Putting a New Face on Trade

This has been a dreadful year for most exporters to Asia, but John Dawoodjee is a notable exception. He has had a breakthrough year there, as orders and calls from South Korea, Japan and China have poured into his West Los Angeles company, National Advanced Endoscopy Devices.

“It has not been a factor at all,” he said of Asia’s economic crisis.

Actually, the financial woes abroad have probably helped Dawoodjee, because his company deals in not just any endoscopic devices, but largely secondhand ones. By repairing and refurbishing older endoscopes, which help doctors view the inside of the human body, Dawoodjee sells them for as little as a third of the cost of new ones. And bargains like that have become even more attractive lately to customers overseas who have lost much of their buying power.

“Until this year, I didn’t do much in Asia,” said Dawoodjee, who started the business in 1985. Earlier this month, his crew of 29 packed a big shipment to South Korea, his sixth to that country this year. “We’re going to have a lot of growth,” he said.

Other exporters of used goods--whether medical devices, computers or exercise equipment--are saying much the same thing. The latest government statistics indicate that California’s exports of secondhand goods, which are in the hundreds of millions of dollars, have increased sharply this year, even though exports overall have dipped because of lower demand from Asia.

In some cases, Asian customers appear to be substituting used goods for new ones. Meanwhile, government officials say the North American Free Trade Agreement has expanded the market in Latin America, long a major destination for secondhand goods from the U.S.

But the increase in demand for used goods has also heightened concerns. Some countries currently restrict imports of certain secondhand merchandise, including medical equipment, because governments have received complaints about products that were inoperable or came without instruction manuals, parts and other support that consumers in the United States normally receive. Buyers of used equipment overseas often don’t receive warranties and have little recourse if they don’t get what they were promised.

Although U.S. trade officials say there’s less bad equipment being shipped and better servicing today than in the past, many people say the problems persist.

“There’s tremendous demand for U.S. used medical equipment, but there are enormous problems,” said Frank Tuft, a Compton exporter of refurbished medical supplies who is trying to develop, through the Internet, a network of certified providers of used medical goods.

The Internet, in fact, is likely to speed the movement toward a more open exchange of all kinds of used goods worldwide.

Chris Newberry, owner of Export Computer Exchange, has been shipping used personal computers and peripherals for four years. He says he gets most of his orders via his company’s Web site.

“It’s a lot of work finding the stuff,” said Newberry, who scrounges for used PCs by poring over newspaper ads and visiting auctions. He resells some of the older 486 machines for as little as $38 apiece. Buyers foot the shipping cost and must pay for the goods in advance.

“We guarantee it works but don’t give any extended warranty. You really can’t with used stuff,” Newberry said, although he does cover the cost if the product breaks during shipment.

“It’s not a super-great business,” he added. But Newberry said of his home-based business, which is in southern Utah: “It pays the bills.”

No one knows for sure all the kinds or value of used goods being exported. The official data indicate that California companies shipped $300 million worth of secondhand goods from January to September, a tiny fraction of the $73 billion of the state’s total exports during that period. But trade officials say the $300-million figure tells only part of the story, because shipments of used merchandise is often lumped into the same category as new products.

Exports of secondhand goods are likely to grow faster than most other categories, since new technology and competition have shortened the life cycle of many products. That has created a burgeoning supply of functional equipment that seems obsolete in this country but is prized by many outside the United States.

“People love used American cars,” said Gladys Moreau, director of the Export Small Business Development Center in El Segundo. She says her center has worked with firms also exporting copy machines, refrigerators and golf carts.

David Shaw, president of Fitness Plus, recently walked through a health club in Costa Mesa, eyeing a dozen older Tectrix stair climbers. Shaw figures the gym will probably sell half of them next year to make room for more popular treadmills and a newer generation of exercise bikes with displays that measure heart rates. That’s where he comes in.

Shaw may buy the stair climbers for $550 each from the club. Then he’ll take them to his 7,500-square-foot warehouse in Costa Mesa, where his factory-trained workers will repaint them, put on new decals, upgrade electronics and replace parts such as chains and belts. When done, Shaw will be able to resell the stair climbers for $1,350 apiece. Such equipment new costs $2,500.

“There’s a lot of used equipment in the U.S. market,” he said. This year Shaw expects to gross about $100,000 in overseas sales of refurbished equipment--a fraction of his overall revenue. But he recently hired a full-time sales rep to focus on exports, mainly in Europe but also Asia, where Western-style gyms are starting to open.

