Made in China
Dave Grenier, a manufacturing engineer with Intel Corp. (Santa Clara, CA), is no stranger to China. In both his current and his previous job, he's worked with contract manufacturers based in China. He has traveled to the country multiple times, learned a little of the Mandarin language, and developed more than a passing knowledge of how to navigate the city of Shanghai.
But on his most recent trip there, Grenier decided he wanted to explore central Shanghai, a section of the city he was less familiar with. He asked one of his Chinese colleagues, who lives in Shanghai, to help him find his way around. "She actually got lost-and she lives there!" says Grenier, still sounding a bit amazed.
China can be that way-overwhelming for almost anyone at times. But as manufacturing engineers are learning, there's no time like the present to take the plunge and look to China as a source for product.
The approach varies. Some companies set up their own assembly lines in China; others rely on Chinese contract manufacturers to make products. Regardless of their strategy, however, U.S. manufacturers report plenty of rewards-and plenty of frustrations. They also agree that doing business in China is no longer an option but rather a necessity for U.S. firms.
"As a manufacturing engineer, I hear other professionals in this industry look down on the Chinese and their capabilities," says Grenier. "That's a bad thing to do. Their capabilities are equal to or better than ours. And for manufacturing engineers who hold onto this ideal that the U.S. is the best there is-well, sorry, guys, but there's a country on the other side of the world that's catching up really fast. Within a couple of years, they'll probably pass us."
Where to Begin?
As China moves forward in its manufacturing capabilities, U.S. companies should find it easier to figure out their first steps. Six to 8 years ago, finding Chinese firms to help with production was hit or miss. That's gradually changed, says Grenier, "and now you can find anything you want. You just have to know who to contact."
Grenier relies on a long list of sources cultivated through years of doing business in China. But those just starting out don't need to look far: Ask your peers. Chances are, Grenier says, many of your manufacturing engineer colleagues are doing business in China and should know several suppliers. From there, look to their competitors. "It's what we do here: Find one or two people who do something well, establish a relationship, then look to others as you max them out on capacity," he says. "It's the same in China. Once you get your foot in the door and establish a relationship, you'll eventually find out who else is in their business and how good they are."
Scott Breyer, director of manufacturing and engineering at Oconomowoc Manufacturing Corp. (Oconomowoc, WI), also draws on a solid base of contacts developed in nearly a decade of doing business in China and other parts of Asia. His current company has half a dozen manufacturing lines based in China, producing two to three dozen types of components. His advice for those just starting out is to search the Internet to compile an initial list of potential companies, eventually narrowing down the list to a handful of suppliers that appear to be capable of handling your company's needs.
Then, says Breyer, comes a crucial step: Visiting the companies on your list to evaluate quality and capacity. "A lot of these companies have Internet sites that look the same, but when you get over there, one could be an actual factory, and one could be someone's garage," he warns, noting that he speaks from experience. "It comes down to trust and your key contacts over there," he says. "But it's a little shifty at times."
That's why some companies choose to work with a middleman-a consulting company that helps link U.S. firms with Chinese counterparts.
ChinaLine LLC is one such firm. With offices in Chicago and Beijing, the company helps U.S. firms identify potential component suppliers and production outsourcing opportunities, as well as set up equity and contractual joint ventures. It also helps firms set up factories of their own in China, either through greenfield development or as acquisitions.
Shi Han, ChinaLine managing partner, suggests that firms looking to China need to make a steely-eyed assessment early on of just what they hope to gain from the venture. "U.S. firms may overestimate or underestimate the market potential and the potential for cost savings," he says. "And often they tend to only want to deal with the kind of company they are familiar with, which is probably a foreign company that's already in China. But that may not be the best option for them."
In other cases, he says, U.S. firms may be unnecessarily intimidated by the logistics of doing business in China and end up delegating responsibilities to intermediaries. But that's not always wise. "One of the best first steps you can take is to make sure your supply chain is optimized," he says, "especially when there are so many mainland-based manufacturers that now have in-house capability of dealing with foreign buyers."
Comfort level is no small consideration for firms that are just starting to explore China, sometimes to the detriment of the U.S. company. Han says his U.S. clients may occasionally express resistance to a Chinese firm his company has identified as a potential partner. "Mostly it's about English," he says. Smaller, indigenous firms may not always have fluent English-speakers available; in other cases, the U.S. firm may hesitate because the Chinese company is based in a lesser-known province or city. "Those are negatives, in our client's view." But neither should trump quality or cost-the real reasons for doing business in China.
Han observes that nearly every manufacturing field is a crowded one in China, which can make it even more difficult to sort through potential business partners. "You have state-of-the-art, ISO-certified companies running according to international standards, and in the same town or across the same province you will have a company that is home-grown, not following international rules, with a lot of manual processes."
