Like modern-day Marco Polos, manufacturers of all stripes are eyeing China as the next land of opportunity. No wonder. For the past 20 years, the country that gave the world gunpowder, printing, and paper has had one of the world's fastest-growing economies. Its population of 1.2 billion potential consumers is growing at a rate of 1.1 percent (13.5 million people) per year. And, its nascent industries are starving for technology.
But, there are still some great walls to scale before companies can fully penetrate the Chinese market. One is concern over Hong Kong's future and what that will reveal about China's long-term commitment to openness.
Other concerns relate to cultural and infrastructure differences that can affect the design of products for China. Among them:
Poorly educated users. Many Chinese have a limited level of education, so products have to be easy to use. Everett, WA-based Fluke Corp., for example, teamed with Motorola and Philips Semiconductor to develop a new family of ASICS for its recently introduced ScopeMeter 123 test tool. "Putting the technology inside makes this product easy to use for the non-technical customer," says Phil Wescot, Fluke's Asian business development manager. The company extended the technology to its products sold outside China as well. Other companies, such as NMB Corp., Chatsworth, CA, and Siemens AG, Erlangen, Germany, send employees in their Chinese factories abroad for training.
The best advice: Use basic, rugged, simple designs and plan on lots of training, says Ed Neiheisel, who leads Vickers' Asian efforts.
No maintenance. "The Chinese have little concept of preventive maintenance," says Kim Cannon, a product manager in the insertion mount division of Universal Instruments Corp., a manufacturer of electronic circuit assembly equipment in Binghamton, NY. "They run machinery until it breaks, then try to fix it." That means products have to be especially rugged and reliable, he says.
Of course, an advantage the Chinese have in this regard is their large population. "There's no problem finding people to fix machinery," says Wilson Tang, point man for software developer SDRC, Milford, OH, in China, Taiwan, and Hong Kong. "I saw one instance where they assigned a lot of people to dig a drainage ditch. It was cheaper and better for the local economy to use all the people than to bring in a big machine tool."
Infrastructure problems. Roads and distribution networks in China are poorly developed at best, and import taxes can be sky high. That means getting parts and products from the port of entry to the end user can turn out to be a long march rather than a great leap forward. One solution: Stock parts on site. Another: Build products in local facilities, as AMETEK does in Shanghai, where it builds small fractional-horsepower motors. Doing so means its customers don't have to pay import duties.
Of course, not everything sold in China is designed and manufactured elsewhere. Though communism's grip is still vice-like, entrepreneurs are surfacing throughout the country and starting businesses. New manufacturing plants are sprouting up. U. S., European, and Japanese companies are setting up joint ventures with Chinese businesses. Helping them streamline design are several U.S.-based engineering software companies.
SDRC, for example, has been shipping its I-DEAS(R) CAD software to China for eight years. Operating from offices in Shenzhen and Beijing, SDRC claims the largest installed base for solid modeling in the country, and has developed a Chinese-language version of I-DEAS Master Series software.
Microcadam, Los Angeles, has about 100 units of its software in China. Customers include Volkswagen Shanghai, Kimberly Clark, National Guangzhou, Fuji Electric, and Shen Yang Aircraft.
The MacNeal-Schwendler Corp. recently shipped its MSC/SuperModel finite element analysis software to the Beijing Institute of Astronautical Systems Engineering, one of ten major corporations that form the China Aerospace Corp. The Institute will use the software in development of commercial launch vehicles.
"In general, design and analysis criteria are the same in China as everywhere else," says Wai Ho, MSC's point man for Asia business development.
What follows are several examples of how companies are approaching product development for the burgeoning Chinese market.
Smaller is better. The feeders are too high! That's the message engineers Marty Saracino and Kim Cannon, from Universal Instruments Corp., got from Chinese customers on one of their several visits to plants using the company's electronic circuit assembly unit.
"In some cases, they were using stools on the shop floor to load components into our Model 2596 sequencer machine," says Cannon. "The equipment was too high for them, so we lowered the height of the equipment and controls."
While they were at it, Saracino and Cannon got the company to lower the height of controls and feeder assemblies on the separate Model 6241 VCD (Variable Center Distance) Sequencer as well. The 2596 sequences components for printed circuit boards on a reel, which then goes on another machine for insertion. The Model 6241 VCD Sequencer 5 includes the insertion machinery. Now, Universal has standardized on the lower height for controls and feeders on all its machines.
