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This article by Kathleen McGinn Spring was prepared for the November 6, 2002 edition of U.S. 1 Newspaper. All rights reserved.

This Business’s Fortune Is Made in China

The architect’s drawing of Don McLane’s new factory

shows only convertibles, top down, in the parking lot. Do a lot of

his workers drive convertibles? "No, no," he laughs. "They

ride bicycles." In fact, he thinks he may be the only factory

owner to have not only one bicycle mechanic, but five, on site every

day. "They do repairs, oil chains, inflate tubes," he says.

These services are for the employees who commute. Six hundred of their

co-workers don’t even need bikes. They live on-site.

McLane’s new factory, and another nearby, are in Qingdoa, China. There

McLane’s company, Drianna China, which recently expanded its headquarters

at 11 Princess Road in Lawrenceville, makes and packages costume

jewelry, which hangs from displays in mass merchandise stores like

WalMart, Target, and the Dollar Tree. Annual sales are about $7 million.

McLane’s journey from York, Pennsylvania, to northern China is a story

of hardship and serendipity in which a beloved father, a childhood

sweetheart, a limo passenger, and a young Chinese named Mustang figure

large.

"I’ve been working since I was 12," says McLane, 36. His father,

Donald McLane Sr., was an electrician. "He did a lot of moonlighting,"

says McLane. "When he worked in the evening, I went along with

him." The time was special for him, he says, because it gave him

a chance for one-on-one time with his father. The time is even more

precious in retrospect, because his father died three years later,

when McLane was 15.

His mother, Sandy, now remarried and living in Florida, was a minimum-wage

factory worker when her husband died. There were two other children,

one much younger, and McLane and his sister, Teresa Fox, now his

director of purchasing, had to start earning money. Teresa went to

work in a hospital, and, right after he graduated from high school,

McLane got a job in a sheet metal factory.

He might have stayed in York, but his fiance, whom he started dating

when both were 10th graders, became a flight attendant with TWA, and

moved to northern New Jersey. McLane followed, working with her brother

in a fledgling limousine company.

One day a passenger struck up a conversation with him, and offered

him a job at his company, Leo and Peter Bach, a jewelry importer with

offices on Fifth Avenue. McLane said no at first, but after six months,

the family limo business did not look so good to him, and he gave

Peter Bach a call.

In Bach he had found a mentor, and Bach, in turn, had found a born

salesman. Sent out on his first sales call, which he knew was a test,

McLane says he came back with a $230,000 order. "They were dumbfounded,"

he says of his new employers. While he was naturally good at bringing

in sales, he knew he had a lot to learn about the jewelry import business.

"In business," he says, "you can go with your own mind,

as opposed to someone with 20, 30 years experience teaching you. I

was taught."

McLane soaked up all Bach had to teach about jewelry,

importing, and business in general — and then went out and taught

himself a whole lot more. The pivotal learning experience was his

first trip to Asia. "Before that I hated what I was doing,"

he says. "I was good at it, but I hated it because I had no idea

what I was selling. I knew nothing about jewelry, about how it was

made. All I knew was pierced earrings or clip ons."

Then he began traveling to Asia and he saw how the jewelry he was

selling was made. "My eyes were so wide open," he recalls.

"I went to Korea, Taiwan, Hong Kong, the Philippines, and Thailand."

Traveling among the countries, he visited Asia twice a year, for six

weeks at a clip. He showed manufacturers what his bosses wanted made,

then picked up the samples they produced, and hit the road again to

sell them.

Any business linked to retail is at the mercy of as many out-of-the-blue

forces as is farming. Peter and Leo Bach faltered in 1991 when a big

customer went under, the stock market swooned, and a sudden, deep

recession scared customers out of stores.

McLane left the company, and, having learned his lessons well, immediately

opened Drianna. While the name is the same as that of his current

business, that first Drianna was a different company.

"I decided to be an importer," recounts McLane. "I went

together with a Taiwanese silent partner. He fed me product, and I

brought it to New York." He had 38 employees selling jewelry directly

to retailers. Business was good, and then, in a spiral of consolidation

and collapse, department stores and specialty stores alike began dropping

like so many pearls from a severed strand.

