyderco's Tenacious series and all of the Byrd knives are produced in the world's most populous country.   Kershaw, the maker of knives like the "blank check design" Tilt and the budget-friendly Crown, seems to be more explicit about this.  ZT seems like it will be their US made, high end, enthusiast line while the Kershaw main line will become more Chinese made.  There are a lot of exceptions to this rule like the aforementioned Tilt and the Onion knives as well as the Skyline, but increasingly Kershaw's stuff is being made overseas.

Is this is a per se bad thing?  After years of thinking about this the answer has to be no.  I'd buy an American made knife before I'd buy a Chinese knife.  I'd pay twice or three times as much for the privilege. But with American capacity maxed out or used to make other things, Chinese capacity is necessary.  Without it, the knife industry that we have delighted in over the past few years, would never exist.  Enthusiast products are funded by mass market Chinese made knives.  To get what we want, companies have to make stuff that sells in huge volumes.  

The gear business is a relatively small community of makers. Even the companies that drop things into big box stores, like Leatherman and SOG, are still tiny companies in terms of international businesses. Gerber is different as they are a subsidiary of Fiskars which is a multibillion dollar operation. For comparison sake, how about these numbers: KAI USA's revenue last year was $19 million dollars while Staples revenue was $27 billion dollars.  Then there are the prices of the products themselves--technology and internet sales have created a cut throat environment. It benefits us the consumers by giving us stuff like the near custom quality ZT 56x series for $260 and things like the $19 CRKT Drifter, both of which are great buys, even though they are $240 different in price.

Conclusion: Adjusting to the New Order

With market bifurcation, what is the gear geek to do?  First, rejoice that there are still very small makers here in the US.  CRK is one maker, but did you know that both Case and Queen, the last two major makers of traditional pocket knives, still make their stuff in the US (both in the Pennsylvania in fact)?  Second, celebrate the fact that big brands can and still do make blank check high end projects that serve the enthusiast market.  There are very few knives, custom or production, that have the materials and design flourishes of the Tilt or the ZT 0888.  The fact that these products are being produced is a hugely cool.  Third, gear geeks should do their best to sift through the overseas knives and find the best values.  They are out there, they really are.  If you don't believe me take a look at the Budget Blade Shootout or the recent CRKT Swindle review.  The Drifter alone is proof that not all of these overseas blades stink.

It comes down to this, for me: if gear companies make blades, bags, and lights overseas and sell in Big Box stores they will survive.  The guy that walks into Dicks and buys a Kershaw Cryo is subsidizing KAI USA's ability to make things like the Tilt.  Its good for him, its good for KAI, and it is good for us.  It is never a good thing when jobs go overseas, but part of the reason why this is happening in the gear world is because US manufacturing plants are humming, operating at near full capacity producing high tech stuff like Boeing Dreamliner parts and MRIs.  In a sense, it is a healthy thing.  Sure, there are very few manufacturing jobs left for less skilled workers, but the rising tide of high skill job requirements is a trend with much broader causes.  It would happen one way or another, even if most of our gear was still made in the US.  In fact Time recently published a piece on the thriving US manufacturing sector.       

There are some exceptions to this trend--Leatherman has done an amazing job keeping almost everything in the US and still selling to Big Box (one of a dozen reasons that Leatherman is beloved by both the Big Box patron and the enthusiasts alike).  Then there is the entirely custom made market.  Podcast cohost and custom knife connessieur Aaron will probably never buy another Chinese made knife.  But in large, we need to face facts--overseas made knives are a requirement of the modern market.  We can still get USA made stuff, but if we want knife companies to survive we need to realize they are business first.  As a business, they need to maximize profit and going overseas is the only way to do that right now.  Things will change in the future, they always do, but for now we have to accept and embrace cheap overseas blades.  They make the stuff we like and love possible.

I hope that one day all of the unused manufacturing space in places like Detroit will be recaptured by US industries, like knife making.  I'd love to see a "Motor City Tool Works" spring up and resurrect some lonesome factory and harness an untapped, skill group of under employed or unemployed labors.  Shinola is proving this is a profitable and effective strategy.  But until knife companies can do this, our blue sky knives are funded by those Chinese made blades.  And quite a few of them, like the AG Russell Skorpion or the CRKT Drifter, are really quite good.  

I want to thank a few contacts within in the industry for their willingness to chat and for their feedback on a draft of this piece.  Lots of different folks have given me input and the article is better for it.  I spend over three months writing and rewriting this piece to make sure it was both factual correct and a good statement of what I believe.  I hope no one was too offended


  1. Not that I am against international trade, but this was in the NYT today, and shows another aspect of our economic system's short-term gains concentration:

  2. Nice write up Tony! But I have a bit of an open ended question: what does the future hold?

    What happens to the competitive advantage when the boom in China catches up with the US, Japan, and Europe?

    One can also say that the this economic boom is also fueling the growth of the Chinese middle and upper-middle class, the same demographic where most of us gear geeks belong to; the manufacturers in China would have a large homegrown, emerging market to sell to, potentially eating up manufacturing capacity that had previously been reserved for exported products.

    And regarding the iPad example that you mentioned, Motorola has recently made a move to produce its newest flagship device, the Moto X, in a plant located in Ft. Worth, Texas. Perhaps this is a glimpse into what the future can potentially be?

    Just some food for thought!

    1. that is a really good question. Based on what I know I think the bifurcation of the market will continue and I think we will see a lot of high end stuff and a lot of low end stuff with a vanishing middle. I also think that a lot of the rust belt cities, places with excess capacity and a trained work force, represent the next wave in manufacturing booms. By way of example look at places like Canal Street Cutlery or Great Eastern Cutlery. Both are new companies that rose out of the ashes of a former industrial boom town, Canal Street coming from the employees of Schrade and GEC just taking advantage of the capacity and work force in a small town like Titusville. That, I think, is the future. Motor City Bladeworks would be AWESOME.

  3. The key premise here is that factory capacity is maxed out here in the US and it's economically non-feasible for the big boys to build more. If that's right, then the rest of your argument follows.

    I'm not plugged in enough to make an independent evaluation of what your sources have told you, so I provisionally accept the premise.

    Certainly it's true that the handful of "big" knife companies are not very big by the standards of most industries. (Even compared to gun companies they are small. E.g. Smith & Wesson is about 10 times the size of Benchmade.)

    New thought: Is it me or have Taiwan-produced knives gotten really good in the past several years? Spyderco's Taichung blades have amazing fit and finish, and I've been nearly as impressed with the new Cold Steels and upscale CRKTs made in Taiwan. Even at lower price points, the Ontario RAT-1 (Taiwan) is a better made knife than the Tenacious line (China).

    Today I would almost put Taiwan and Japan together on one quality tier, with mainland China a tier below. That isn't to deny that there are some good high-value Chinese knives. I appreciate my Kershaw OD-2 and Antelope Hunter, and as you said, the CRKT Drifter G10 is a value EDC classic.

    1. BTW as always "Trolling for Hate" delivers great content.
      Also I still owe a reply to your thoughtful comment on the "Minimalist EDC Hiker Philosophy" post.

  4. Tony thanks for a great article. I enjoyed it. I'm a subscriber to "buy American when I can" but admit I have several imported pieces of gear as well. I believe China can make a great product if the US Manufacturer and US Consumer is willing to pay. China can make a knife for $5 or they can make a knife that cost $100 depending on what the manufacturer's specifications are. As a Flashaholic I would put my best China torches up against any other light today. We as consumers have to stop paying $10 for a product, expect it to perform like it's $100 made in USA cousin then bitch about how crappy it is just because it's made in China.