Shaw didn’t start out as a trader of used equipment. He went into business more than 10 years ago by servicing and maintaining equipment at health clubs. As he went around dozens of facilities, he often picked up old equipment and started refurbishing it. He got his first export order five years ago, when a fitness center in the Middle East saw one of Shaw’s ads in a trade journal.

“I see a lot of untapped markets as far as exporting globally,” he said.

Similarly, Dawoodjee of National Advanced Endoscopy eased into the business of refurbishing medical equipment and exports after many years of mainly doing repair work. Exports now account for 20% of his revenue, which is listed as between $1 million and $5 million in the Medical Device Register.

Dawoodjee says he gives a 90-day warranty on all his instruments, used or new, and a one-year warranty on all the endoscopes he sells.

That is atypical for the used medical goods industry, which over the years has been criticized within and outside the trade.

As with used goods sold anywhere, consumers overseas have complained about the quality of an assortment of other secondhand merchandise imported from the United States and elsewhere. Products such as used cars and tires are banned in Brazil, Colombia and other countries.

But the exporting of used medical equipment has received particular attention over the years, because it raises significant safety concerns. And the debate has widened as more countries, including some in Asia, seek out more secondhand medical equipment.

“Certainly with the Asian crisis, there has been an increase in requests for quality [medical] products, along with training and service manuals and parts,” said Mary Bokal, an international trade specialist at the Commerce Department’s Newport Beach office, which assists exporters of used goods.

Bokal said requests have been filtering in through Singapore, viewed as the gateway to Southeast Asia. She said the government of Thailand recently relaxed its long prohibition against importing used medical equipment because of the current economic situation.

Bokal and other Commerce Department officials were careful not to paint the whole used-medical-equipment industry in a negative light, saying that in some cases the problem is with the lack of trained people in hospitals overseas.

“There’s much less bad equipment being shipped, much less,” said George Keen, a recently retired senior Commerce official in Washington who for several years specialized in medical equipment exports.

But doctors and others who have worked in hospitals in developing countries aren’t so sure. David Witt, a health technician now with the World Health Mission in North Carolina, returned recently from five years in Brazil. He said that one hospital in the city of Montes Claros paid $10,000 for an “overhauled” ventilator from a company in Florida. He said the respirator was inoperative. It sat idle for two years because no one knew how to fix it.

Brazil currently imposes stringent restrictions on the import of many used goods, including requiring an international technician to evaluate and certify the life span of equipment, according to the Commerce Department.

Sellers of used medical equipment say such restrictions and the industry’s checkered image stem largely from a small number of fly-by-night exporters. But the problem lies partly in the fact that unlike new medical equipment, which must meet Food and Drug Administration standards, used equipment requires no such stamp of approval before it is sold or exported.

The International Assn. of Medical Equipment Refurbishers, which claims a membership of 500, is attempting to raise the industry’s standards through a code of ethics that stresses responsible sale and servicing of equipment. But as even the association admits, that that is not easily accomplished.

Patti Hirsch, a broker of dialysis machines and chairwoman for the association’s membership committee, estimates there are more than 3,500 agents engaged in the buying and selling of used medical goods. And most of them are small brokers and dealers like her.

While some brokers have the skills or technicians to refurbish equipment, most can do only reconditioning or cosmetic work. So even well-intentioned brokers may wind up selling goods that don’t last long. Manuals, technical documents and parts on older equipment are often difficult to obtain, Hirsch said.

Hirsch says her 10-year-old Kansas City firm, EDL Med. International, keeps older manuals in stock by shipping just one manual with a bulk order of the same equipment to a single customer. She also encourages her customers to buy additional, nonworking machines for parts.

Hirsch says she used to be a writer of children’s books but gave that up because brokering used medical equipment was a lot more profitable. She says broker fees range from 15% to 25% of the sale price. This year she expects to sell about 150 dialysis machines, with two-thirds going overseas. A new dialysis machine typically costs $18,000, she says, but a reconditioned one sells for $7,000 to $9,000.

Hirsch recently shipped machines to Vietnam and Yugoslavia, and she sees markets in Russia and elsewhere in Asia opening up. “They just want equipment that does what it’s going to do,” she said. “Here we want all the bells and whistles.”