The Fundamentals Of Tapping Into The Chinese Market
If you’re a small to mid-sized manufacturer in Central Massachusetts, chances are that China could represent either a way to produce goods more cheaply or a huge new market for the things you’re making now.
But what if you want to actually make that happen? Can you figure out how to do the manufacturing work that you know so well on the other side of the world, in a place where even the alphabet is different? Is it best to go through an agent, or do you need to make face-to-face connections yourself? Do you want to contract work out to Chinese manufacturers, set up a joint venture with a company already in the country or build your own division in China?
The good news is, businesses trying to figure out the answers to these kinds of questions are in good company — and have plenty of examples of companies that have gone before them.
Taking A Chance
Since 2008, Richard Flannagan of Molds International & Consulting Co. Inc. in Leominster has been helping plastics mold-makers figure out the Chinese business landscape. He says getting started is rarely easy.
“If I’m going to begin to do business out of the U.S., for most small companies, that’s out of the box. That’s not an everyday occurrence,” Flannagan said.
Flannagan, the former head of Leominister mold-maker Stan Cast Inc., said there are clear steps for companies that want to do work in China. Both the United States and Chinese governments have good resources available. There are Chinese websites that make it easy to find, for example, a list of manufacturers in a particular region who are looking for foreign partners.
“The next thing is, you’ve got to get on an airplane. You’ve got to go,” Flannagan said. “That requires, I guess, a little derring-do.”
James Molinaro, CEO of TechPrecision Corp. in Westminster, has been getting on planes for a while. Before taking his current role, he led two other manufacturing companies that started operations in China.
TechPrecision set up a Chinese subsidiary and signed joint-venture agreements with Chinese manufacturers in September. Four of the company’s managers are now helping to oversee the Chinese business, and more will be added before long, Molinaro said.
And, he said, about 30 percent of TechPrecision’s business already comes from China, and that will probably rise to more than 50 percent over the next year.
“It’s been pretty fast,” he said.
But Molinaro said TechPrecision’s model is decidedly not about making things cheaply in China to sell back in the United States. In fact, the company has been expanding in Westminster and is planning to build a new factory somewhere in the United States.
He said the Chinese operation is simply about the fact that TechPrecision makes equipment for the solar and nuclear power industries, and that’s something that leads almost inexorably to doing business in China.
“Everything we make in China is pretty much sold within Asia,” he said. “None of it is brought back to the states.”
In fact, Molinaro said, having a parallel operation going on in China has actually boosted the company’s U.S. business. He said some Fortune 500 companies have suddenly become interested in working with TechPrecision thanks to its new status as an international company.
“The fact that we had a global operation opened doors for us,” he said.
Mutual Benefits
Flannagan said many of his clients do see making molds in China as a way to reduce the costs of the products they sell in the United States.
“Most smaller companies have a harder time getting over that, feeling as though they’re unpatriotic,” he said.
But Flannagan said the decision often comes down to moving some production to China or closing down altogether.
“Clearly it’s better to keep your business open and your people employed,” he said.
And even if some production does go to China, Flannagan said there are likely to be some products that it just makes sense to keep making in America. Less price-sensitive, more sophisticated products are a good bet for stateside operations, especially if they involve proprietary designs and nondisclosure agreements. Time-sensitive custom products are also bad bets for off-shoring, he said.
Meanwhile, Kinefac Corp. in Worcester does just the opposite type of international business, exporting its specialized machinery to China. President Howard Greis said the company’s been selling in China for 15 years, though early on it was stymied by independent agents who promised more ability to sell to Chinese companies than they ended up being able to deliver.
About five years ago, Greis said, the company started participating in a demonstration business center in Shanghai set up by the Virginia-based Association for Manufacturing Technology. That gave it an office and display area that could serve as a home base in China. At the same time, the company began a serious search for a talented local salesperson and ended up finding a good one.
Greis said he’s pleased with the company’s ability to sell in China but is still looking to grow its business there. Eventually, he said, he hopes to set up a Chinese manufacturing facility as well.
“It’s a matter of picking the right time,” he said. “If you move into a new market, you best do it at the time when you have the highest probability of success.”
Those in the thick of it say doing business in China is not so different from doing it in the United States, and the differences are more complicated than typical stereotypes might suggest.
Mulinaro said the paperwork and bureaucracy involved in something like transporting a shipment of goods from one part of China to another are significantly more onerous than in America. But he said the Chinese procedures make sense when you think about them: moving products through the huge, massively crowded country is just far more complicated.
Flannagan said his clients are concerned about whether their agreements with Chinese companies will be honored, and for good reason: in some cases, paper contracts are simply not seen as terribly significant, so it’s important to have staff or a trusted agent on the ground where work is being done.
But he also said making blanket statements about China makes little sense: American business people who want to figure it out just need to get over there and start looking around.
Correction: An earlier version of this article included two errors. It misstated aspects of Kinefac Corp.'s operations in China. The company worked with the Virginia-based Association for Manufacturing Technology in establishing a local presence and hired a local salesperson to work directly for the company. In addition, the name of the CEO of TechPrecision Corp. was misspelled. His name is James Molinaro.
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