In June last year, his photograph was all over the media, old and new – peeping out the window of his factory near Beijing. Chip Starnes, co-founder of Specialty Medical Supplies, a medical equipment manufacturer, was held hostage for nearly a week by his Chinese workers who demanded severance packages. Starnes was moving part of the company’s production to India.
Starnes did walk free finally but had to close down the entire Chinese entity. He has now co-founded Phoenix Healthcare Solutions that has set up a manufacturing plant in Mumbai. The company makes medical wet products such as prep pads as well as lancets among other products.
Starnes, currently in India, spoke to BUSINESS TODAY on the China crisis and why he moved production to India. Edited excerpts:
Q. Why did you want to shift manufacturing to Mumbai from Beijing?
A. I started Specialty Medical Supplies in 1999 and moved to China in 2002. Two-three years ago, we started to see that labour was starting to dry up in the Beijing area. Two, we saw an unbelievable increase in wages that had gone up five-six times since the early 2000s. The other big one was the dollar versus the Chinese RMB. When we first went in, it was 8.26 RMB to 1 US dollar. When we left China, it was 6.1 RMB to a dollar. When all these are coupled together, looking five years down the road, it would be really difficult (to continue in China).
Q. Why did you pick India as your manufacturing base?
A. We looked at various areas. We looked at India, Vietnam, Laos, and Mexico. We narrowed it down between Vietnam and India and ended up picking India. There is not much difference in costs between Vietnam and India if you look at labour rates. But there is a difference in population. So growth was much more attractive on the India side. Much of the raw material we use is also produced inside India. Vietnam is dependent upon the imports for everything. There is also access to a very educated population in India.
Q. How did Specialty Medical Supplies become Phoenix Healthcare Solutions?
A. Phoenix Healthcare Solutions is a brand new entity started from scratch. We were forced to abandon and walk away from Specialty Medical Supplies. It does not exist any longer. We were forced to walk away because of the issues that played inside China. We re-raised capital and bought new equipment for the new company.
Q. According to reports, you only wanted to shift the plastics division to India …
A. Everything is shut down in China. We wanted to move the plastics division first because we couldn’t adequately staff it. We were moving people over to the Wet division. About 30 people were left in the Plastics division that we had to let go. We put together severance packages. But people we had previously moved six months ago over to the Wet side got upset. They wanted to quit too and get the same severance packages. And that’s where the big issue came in – we can’t give severance to employees who still have jobs. That is where the standoff took place.
Q. So the factory in Mumbai is up and running?
A. Yes. It is an 80,000 plus square feet facility and we have 150 employees.
Q. What has been your experience like in India?
A. Things take much longer in India. Clearing items through customs, getting goods shipped out, everything takes three to four times longer and there is much more paperwork involved compared to what we experience in China and the US. The other difficulties we run into are external factors. Vendors are extremely poor on execution. The ability to execute and be on schedule is a big issue here.