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Earl Metcalf (Brent Linton for The Globe and Mail)
Earl Metcalf (Brent Linton for The Globe and Mail)

Manufacturing

China's loss is Thunder Bay's gain Add to ...

Earl Metcalf makes sticks, billions of them a year - sticks for ice cream bars, corn dogs and frozen snacks, and paddles for stirring paint.

For the past nine years, he has been producing his wooden sticks in a Chinese plant, and shipping them by the container load to North America.

That is about to end. Mr. Metcalf is picking up his stick production and moving it to a new factory on the outskirts of Thunder Bay.

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"It's got too expensive in China," says Mr. Metcalf, general manager and part-owner of Global Sticks Inc., which he estimates holds 35 to 40 per cent of the North American market for ice cream sticks and spoons, and related small, wooden objects. Global Sticks, based in Vancouver, is an amalgamation of several U.S. and Canadian companies.

On the surface, it seems absurd to relocate low-margin manufacturing to Canada from China, where the surge of the past decade was built on some of the lowest wage rates in the world. But Mr. Metcalf says the economics of China are rapidly changing.

He sees his Chinese plant as a casualty of the country's move to conserve natural resources by increasing prices of wood and other raw materials. Combined with sales-tax changes, higher fuel costs and the slight rise in the yuan over the past five years, Chinese operations have become much less competitive.

"It's reduced our margin from about 20 per cent down to less than 10 per cent," he says. Add the costs of long-distance transportation, and, he says, "it's just not worth it."

Mr. Metcalf may be leading the way out of China, as Western companies respond to dramatic cost swings and evolving economic policies by the Asian superpower.

If manufacturers are producing goods for a North American market, "they have to look at [Chinese operations]one more time and ask 'Does that make sense?' " says Luke Chan, a business economics professor at McMaster University in Hamilton.

It's just part of the global game for Mr. Metcalf, a hearty, ruddy-faced native of Tennessee who, at 62, has spent the past 30 years as stick-maker to the world. "We've made lots of children and adults happy. We've given them a handle for their ice cream," says Mr. Metcalf, who lives in Wisconsin but spends his time travelling the world.

After building stick plants in South America, Africa and Europe, Mr. Metcalf and his partners, which include Canadian, U.S. and Danish interests, settled a decade ago in the port city of Dalian in northeastern China, drawing on supplies of white birch from the interior.

Until recently, the low cost of labour and proximity of materials overcame the long distances to North America. But then the Chinese added an export duty of 10 per cent on wood products. They also lifted the price of birch wood to $165 (U.S.) a cubic metre from $45, and took away Mr. Metcalf's ability to draw back value-added tax paid on his exports.

He sympathizes with the spirit of the wood-conservation efforts, but started to look for alternative plant sites in British Columbia, Siberia, Serbia and Ukraine. On the Internet, he learned a place called Thunder Bay boasted an abundant supply of white birch.

"So where the hell is Thunder Bay?" he wondered but, two weeks later, he was in the Northern Ontario city talking to Steve Demmings, chief executive officer of the local economic development commission.

Mr. Demmings was fascinated with Mr. Metcalf's counter-intuitive proposal. Ontario has been hit by factory closings spurred by Chinese competition, he says, "and here was that story in reverse." Another selling point was the potential for value-added wood processing in a region savaged by forest-industry closings.

There followed negotiations over plant sites, the securing of loans and grants from the Ontario government, and nailing down a lender, a local credit union. After two years of talking and building, Global Sticks hopes to start production in late June.

The new plant will ultimately employ about 80 to 100 people, and may turn out as many as five billion sticks a year. The work force is much smaller than in Dalian, Mr. Metcalf says, but the Ontario plant has advanced woodworking equipment from a shuttered factory in Wisconsin. He plans to phase out the Dalian plant over the next year or so.

The Thunder Bay labourers will make $13 to $15 (Canadian) an hour, rising to $22 for skilled people, much more than in China, where wages and benefits add up to $200 (U.S.) per worker a month. Even that is up from $55 to $60 eight years ago, Mr. Metcalf says.

If the yuan continues to rise as China responds to U.S. pressure, the Chinese advantage could erode, allowing even more jobs to migrate to other regions, or back to North America, says Prof. Chan, associate vice-president of international affairs at McMaster.

Also, the Chinese have been willing to give generous tax concessions to Western companies. As some of these concessions end, and if there is no prospect of renegotiation, companies may have no choice but to leave, Prof. Chan says.

Meanwhile, Mr. Metcalf may have another move to make. One peculiarity of the stick market is that Europeans like their ice cream on a beech-wood stick, while North Americans prefer birch. He doesn't know why - it's tradition, he says.

He is still sending Scandinavian beech wood to China to be processed into sticks to be shipped back to Europe. Eventually, he hopes to serve this market from Thunder Bay, using southern Ontario and northern New York beech.

But before he does, he wants to get his birch-stick facility up and running. "We have to chew and swallow this one first."

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