April 11, 2011 | last updated March 25, 2012 9:34 am
DOING BUSINESS IN CHINA

A Chinese Threat Or Opportunity? | Cumbersome regulations no deterrent for many companies

PHOTO/EDD COTE
James Demers, the global industry director for Hypertronics of Hudson, says having a sales force in China has been crucial for his company's business overseas.

When Marlborough-based photovoltaic cell manufacturer Evergreen Solar announced in February that it would shutter its Devens plant and eliminate 800 jobs, company officials said it had become impossible to compete with increasingly cheaper solar components being made in China.

The move sparked an ongoing debate among state politicians about the tax subsidies the company had received and about clawback provisions to better protect public money.

Tax incentives are one thing that legislators can control. But the fact that China can have such an impact on a significant Massachusetts company, in spite of the state's efforts to nurture the green energy industry, may present a greater challenge.

A Flattened World

It's no secret that Massachusetts has been losing manufacturing jobs for years. From 1990 to February of 2011, the state's manufacturing job base dropped from 409,000 to 252,000, a 49-percent decrease, according to the Department of Workforce and Labor Development.

China has been adding manufacturing jobs during that period. A 2007 Bureau of Labor Statistics report found that from 2002 to 2006, manufacturing jobs in China increased 10 percent to 112 million. That was 10 times greater than the number of manufacturing jobs in the entire United States.

Those figures may look grim. But North Central Masschusetts Chamber of Commerce President David McKeehan, who has been to China twice in the past two years, said he does not believe that Chinese economic domination is imminent.

McKeehan dined with Chinese mayors, met with a Chinese human resources firm and toured four different cities. He said he came home with memories of massive cranes working on multiple high-rise apartment buildings at once and of economic zones surrounded by new residential construction that seemed like cities unto themselves.

For all the advantages China seems to have, McKeehan said he was also struck by the challenges it faces: the sheer density of the country's population and the growing gap between the very rich and the very poor.

"There's something incredible happening in China right now, but is it a threat? Is it an opportunity?" McKeehan asked. "Everyone has to make up their own mind."

It is tough to say exactly how many Massachusetts companies are doing business with and in China, according to the Boston-based Massachusetts Export Center, which helps some percentage of those companies navigate trade problems there.

The state's exports to China paint part of the picture. China is Massachusetts' third biggest trading partner behind Canada and the United Kingdom. Companies here shipped $2.1 billion in goods to China last year, according to the U.S. Census Bureau.

But the entire relationship is surely worth several billion more dollars. Companies manufacturing products in China and selling them there are not included in export figures.

For Evergreen Solar, China clearly posed a threat. But opportunities also exist for other Massachusetts companies that have operations in China or who are selling their goods to customers in China.

Several big companies that have operations in China include Clinton-based Nypro and Hopkinton-based EMC Corp. (see page 15 for a map of the region and where local companies have operations).

Nypro states on its website that it has 10,000 employees in China, where it generates approximately $500 million in sales annually.

EMC has more than 1,000 employees in China and has invested more than $1 billion there.

More Massachusetts companies are selling to Chinese companies than in the past, said Julia Dvorko, the Central Massachusetts regional coordinator at the export center. But their manufacturing operations remain here in Massachusetts.

QuadTech Inc. in Maynard, which manufactures electrical testing equipment for the medical and aerospace industries, has been selling its products in Beijing since the company was founded in 1991, said Len Schalkwyk, who is vice president of worldwide sales for QuadTech.

Schalkwyk said that international markets, especially China, offer the greatest opportunity for growth for QuadTech, which has just 30 employees but maintains a global sales presence through partnerships with foreign firms.

"It's the world's biggest market," Schalkwyk said of China. "It's hard to break into. But I wouldn't want to give up 15 percent of our international business. And that number's growing."

The challenges that Massachusetts companies face when dealing with China are many, Dvorko said.

"It's certainly difficult for smaller companies to start out there," Dvorko said. "The government regulations are often difficult."

Taking The Plunge

But that hasn't stopped some firms. Dvorko said that the export center has helped many Massachusetts manufacturers, including QuadTech, overcome various barriers to entry.

Those can include language barriers, strict and sometimes nebulous shipping and local restrictions, and of course, trying to manage people half-way around the world, she said.

Many smaller companies here opt to keep manufacturing stateside and establish a sales team in China, usually though a partnership with a Chinese distributor or agent, Dvorko said.

In QuadTech's case, it partners with the Shanghai-based Dong Ying Test Co. Ltd., which markets, sells and provides service on QuadTech's product lines in China.

"They're what we call our eyes and ears in the Chinese market," Schalkwyk said. "From a business standpoint, it's more cost effective. We don't pay for their overhead."

And those partners speak the language and build local business relationships. Schalkwyk said that Dong Ying is more than just a distributor for QuadTech. It adds value for QuadTech by marketing the products and providing support services, he said.

Elizabeth Nystrom, an international account manager at QuadTech, often deals with regulations, from both the Chinese and the American side.

"When we have a new customer, we do check the export rules and regulations to make sure it's a customer we can do business with," Nystrom said.

American companies are forbidden to ship to any Chinese company that the U.S. State Department says is guilty of stealing intellectual property. And any type of product that can be used in any military function is also not allowed to be shipped into China.

Another company using the partnership sales model is Hypertronics Corp. in Hudson, a manufacturer of cable interconnections for the medical, military, aerospace and industrial markets with 140 employees in Hudson and another 60 in Mexico.

James Demers, the global industry director for Hypertronics, said that China has been the fastest-growing market segment for his company. Sales there make up about 4 percent of overall business, he said.

Demers said that having a sales force based in China is a necessity to doing business there.

"These distributors are well-vetted," Demers said. "They're authorized by us and trained by us."

Manufacturing of Hypertronics products will remain in North America for the foreseeable future, Demers said. There are both the costs of moving manufacturing and the risks of intellectual property theft to consider.

Demers said that his company's business relationship with China has translated to jobs in Central Massachusetts.

"Our growth in China has led to our growth here in the factory," he said. "We've been in the hiring mode as opposed to shedding mode."

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