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Only a two-hour drive or 90-minute ferry ride from Hong Kong, Guangzhou is a city of 3.8 million people and about 100 golf manufacturers, if you count the makers of accessories such as bags and shoes. But only seven foundries in the city work with titanium, which requires a significant investment in specialized equipment.
One of these foundries is Maxwin Golf. Its owner, David Chiang, is Taiwanese.
He moved to Guangzhou in 1989, becoming the second golf manufacturer in the city. Between 1991 and 1997, he made good money. Since then, business has been spotty. Many deep-pocketed, publicly traded companies from Taiwan have moved to this part of China, and competition has been fierce. Fortunately, Chiang said, he started a karaoke club on the side, where with 60 girls, profits are more reliable.
Chiang, wearing a counterfeit Versace jacket with Adidas buttons, conducted a tour of his factory for Liou but said the third floor of his plant was, unfortunately, off-limits. Something that no one was allowed to see was going on there. "Any company that makes things in China will experience theft," Chiang said. "Employees make so little money, they're always going to steal and sell molds on the open market. In Guangzhou alone there are three factories that do nothing but make counterfeits and copies. We have our employees line up after work, and we search them. We have metal detectors at both of our entrances and security cameras at all the workstations. If they're caught stealing, they're fired, and I'll call the police. But it won't ever stop. The copy and counterfeit market is too large."
Callaway was so concerned about security at the Fu Sheng company, its main manufacturer in China, that it sent Herrington there three times in 2002. He offered a bonus equivalent to a year's salary to anyone who turned in a co-worker for theft. He also made sure that Callaway clubs were manufactured in their own building, separate from the building that made Nike clubs. Despite these and other safeguards, wax molds of the newest, hottest clubs still disappear. "We cannot guarantee 100% against theft," said Fu Sheng's president, P.Z. Lin.
When Callaway learned that a foundry in Guangzhou, Shunde Jackson Precision Industries Corp., was wrongly representing itself to customers as an authorized Callaway manufacturer, Herrington began an investigation. It's a frustrating endeavor. "We're running a big investigation there, and it's pretty unsatisfying," Herrington says. "I can spend $100,000, invest three to six months hiring investigators in China to follow trucks and gather evidence of wrongdoing. We file an affidavit with the Chinese anticounterfeiting authorities and stage a raid. But the counterfeiters are back in business within a week. The fines and forfeitures are minimal. They're happy to pay the fines as a cost of doing business."
So, for the first time in a decade, there are rumors that some U.S. companies are rethinking their involvement in China. Callaway is believed by some of its competitors to be considering a move back to Mexico, a rumor that Callaway's senior vice president of global press and public relations, Larry Dorman, doesn't dismiss out of hand. "We continue to explore relationships with other vendors, but that decision will be made on the basis of quality and price, not security," he says. "Wherever your vendors are located, there are issues with intellectual-property theft. Proximity does not mean better security."
Others have simply thrown up their hands. "When it finally dawned on me what the culture was over there," says Barney Adams, whose company will continue to make its clubs in China, "I realized we were never going to win this war. Most golf companies are losing their asses right now. One of the fallacies about golf is that we're an industry. We're so busy trying to cut one another's throats, we don't cooperate. Callaway wouldn't dream of working with TaylorMade. If we pooled our knowledge and resources, we'd have a lot better chance of fighting [counterfeiters]."
The final stop on Jethro Liou's three-day tour of his vendors' facilities was Deson Golf Sport Co., Ltd., in Shunde, a suburb of Guangzhou. This factory, too, works with titanium. It had 13 tons of it stacked in a locked storage room. One hundred sixty people work at the plant, which is clean, modern and well lit, churning out 40,000 heads a month for Dunlop, Knight, Pinseeker, Pro Select, Ram and other companies. About 500 models of club heads are on display, there for a client's inspection.
Liou stopped during the factory tour and lingered over one club head. It was the mold for something called a Power 420. The model that Liou sells to Kmart is called the Super 420, which is also made at the Deson factory. The lettering, size and scoring on both club faces were identical. Liou called over the president of Deson, a man named Su Hiao, and in a moment rich with irony, complained that the Power 420 appeared to be a direct knockoff of, and confusingly similar to, the Super 420 (which is a knockoff of TaylorMade's 300 Series drivers). Liou had planned to order as many as 30,000 Super 420s every two months to keep Kmart supplied. Why would Hiao risk losing that?
Smoothly, with lan, Hiao dismissed the Power 420 as a one-of-a-kind sample. He couldn't remember why it had been made or what it was doing there. He'd be sure to find out, after he finished with the tour.
Asked if he thought the golf industry in China would ever consolidate, Hiao smiled and shook his head. "If one factory is taken over, another one will be born," he said. "Everyone in China wants to work for himself, to be an entrepreneur. Workers save their money, pool their resources, buy a polishing machine, and all of a sudden you have a new factory." In the past four years two of Hiao's managers have left to start finishing factories. Could his factory, he was asked, put a logoany logoon a golf club? Say, a Sports Illustrated logo? "Absolutely," he replied. "We can do almost anything here."