Getting the kind of feedback that resulted in the redesign is essential for successful product development for China, Saracino and Cannon say. That's why they make several trips a year to visit customer sites. "You have to understand their expectations, what they like and don't like, and how they use the equipment," Cannon says.
Among things they've learned is that the concept of preventive maintenance is very weak in China. "They run equipment until it breaks, and then they take out the tools and try to fix it, sometimes even making up their own parts," Cannon says. That prompted the company to intensify efforts to build in reliability and simplicity.
"For example, on one of our radial assembly machines, we cut the parts by about 45 percent," Saracino says. They also cut the required adjustments on the machine by 70 percent. "We did that to help customers avoid trouble, because if there's an adjustment on a machine, they'll turn it."
Engineers use Pareto charts and failure mode effects and criticality analysis to test all components and subassemblies for ruggedness and reliability. "We do a kind of roast on each subassembly, and that drives our efforts to cut parts," Cannon says.
To clear the language barrier, Universal developed a Chinese version of its new Tech Advisor PC software that teaches customers how to operate, maintain, and trouble-shoot its machines. That same software is available in English and Spanish too.
Overall, say Cannon and Saracino, the company is applying what it has learned in China to its entire product development process. "Our experience in Asia is driving design improvements throughout the company," Saracino says. "We figure if we can be successful there, we will be successful anywhere."
Invest in training and the environment. NMB Corp. builds about 10 million precision ball bearings a month at its new facility outside Shanghai. The facility is wholly owned by NMB and not part of a joint venture. Once it opened in August 1996, NMB realized one of its greatest needs was training for local employees.
"Actually, training for our Chinese employees turned out to be easier than training we provide employees at other facilities in Thailand," says Jim Rideout, product manager for bearings. For Thai employees, the company had to send them to Japan, where the company conducted the training in English. "For our Chinese employees, we just sent them to Singapore, where 30-40 percent of the population is Chinese, so we could train in the Chinese language."
The training is important not only for production-line efficiency, but for employee advancement. NMB's policy is to promote locals at all its facilities to management positions, and plans to do that in China as well.
Beyond training, the company decided to invest in the environment around the plant too. "We built around a lake, and though it wasn't required, we decided to participate in the creation of an environmental protection group to ensure we developed a clean factory and also to help clean up existing pollution problems," Rideout says.
That effort mirrored efforts the company has undertaken in other countries as well. NMB has built four separate wastewater treatment plants in Asia that not only provide clean water for washing its bearings as they roll off the assembly lines, but improve the quality of life of local citizens as well, Rideout says.
Regarding design changes required for the Chinese market, there have been few so far, reports Skip Kinford, director, NMB Corp. "Most of the companies we do business with--companies that make cooling fans, or motors for vacuum cleaners, for example--are satellites of other organizations," he says. "They bring their own designs from other countries into China for production."
NMB's advice to others aiming to do business in China: Don't underestimate the need for training, and don't overestimate consumer demand. Though the population is large, Kinford says, demand lags. Still, he encourages companies to be patient. "The market will certainly grow in time," he predicts.
Make it easy to use. Despite the generally lower education level of the population, Chinese service technicians may have a higher skill level than their counterparts in the U.S. "The average technician probably has an engineering degree," says Hans Toorens, Fluke Corp.'s point man for industrial electronic products, including ScopeMeter(R) test tools.
Nevertheless, language differences and other problems require Fluke and its competitors to take special care in designing the interfaces for their products so customers in China can easily use them. Enter Fluke's KOJAC program.
KOJAC is the acronym for Korea, Japan, and China, and it refers to the company's efforts to extend its many ASCII languages so that its meters produce readouts in the local languages of those three Asian countries.
"Everyone understands terms like 'amplitude,' but when messages come in full sentences users can get lost," says Toorens. "It helps that we now put those messages in the local language."
Additionally, for its new Scope-Meter 123, Fluke worked with Motorola and Philips MicroElectronics to create a new family of analog acquisition and trigger chips it could integrate on a 16 x 10 cm circuit board. The company also used a single digital ASIC for acquisition, peak detection, constant signal analysis, trigger control, display control, communication, real-time clock, and processing. Both steps enabled a compact design that weighs only two-and-a-half pounds, important for the Asian market, where users generally have smaller hands.