"I lost $1.2 million in Chapter 11s," he says of the effect

of bankruptcy after bankruptcy among his core customers. He had the

orders, but was unable to collect what was due him. "I’m a little

guy," he says. "I could recover maybe 10 cents on the dollar."

His customers’ collapse came at a bad time. "I’ll never forget

it," says McLane. "My daughter was going to be born. She was

due in three days. I dropped everything and started working at home."

Home is in Lawrenceville, where McLane and his wife, Jodi, are raising

four children, age 2 to 13. It is where he reincarnated Drianna as

Drianna China with a different — and much grander — vision.

He would not merely import, but would manufacture and package jewelry.

And he would do it in China. "I had already visited China,"

he says, "and I saw the future was there."

A Korean friend, who manufacturers leather bomber jackets in China,

introduced McLane to the country. Rising from a couch in his office,

McLane, tall and thin, and wearing a bright blue Gore-Tex jacket embroidered

with an American flag, strides over to a world map. He points to the

western shore of South Korea, and then traces the space across the

Yellow Sea to his factories in Qingdao. "It’s just an hour’s flight

from Seoul," he says.

Thoroughly familiar with manufacturing throughout Asia, McLane says

he chose China for two reasons: low labor costs and a strong work

ethic. "If someone makes a mistake," he says of his Chinese

employees, "you show him how to do it the right way, and he never

makes the mistake again. The work ethic is unbelievable." He thinks

the temperate, four-season climate in Qingdao, which plays host to

the outdoor events at the 2008 summer Olympics, is a plus too. Workers

in more tropical climates, he observes, tend to have a laissez-faire

attitude, unlike the energy he sees in his Chinese employees.

China has one more advantage over other off-shore manufacturing centers.

It boasts a substantial number of ambitious, college-educated workers.

Drianna draws its managers from among these educated Chinese.

Having weighed these factors, and deciding Qingdao was the place for

his business, McLane went there, staying for 18 months and traveling

home to New Jersey only three times. "You have to have a supportive

wife," he says of the family commitment necessary to make an entrepreneurial

venture like his fly. But while Jodi McLane has been uncommonly encouraging,

he says, even she has her limits. McLane lived in a factory with his

workers during his extended stay in China. "We had no hot water,"

he says. "When I came home, my wife made me throw all my clothes

away."

At first, even though he had spent substantial time in Asia, doing

business in China was frustrating. On one occasion, a customer sent

him a shipment from the United States and it was diverted to Beijing,

where it sat in a warehouse for weeks. "I just couldn’t get it,"

McLane says. Looking for help, he went to a state-owned factory, and

explained his problem.

"Up pops Mustang," he recounts. One Mustang Liu, a 21-year-old

fresh from college, immediately said "`I understand. I’ll help

you." The young man was so clear, so intelligent. He easily untangled

the problem, and right then and there, McLane says he told him: "Follow

me like a brother, and we’ll make money."

Mustang accepted the offer, and has been McLane’s general manager

ever since, managing all of his operations in China. "I couldn’t

do it without him," says McLane.

What McLane is doing, for the most part, though he is now branching

into other business models, is creating a direct bridge from Qingdao

to Providence, Rhode Island.

Providence, he explains, is the costume jewelry capital of the United

States. Once turning out jewelry in its factories, an activity that

still goes on to some extent, the city has evolved into a jewelry

import hub. Providence importers bring in items from Asia, package

them into displays, and set up the displays in K-Marts, Targets, drug

stores, and other mass merchandising venues. The stores do not buy

the merchandise outright, but rather they allow the importers to set

up their displays and then take a percentage of sales.

McLane did not want to compete with these importers,

but rather he wanted to win them as customers by cutting out a couple

of expensive steps for them. He would manufacture the jewelry in his

own factories, mount and wrap it in clear plastic on backing cards,

and arrange it in displays. Then, using a sophisticated system, would

ship the displays in color-coded cartons directly to their destinations.

It used to be, he says, that all of the jewelry would come to Providence,

be packaged into displays, and then be re-packaged and shipped around

the country. Now items bound, for example, to each of WalMart’s 32

distributions centers go directly there.

"Could I sell directly to WalMart?" McLane asks, obviously

rhetorically. "Sure, but why should I. That’s not what I want

to do." That said, however, he has started to do some direct selling

— to dollar stores. With no middleman, he is able to get his merchandise

to a price point where it fits into the stores’ strict nothing-more-than-a-dollar

sales parameters.

