How to Avoid Tariffs? Make Your Furniture in the USA

About five years ago, 9to5 Seating decided to change it's manufacturing process by building a factory in Tennessee to make everything from its components to finished seating products. That was long before a reality television personality named Donald Trump had even decided to run for president, much less form a trade policy that would slap tariffs on Chinese parts and products.

Fast forward to the present day. Trump is president and his tariffs are taking a bite out of the office furniture industry. By some estimates the tariffs could cost the industry 4 percent of its sales. And one company — 9to5 Seating — is reaping the rewards of bringing back its manufacturing from China, avoiding many of the tariffs hurting the rest of the industry.

Dara Mir, 9to5 president, said having the new factory in Franklin, Tennessee, and its existing manufacturing plant in Hawthorne, California, makes for a huge competitive advantage, though the timing was certainly lucky.

“So, I always joke around and tell everyone Darius (his father and company founder) somehow had this crystal ball five years ago, when we opened up that factory out there, and knew that this day was coming,” Dana Mir said. “Back then, it just made good business sense for us to bring manufacturing back to the U.S. But the tariffs further solidify that the strategy that we took then was the right direction for our company to continue to grow on.”

The company is certainly not immune to the tariffs. It still owns and operates a plant in China, but its diversification has protected it from the worst of it.

The North American needs of 9to5 are far less on the Chinese factory today than they were five years ago, Dana Mir said, and it allows the company to satisfy and serve international customers directly from that facility as well those which would not otherwise be buying out of the North America facility. Customers in Australia and in greater Asia area are still purchasing out of the factory in China. “With the three factories that we have, we have good redundancy of supply to kind of have a good strategy for different types of markets,” Dara Mir said.

Company founder Darius Mir feels international trade has not been fair to the U.S., so something needed to be done. Still, he said, the way the administration is going about it without having the necessary infrastructure to take care of the eventualities is probably going to hurt the office furniture industry and eventually the consumers, or the end users.

Unless U.S. manufacturers can take advantage of developments in technology and look at the whole manufacturing process differently to become competitive, it is going to be a difficult time for the office furniture industry, according to Darius Mir. “This avenue is something that we ... started looking at about five years ago, and we did a very expensive study to find out what it would take to bring manufacturing back to the United States,” he said. “And as a result, the facility that we have in Tennessee, is now operational. We are actually seeing that we can manufacture certain types of components and certain types of finished product that can be at a higher quality than what is coming in from Asia, but also be very competitively priced.”

He believes the answer lies in investing in U.S. manufacturing with the latest and the greatest technology or technologically advanced equipment. That's something 9to5 has done at its Tennessee facility. “When we started thinking about this project five years ago, we did even consider that there would be a day that tariffs would help us, but things being as they are today, we as an enterprise … are in a very advantageous situation because of the tariffs,” Darius Mir said.

Investing in the U.S. has helped 9to5 Seating avoid those tariffs, which in turn helps the company keep its prices low while competitors sourcing from China will likely have to increase their prices.

Obviously, 9to5 Seating didn't have a crystal ball. Instead, Darius Mir said the company's incentive at the time was to bring manufacturing back to the U.S. “We felt an obligation as a manufacturer that if there is a way, we should be looking into it, and we should be making the investments in terms of time and resources and money,” he said. “So, our incentive at the time was, what do we need to do, to bring manufacturing back to the United States?”

The manufacturing landscape in China has been changing over the recent five to 10 years quite a bit, Darius Mir noted. That change in China gave 9to5 Seating pause. The management team noticed China was more inclined to promote high tech industries, and the office furniture industry is considered to be a low tech, Darius Mir said. China's inflation, cost of living and cost of doing business has increased substantially over the past few years. Because of the incentives China is offering to its regional workforce, farmers and so on, there is actually a shortage of labor in China, he said, and it's not easy to find the workers needed.

The company's management started thinking about the elements needed to do the onshoring successfully. The tariffs, at that time, were not really a consideration so there was no talk about them coming into play.

Because of 9to5's Tennessee and California locations, the company can manufacture more than 85 percent of all the components it needs in house and in the U.S. Most importantly, said Dara Mir, 9to5's global infrastructure allows it to be far more agile than it would have been otherwise.

“I think the key to success in … today's very dynamic market is that ability to be agile and quickly adjust to the rapidly changing needs of our customers,” he said. “The Tennessee factory allows us to do so, whether it be new product development (or) leveling our supply chain so that we don't have as many peaks and valleys in supply. Also it allows us to offer far greater variety and different variations of our products than we otherwise would've been limited to, dealing with a foreign or overseas manufacturing facility.”