Another ease-of-use element: Users only have to connect a single test lead to access the product's oscilloscope and multimeter functions.
"Basically, we put the high technology inside to increase the ease of use," Toorens says. Another step: Electrical power is not so prevalent in China as elsewhere, so Fluke included a rechargeable five-hour NiCad battery.
All those design elements are available in the ScopeMeter test tools Fluke sells outside of China too.
Toorens' advice for others designing products for China: Be patient, build trust, and listen to what the customer wants first before developing products for the market.
Build strong employee ties. Many western companies successfully established in mainland China operate from economic development zones designated by the Chinese government. For employees of these manufacturing plants, such zones offer preferential working conditions in the form of wages and benefits. Dormitories that provide clean, comfortable, and safe living conditions are an example of the latter.
Some manufacturers, however, sweeten worker incentives to reduce turnover and build better relationships within the local community. One such company is Pulse. An early benefactor of China's competitive labor rates--Pulse set up shop near Hong Kong in 1984--the company opened a four-story recreation facility for its employees in April of this year. Attractions include a television and karaoke room, table tennis, billiard tables, a library, movie theater, and video games.
Response to the extra-curricular outlets has been so overwhelming, VP of Operations Roger Shahnazarian reports, that Pulse has extended the rec center's hours to include night shift employees. "Unless you are manufacturing in Shanghai or Beijing where there is a lot of resident labor," Shahnazarian says, "you are going to be in the dormitory business--that's just a way of life in China. Many of the workers are young women who come from the provinces at 18 years old and maintain a job until age 22 or 23, when they go back home to get married. That's a typical scenario."
Home sickness and repetitive manual labor make this experience difficult for many. Shahnazarian believes the recreation facility will not only help lower the normal 3 to 5% per month turn-over rate, but bolster quality control.
"The reason we are in China," Shahnazarian explains, "is for the low-cost labor. Assembly of our products--communications and networking components that OEMs build into computers, file servers, telecommunications, power and wireless applications--takes 15 to 20 minutes, on average." Manual labor is necessary, he reports, because the processes required to build the products Pulse designs and manufactures are difficult and expensive to automate.
Pulse believes that improving quality of life outside the plant has contributed towards a more seasoned, happier workforce. As a result, quality control is on the rise. Shahnazarian's advice for other industrial manufacturers interested in establishing facilities in China? Work at building relationships with employees as well as with government and local officials. Such relationships take a long time, he cautions, but pay off in the long run.
'Not made in China'. "Made by Siemens," not "Made in China." That message typifies the challenge foreign manufacturers face in China, contends Gerd Riese, senior director of marketing, Southeast Asia, for the Standards Products Group of Siemens AG.
Products made in China and exported to the rest of Southeast Asia, he says, are generally perceived as being of relatively poor quality, even if they have the Siemens name on it. Siemens, Riese claims, is battling that perception by building a reliable, well-trained workforce--a task he admits is difficult.
"Part of our future strategy is to bring personnel from China to our European facilities for training," he says. The danger, Riese warns, is that once trained, these employees may quit for a higher salary elsewhere, since demand is so high.
Currently, the Standards Products Group runs its seven joint ventures in China with ex-patriots as General Managers. Except for a joint venture in Panyu, where Siemens makes electronic control gears, all operations are targeted for sales within mainland China, as well as for export. Products manufactured at the Panyu plant are for export only.
Distribution within China presents other problems, as Riese explains. "In the past, China implemented a different philosophy of distribution. Large customers would visit a supplier two or four times per year and take the entire product volume. There was no acting sales person."
The Chinese are simply not accustomed to Western sales and marketing concepts, Riese believes. Japan, he says, has adjusted accordingly. Japanese plants in China are generally 100% wholly owned; they tend to manufacture a specific product; and everything is brought back to Japan.
Says Riese: "They don't have problems with quality standards because the Japanese customers don't perceive that the product is made in China--just that it is manufactured by a Toshiba or Hitachi."
Direct digital control boosts steel plant production. With China's continued economic expansion, the demand for construction materials has pressured local steel manufacturers such as Shanghai Ergang NO. 2 Steel for improved production. To increase horsepower on the various roll stands and automate the control systems, NO. 2 Steel contracted Cleveland's Reliance Electric, part of Rockwell Automation Drive Systems, and an established presence in China. T.C. Shen, Control Systems Manager for NO. 2 Steel, points out that "because Reliance has a long-time presence in China, we were confident they could provide local services and support."
