What’s Killing Your Local
by Jim Richardson
We are in a time
of dramatic change. After over 40 years as a cottage industry, meaning lots of small board makers with
simple methods built around highly skilled craftsmen, surfboard manufacturing is globalizing. The same
forces that have transformed the steel, apparel, auto, and many other industries are now at work on us. It’s
difficult to say where those forces will take us. A lot depends on how customers and manufacturers respond.
A recent story on MSNBC, “US Surfboard Makers Thrive in
Choppy Waters” http://www.msnbc.msn.com/id/38472495/ns/business-us_business, suggests that at least some local board makers are thriving. Or so the title of the story says.
But the story itself is less positive. Basically, the facts are that local market share is shrinking,
and margins are thin and getting thinner. The source of the positive spin in the title seems to be the
wave of innovation that has occurred since Clark Foam closed in 2005. Will innovation save the local surfboard
makers? Or will the forces of globalization continue to take production to low-cost countries until we
look like the tennis racquet, snowboard, or any other sporting goods industry, with little or no local board making?
A lot depends on how we respond. Let me explain.
shifting of production to low-cost countries is a well-understood phenomenon. When labor costs are a significant
share of product cost, and the manufacturing technology is easy to transfer, the allure of low-wage countries is overwhelming.
Surfboard manufacturing has both—high labor content and simple technology. What is surprising
is that this didn’t happen sooner. The possibility of making boards in Asia or Mexico was available
decades ago, and companies surely knew of that option, but it didn’t happen. Market acceptance was
the reason. Surfing is an unusual sport. Surfers were used to getting hand-crafted,
often custom-made, boards from board makers they knew. Many surfers had a relationship with their shaper
and the board they made especially for you really did make surfing more fun. Also, board makers were continually
innovating and changing the product. Think of the changes between the heavy longboards of the mid 1960’s
to the lightweight thrusters of mid 1990’s. And there were lots of other innovations along the way.
So serious surfers wouldn’t even consider buying a mass produced board from a factory in China. How
could it possibly have the latest fine-tuned shape and glass job? How could it possibly be as much fun
to ride? And the serious surfers seem to influence everyone else to buy local as well.
So, what happened? What changed? Well, the simple answer is
market acceptance. A growing share of surfers will buy a mass produced board from Asia or Mexico, and be
satisfied. But a more complete answer is that a number of underlying changes are behind that change in
acceptance. One is the rapid growth of the sport. Surfing saw a huge growth spurt in
the late 1990’s through the mid 2000’s. Surfing grew rapidly in established locations like
the US and Australia but especially in new areas like the EU and Japan. These newcomers were not always
raised in and around surf culture and they were open to the idea of buying surfboards much like they bought any other piece
of sports equipment. Made in China did not turn them off. Another change was the resurgence
of longboarding and the large number of aging surfers taking it up. When high quality molded versions of
longboards from the best old-time longboard shapers became available, these serious surfers were open to it. It
didn’t matter much that the board was made in Thailand. How else could you get a classic Robert August
or Yater shape? You weren’t worried about getting the latest innovative longboard design.
And the second part of that change was the high quality, and superior durability, of the composite construction used
on these boards. It was all good. For the first time, lots of serious surfers were buying
molded boards from Asia. Another change, or this time lack of change, was also at work. Between
the mid 1990’s and the mid 2000’s, the design of the high performance shortboard did not change much.
And the glassing did not change at all. Innovations were small refinements in the template, rails,
or rocker. In fact, CNC shaping machines emerged at this time, and one of the selling points was consistency.
The shaper could now reproduce that board you liked last Fall or last year. At the same time, the
CNC shaping machine enabled many more people to get a board “shaped” by one of the world’s top shapers.
This further disconnected surfers from the local shapers. And if designs aren’t changing much,
why not buy one molded in Asia, especially if it’s more durable. Or why not buy one CNC cut and glassed
in Asia if it’s cheaper. So now many serious surfers are buying shortboards made in Asia.
Newcomers, longboarding, composite boards, CNC shaping machines, and stable designs
have all played a part in the acceptance of mass produced boards from Asia. So, where are we today?
The MSNBC article says about 35% of boards are imports. But it seems like more. And
the share is growing. Thin margins are another depressing factor. Cheap imports haven’t
helped by putting downward pressure on prices. But margins have always been thin in the surfboard business
because of strong competition including the availability of low-priced local boards made by small backyard builders.
Backyard prices tend to put a ceiling on all surfboard prices. The quality of the backyard boards
is often as good as any (here in Hawaii, many of the top board makers are in the backyard), and they are able to price low
because of lower costs! There really are no economies of scale in surfboard making. In
fact, backyard builders often have lower costs than the bigger guys. Materials are readily available and
only slightly more expensive in small volumes. Labor is more than half the cost, and backyard builders
are often willing to work for less, it may be only a hobby or a side job. A big factor is that backyard
builders usually avoid the overhead of the bigger shops, little or no rent, no need to build or operate to codes and regulations,
no insurance, and so on.
The already thin margins
are getting thinner because of increasing material costs as well as price pressure from imports. Most of
the surfboard is made of petroleum based plastics that have risen in cost with the price of oil. And all
of the materials, including the glass, are strongly impacted by rising energy prices to make and transport them.
On top of that, we’re in a major recession and surfboard sales are down. Lots of small board
builders are working harder just to break even and the only money they make is their labor in the board. Many
are wondering if the extra work to run the business is worth it.
can keep local board makers in the game? The MSNBC article talks about innovation. This
has worked in other industries. Innovation has sometimes saved local manufacturers from the shift of production
to low-cost countries. The reason is that customers still have a reason to buy from the local manufacturer.
They might have to pay more, but they get something unique and different that makes it worth it. Customization
is also part of the story. The local manufacturer can customize in a way not possible in a factory in Asia.
And some customers will pay for customization.
easy for surfboard makers. That’s how we have always done it. We are set up to
do it. Certainly a major reason for continued business is our willingness and ability to make custom boards.
Many serious surfers have always had that and want to keep it and will pay more to get it. But many
Innovation is harder. Again,
the MSNBC article talks about a wave of innovation following the demise of Clark Foam. It’s true,
board makers scrambling for foam were open to trying alternative constructions, and some of those were innovative.
But most board makers have gone back to the traditional PU foam polyester resin boards. Only a few
have continued to innovate. And high performance shortboards still are pretty stable in their designs.
Molded shortboards from Asia continue to gain share.
these board makers thinking? Perhaps that their quality is superior to the imports, but that is questionable
and the trend is against them. Perhaps that custom boards are their niche. But that
has always been a smaller piece of the market. The stock board in the retail store is what has kept most
board makers going. And that business is going to the molded boards from Asia or the cheaper hand-made
boards from Asia.
Can innovation strengthen the local board makers?
In principle, yes. In practice, there are some barriers and limitations. But
overcoming these depends on the actions of the surfboard makers and the response of the customers. More
on that in part 2—“Can Innovation Save Your Local Surfboard Maker.”
Jim Richardson has been making surfboards on the North
Shore for over 35 years. He shaped for Dick Brewer and Local Motion in the 1970’s in a backyard shop
across from Sunset Beach. He is founder and president of Surflight Hawaii, and professor of Management
at the University of Hawaii Shidler College of Business where he teaches entrepreneurship and business strategy.