"This is the future," he says proudly, showing off a tall,

Christmas tree-shaped display. "Jewelry is not something anyone

sets out to buy," he declares. Or at least not something his customers’

target audience sets out to buy. These are not individuals on a quest

for the perfect anniversary gift, but rather they are flu victims

headed for the prescription counter in the back of the drug store

or teenagers waiting in line to pay for blue jeans. "You have

three seconds to catch their attention," says McLane. In this

arena, the display is everything.

The Christmas-tree display he put together is for the Dollar Tree

chain. Holding an amazing 2,000 pieces of jewelry — five packs

of pierced earrings, pendants, bracelets — it is so wide that

he could not squeeze it into Dollar Tree’s conference room, where

company decision-makers waited for his presentation. Instead, he pitched

his idea in the company atrium. Dollar Tree liked it, and put in a

test order for 150 of its stores. Half of the jewelry sold in just

three days, says McLane.

He hadn’t planned to sell directly to retailers, but the September

11 attacks shook him up. He didn’t know where business was heading,

and decided to branch out.

As luck, retail-style, would have it, his move into direct-to-retail

did not come at an ideal time. His test-trees a big hit, Dollar Tree

put in a big Christmas order — and order which sat, gently swaying

with the tides, just off the port of Los Angeles throughout the longshoremen’s

recent strike. The delay cost him a large re-order — 600,000 pieces,

and his merchandise, now starting to move, already has missed out

on some of the prime pre-Christmas selling season.

Still, the deep discounters could be an excellent source of business

for him in the future. But he knows he has to tread carefully. Some

of the guys in Providence, his customers, who sell his wares to slightly

higher-priced retailers, are not thrilled to see him selling jewelry

at such a low price.

The reason that a five-pack of Drianna’s earrings can go for $1 at

a Dollar Tree — or for two or three times that amount at a WalMart

— is the low cost of manufacturing in China. McLane draws about

half of his workers from the cities in which his factories are located,

and the rest stream down from farming villages.

McLane says he pays his 50 or so managers about $300 to $500 a month.

His 2,000 factory workers make about $120, he says, "including

food." Work days stretch from 7:30 a.m. to 6 p.m. with an hour-and-a-half

off for lunch. On some weekends, the company takes workers on "retreats"

to nearby mountains. For skilled labor, McLane depends upon workers

in the city. The bulk of his workers, however, range in age from 20

to 24, and he counts on keeping them for only a year.

"At the Chinese New Year, they go home to their villages,"

he says. "You never know if they are coming back. Sometimes they

change their minds."

Traditional Asian manufacturing hubs are expensive by comparison.

In South Korea, for example, a factory worker might be paid $7,200

a year for the same work a Chinese will do for $1,440.

There are approximately 6,000 toy factories in China; Nike, Reebok,

and Adidas all find it profitable to make sneakers there; and, with

China’s entry into the World Trade Organization a year ago, manufacturers

of everything from electronics to engines are moving operations from

Taiwan, Japan, and the Philippines to China to take advantage of its

extraordinarily low labor costs.

The bulk of Chinese manufacturing workers are young, and many are

from traditionally agricultural areas far from factories. Few make

enough to afford housing, and most factory owners include dormitories

on-site.

The architectural drawing of McLane’s new factory shows a dormitory

building right behind the main manufacturing building. Four stories

tall, it houses men and women on alternating floors. Brand new, with

the look of a college dorm, the building’s rooms are about 150 square

feet square, and each houses eight workers, who sleep in bunks. "We

make the bed frames, the mattresses, everything," says McLane.

"Anything to save money."

Next to the dormitory building is a smaller structure that houses

the company dining room and recreation center, where workers can watch

television or play ping pong.

Asked about whether the fact that his mother was a minimum wage factory

worker affects his policies on pay or conditions for his employees,

McLane does not indicate that it does especially. He says that he

treats his workers well, and that they probably do better working

for him than for some other factory owners. (This opinion is shared

by Christine Casati of China Human Resources Group. See page 46).