The primary challenge, Shen says, was to add extra drives and increase horsepower, yet keep the project within cost and time constraints. Consequently, NO. 2 Steel opted to upgrade existing thyristor power modules on drive sections over 100 hp by implementing Reliance AutoMax DPS units for direct digital control.
"The AutoMax DPS," Shen explains, "allows the high-speed control loops necessary for the system, and solves communication problems with control logic." The result has been dramatic improvement in the laying head and shear applications through improved speed and position control.
Implementing Reliance's SIGMA management system for rod mill control completed the upgrade.
By using refurbished machinery along with new control software, digital drive, and automation systems, the project was delivered in less than three months, from stop to full production, and at a 30% cost savings.
5 'musts' to consider when designing for China
Training. Manufacturers report that many of their customers are poorly trained. That means products have to be designed to be easy to use.
Preventive maintenance. Design and build your products to be rugged. With little concept or tradition of preventive maintenance, customers will use them until they break, then try to fix the products themselves.
Language. Design user interfaces and operating manuals in Chinese.
Infrastructure. Roads and distribution systems are poor in China. Ship replacement parts with initial product to make sure they're there when needed.
Partnering. Link up with another company that already has a presence in China. It speeds up the approval process for plant construction if you want to build a plant, and for other necessary business permits. But, be wary of partnering with recently privatized Chinese companies. Many companies, like AMETEK, headquartered in Paoli, PA, believe those former government-owned manufacturers are inefficient, have old equipment, and suffer from low productivity. Some, like HydraForce, Lincolnshire, IL, find that using Asian distributors makes sense. HydraForce uses distributors in Hong Kong and Taiwan to sell high-performance hydraulic cartridge valves for injection-molding machines and off-highway equipment sold into China.
Program trains Chinese managers
Twenty-four engineers and other technologically trained Chinese men and women, ranging from 25 to 55 years of age, are presently enrolled in a unique MBA program at the Renssalaer Polytechnic Institute, Renssalaer, NY. Offered by the Lally School of Management and Technology, the program prepares Chinese scientists and engineers to step into management positions with American companies in China.
"Virtually every company we work with in China reports that they simply can't find well-educated and experienced managers to staff their operations," claims Joseph Morone, dean of the Lally School. "It is prohibitively expensive for American companies to send their managers abroad to manage operations in China," he says, adding that many managers are unwilling to leave family and friends to work in China.
Roger Shahnazarian, a graduate of RPI and VP of Operations at Pulse, San Diego, CA, agrees. "It's very difficult to find skilled managers in China," he says. "They're just not ready." Consequently, Pulse recruits many of their managers and engineers from Hong Kong.
Departments like Human Resources, Financing, or Purchasing, Shahnazarian points out, can be subject to illegal operations such as bribes and kickbacks. Customs problems or tax issues also require experienced personnel with an understanding of the local culture. Conversely, Morone contends that U.S. companies need managers with an understanding of American markets, language, technology and culture.
A joint effort with Zhejiang University in Hangzhou, the Lally School curriculum is the first American MBA program to have official approval of the Chinese government. The students will spend approximately 12 months at Rensselaer, three months as interns with American companies, and four months in additional graduate study at Zhejiang University. Those who receive the new MBA will graduate with full credentials from both universities.
Corporate response has proven favorable. A broad cross-section of companies, such as Motorola, Mobil, Bugle Boy, and Albany International have agreed to sponsor three-month American internships for the Chinese students.
Made in China, marketed elsewhere
Pulse, known in China as a "Wholly-owned foreign entity," sells 70% of the products manufactured at its Chang-an plant into North America. Twenty percent go to Europe, and the remaining 10% are sold in Asia, primarily to Taiwan, Japan, and Singapore.
Typical of the products Pulse produces in China is their new line of low-profile, self-leaded, surface-mount power inductors. Good for DC-DC power conversion in applications requiring minimal component height, the products are optimized for the smallest footprint possible with a maximum height of 0.098 in.
Inductance range measures 1.3 to 122 microH at DC current ratings to 3 amps; Operating temperatures span -30C to 130C with a temperature rise of only 55C at rated current. Other China-made components from Pulse include LAN modules, transformers, and power supply products.