Chinese Condoms Could Mean Layoffs for U.S. Workers

March 27, 2009— -- At a time when America is bleeding jobs, an Alabama condom factory has lost its U.S. government contract to an overseas manufacturer and may be forced to close, leaving its workers with few prospects..

For years, Alatech Healthcare Products, based in Dothan, Ala., has relied on its contract with the U.S. Agency for International Development, which provides condoms to foreign governments and nonprofit entities, to fight HIV and AIDS and assist in family planning.

While USAID has pointed to quality and reliability issues as the reason it's decided to stop using Alatech Healthcare condoms, Alatech's president said the government was only interested in getting its condoms for the cheapest price.

And because, at 5 cents per condom, Alatech can't compete with the overseas prices of about 2 cents each, the company will likely be forced to shut its doors and fire its workers, some of whom have worked in the industry for decades.

That includes Sam Turner, Alatech's director of operations. He's worked in Alatech's factory in nearby Eufala since 2001, a year after the company opened, but has worked with numerous other condom manufacturers, most of whom have since closed or moved overseas.

"I've been making condoms for USAID since I was 19 years old," he told ABCNews.com.

Turner said he'll oversee the last package of USAID-ordered condoms sometime in May but faces an uncertain future after that. His wife had a stroke several years ago at age 40 and is unable to work. His job provides her health insurance. His daughter and two grandchildren also live with them.

Many other businesses in the area have dried up and at 53, Turner says he's too young for early retirement. There are a few minimum-wage job opportunities, but nothing that would match his $60,000 annual salary at Alatech.

"There's not a lot of people that want to hire a 53-year-old broken-down man right now," he said. "I really don't have a game plan."

Turner said he was shocked that USAID had chosen not to renew its contract with Alatech and said he expected better of the U.S. government than to take away American jobs and give them to overseas workers.

Alatech CEO Larry Povlacs, who has been in the industry for 40 years, said southern Alabama used to be a hub for latex manufacturing, mostly condoms. Now there's only two left, Alatech and Church & Dwight Co. Inc., which manufactures the Trojan brand.

While Alatech does manufacture a small amount of latex gloves and its own Champion brand of condoms, USAID is "our mainstay," he said. "Without them it would be difficult to keep going."

Though Alatech declined to disclose its profits, the value of its 2008 USAID contract was more than $6.7 million.

Quality and Quantity

Though the government does have a "Buy American" provision, it doesn't include condoms. It doesn't even encourage American manufacturing as it once did.

"I don't think the U.S. government has any responsibility to keep any particular company … up and running unless they make goods critical for government security," said Alan Tonelson, a research fellow at the Washington, D.C.-based U.S. Business and Industry Council.

Rigler said in her statement that USAID conducts independent inspections and testing on every lot of condoms manufactured for its programs and has not found any difference or problems with the Chinese condoms versus American products.

But more and more Chinese-manufactured products have been turning up as either defective or toxic, from baby formula and toys to dog food and drywall.

"I would absolutely think twice about condoms made in China, because obviously we don't want them breaking left and right," Tonelson said.

He called the USAID's decision to move to overseas markets a "questionable move" because the government has a responsibility to promote American business through foreign aid. When towns and villages now receive their condoms from the American government, they won't be an American product.

Alatech puts out 500,000 Champion condoms per year, compared with 100 million for USAID, and even that's down from a peak of 400 million a few years ago.

USAID has been using foreign-made condoms for years, from companies in China and South Korea, but always alongside Alatech. But Povlacs said he just can't lower his price to match theirs.

His company has already dropped from more than 300 employees to about 124, though that number fluctuates as orders come in.

Povlacs said even he looked into having Alatech's condom's manufactured in China back in 2005, but he decided against it. He said that while the Chinese government offered to pay its workers $120 per month, a local town mayor took him aside and promised him $30 per month for each worker if Povlacs would bring his businesses to that town.

"That's what we're up against," he said of the USAID contracts. "It's not a level playing field. If you want American jobs, it's not going to be the same."

USAID: Alatech Unable to Keep Up

But USAID said its decision to drop its contract with Alatech was over more than the price difference.

USAID spokeswoman Tara Rigler, reading from a prepared statement, said Alatech began having major quality and reliability problems 2005, when it was 237 million orders short, unable to keep up with the growing demand. In 2006, she said, Alatech was 36 million orders short.

And by 2007, she said, 12 countries representing 38 percent of USAID programs requested the U.S. government stop sending them Alatech-manufactured condoms.

Alatech, Rigler said, still reading from the statement, was "unable to meet their USAID contract delivery schedule" because of "quality control and manufacturing problems."

USAID, which estimates it spends between $10 million and $20 million on condoms annually, shipped approximately 400 million condoms last year, with 75 percent of their orders going to sub-Saharan Africa.

Should Government 'Buy American' on Condoms?

When it came time to start on new contracts, USAID looked to a contractor, Boston-based John Snow Inc. to find subcontractors to manufacture the condoms. JSI selected Qindao Butterfly Group of China, Unidus Inc. of South Korea and Karex Industries of Malaysia, the latter of which took Alatech's spot.

Alatech tried to block JSI in December by filing a bid dispute, but it was dismissed in March. USAID is now moving forward with JSI's recommendations.

But Povlacs said USAID's dredging up of past history is unfair. He admits his company had problems meeting demand in 2005, so it bought out the factory of a former rival that had closed down and invested $10 million with what he said was assurance from USAID that their contract would continue.

USAID told ABCNews.com there were never promises made to Alatech regarding future business.

Povlacs said that once the factory was on line, it didn't miss one order in 2007 or 2008.

"I'm very incensed that they're bringing up that history," he said. "They know better."

As for the countries that complained about Alatech condoms? Povlacs said there was nothing wrong with them, but those countries wanted a thinner, commercial-grade condom instead of the more industrial "rugged" condom that Povlacs said had been the norm for USAID and like-minded programs.

Once it learned of the complaint, Povlacs said the comapny rejiggered its design to accommodate those concerns.

The Dollars That Go Off-Shore

As for Turner and the rest of his co-workers, many of whom are single parents, they are waiting to see what happens next. Povlacs said it is trying to find new contracts for both condoms and latex gloves.

Turner said he wants USAID to think not only about the hardship it'll create if Alatech's workers are put out on the streets. They will no longer be paying taxes and, he said, many will wind up on welfare.

"They're going to be taking away from the system instead of putting in," he said.

The discontinuation of Alatech's USAID condoms, he said, also means less revenue from the American manufacturers Alatech uses for foil and other materials.

"The dollar that goes offshore," he said, "stays offshore."