The bottom line, the one on which he is focused, does not center on

the lives of his employees, but rather on the demands of American

consumers. "They like going to WalMart and leaving with a whole

bag full of stuff for $40," he says. This feat is only possible

because of the labor of workers toiling far from American shores.

In turn, at least a handful of those workers have a shot at a capitalist-style

rise through the ranks. At least three workers so far, says McLane,

have learned some English and have moved into supervisory positions.

McLane, in turn, has learned some Chinese. "I understand about

40 to 50 percent of what I hear," he says. He can speak enough

to carry on a simple conversation, and if the subject is his business,

his proficiency goes up even more. He has considered moving to China,

and says he would do so if his children were not so well rooted in

their schools.

Love for his neighborhood definitely is not holding him back. He was

happily running Drianna China from his home until just over a year

ago, when his neighbors began waging a campaign to get him out. "I

had expanded my house from 3,500 square feet to 8,000 square feet,"

he says. "They thought I was going to bring more employees in,

but I have four children now. They each have a bedroom." He had

only three employees working from the house, he says, and that included

his mother-in-law. Lawrenceville’s ordinance, however, permits

only one non-resident employee.

He is bitter about what he sees as pettiness by his neighbors, and

now has little to do with them. Still, he says he is happy to have

moved to an office building. In his new digs, he has plenty of room

for his staff — now up to 20 employees — and for his displays

and samples. Jewelry is designed in these offices under the direction

of Ken Stracuzzi, a goldsmith McLane met by chance. He had accompanied

his wife to a trade show, where she was looking for furniture. Wandering

off, he came upon Stracuzzi’s booth. Soon thereafter, Stracuzzi was

designing for Drianna.

"Jewelry goes in seven-year cycles," McLane says of one facet

of design. "See this Indian look," he says, pointing to the

cover of an issue of Accessories magazine that sits on the glass-topped

table in front of his couch. This is a hot new look, and to get in

on it, a designer can just look back to the last time it was in vogue

— probably seven years ago — and see what materials and shapes

were used.

In addition to designing jewelry, staff members at Drianna’s American

office are charged with the all-important design of displays. Some,

like the maroon-colored rectangle holding row upon row of stylized

crosses, are simple. Others, like the Christmas tree or like a new,

soaring, angel-motif display, are more complicated. Designers draw

up "story boards" to tie together all the elements .

McLane conveys the designs to his factories in person. "You can’t

do this by E-mail," he says, pointing to graphs and drawings of

the angel display. He travels to China once a month, and stays seven

to ten days each time. He also conducts video conferences about twice

a week. He uses a 42-inch screen, but still, he says, in-person is

better.

In-person is how McLane gained his education, first on the subjects

of selling and of jewelry, and then on importing and distribution.

Finally, by immersing himself in the blooming commercial life of China,

he learned about how to do business in that country, which, until

so recently, was wholly off-limits to foreigners.

Doing business in China is different. For one thing, McLane says,

"Americans like to put all of their cards on the table." Their

Chinese counterparts prefer a more gradual get-acquainted process.

That process can involve, among other things, a lot of socializing.

And negotiations there will be. "In China," says McLane, "absolutely

everything is open to negotiation."

Having worked with Chinese bankers, architects, builders, officials,

lawyers, and employees, McLane is now ready to launch the next phase

of his business.

"I want to help others to get to China," says McLane. The

self-educated man feels his knowledge was hard won, and is ready to

reap the rewards. "I gave a lot," he says. "I didn’t get

to see my kids grow up as much as I should have."

A new consulting business, which he plans to launch in 2003, will

bring McLane full circle. An eager and grateful student, soaking up

all his mentor, Peter Bach, the jewelry importer, had to teach, he

is now ready to teach others how to profit from doing business with

one of the globe’s largest, and most untapped potential trade partners.

Foreigners still cannot own land in China, but recently a local general

dedicated three square miles of farmland to McLane for any use he

desires. "It was a small thing," he says. "The way the

Chinese think of farmland is `Hey, we’ve got a lot of that!’"

But that is not how he is thinking of China and of its potential.

Says McLane: "I’m thinking 10 years down the line."

Drianna China USA, 11 Princess Road, Suite 11-C,

Lawrenceville 08648. Don McLane, founder. 609-896-2977; fax, 609-896-2198.

Home page: www.driannachina.com


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