Overall, however, the number of qualified companies in China has increased in the last 10 to 12 years. U.S. firms looking to source from China may frequently come across other American firms that have already set up businesses there using U.S. standards. "There are also companies that have migrated to mainland China from Hong Kong and Taiwan in the last 15 to 20 years, and these companies are also typically well-run," Han says. What is new, he says, is the rather large number of indigenous companies that lack foreign investment yet are also quite progressive. "There's a lot to choose from."
Who Do You Trust?
Success in China doesn't end with picking partners. Raphael Juarez, vice president and co-founder of US/China Manufacturing Inc. (Ann Arbor, MI, and Shanghai), says nearly everything hinges on visiting China and meeting with your counterparts there. Not only do you have to be able to trust them, but they have to be able to trust you. E-mails and phone calls just won't cut it.
Juarez, whose firm advises small- to medium-sized automotive suppliers wanting to do business in China, says site visits are the best way to assess the factors that will help build trust. Manufacturing engineers should take a good look at the fitness and business indicators of any Chinese firm they're considering.
"If they're making castings for forgings, for instance, what's their current experience with an OEM?" Juarez asks. "That's the first step." Then dig deeper-what quality tools and certifications do they have? "It's like a background check," he explains.
Take a walk through the plant, "from the time they actually receive their material from their subsuppliers-and they're most likely domestic Chinese suppliers-to the time they ship their final product out the door," Juarez continues. Among other items to consider:
- What kind of control plans do they have in place? Do they adhere to them?
- How do they identify their supply base? What requirements do they use to buy their materials and products? How do they control quality?
- Is the plant clean? Do the employees look healthy and satisfied? What's the turnover rate?
- What kind of problem-solving mechanisms are in place? Do they practice lean manufacturing? Do they use a documented process to solve problems, or do they simply shoot from the hip to create temporary fixes?
- Is the assembly line traditional-literally in one line-or a more sophisticated, workcell setup? If it's linear, what plans to they have to make the process more efficient?
- How educated is the workforce? Are workers cross-trained?
- How strong is the engineering group? What degrees and experience do they have? Is their experience real-world or primarily academic?
"All this happens by walking through the plant and talking to management and midlevel management and even the line workers," Juarez says. "You want to build the relationships even at that level, because you want to make sure the relationships are good and ensure the product is being made properly, before it hits your dock."
Han recommends that U.S. engineers visit sites at least once, early on, to provide technical input and advice. "The collaborative mood is very important, and it improves the relationship between the two partners," he says.
Site visits should remain an important part of the equation well past the early stages of the relationship.
Juarez says a reliability demonstration, done through real-life testing, is essential. "You either need to have your own employees there watching the testing to ensure everything is being done as promised, or have a representative there on your behalf."
Once production is up and running, site visits are still important. "You need someone there periodically who speaks the language and knows the culture and knows your business and can go there at a moment's notice," Juarez says, as opposed to having a U.S. representative plan a visit a month or more in advance (due to visa requirements). "If the Chinese company is not being honest, well, it has enough time to change things, to present to you the operation as you expected it to be."
On the other hand, he notes, such worst-case scenarios are likely to be avoided simply by creating a good relationship at the beginning and walking through a company's processes. "When you're sitting across the table from that person, you know whether you can actually do business with him."
Building a Relationship
Of course, no relationship is ever easy, especially when cultural and language difficulties intrude.
Kaveh Soofer and his colleagues at Plastikon Industries (Hayward, CA) experienced this firsthand as they went about their most recent venture, building a greenfield factory in China.
This followed on the heels of several earlier projects in China, primarily joint ventures involving existing businesses. But with the new PlasTat factory, in Dongguan City, Guangdong, the company hoped to break new ground, literally as well as figuratively. "We wanted to be a truly dynamic organization. We wanted to be fresh, and we wanted to build this factory on the manufacturing principles that we use in the United States," says Soofer, vice president of engineering and sales at Plastikon. "We didn't want to try to change the culture of an already existing company." The goal was a facility that would service not only the domestic Chinese marketplace but also the United States and Europe.
In fact, the company has begun producing functional parts as well as housings and packaging for a global medical diagnostics company. One thermoforming line is up and running, with additional thermoforming and injection molding lines to come. Projected output is some 54 million pieces a year.
"This factory is going to be not just a manufacturing facility, but also a clean room contract manufacturing, assembly and packaging facility," says Bret Baumgarten, director of sales and marketing for Plastikon. "We realized early on that there aren't too many Chinese factories that have these U.S. standards, that are capable of doing full turnkey medical production and assembly."
That said, transplanting the process to China was "very difficult," Soofer reports. The project was a joint venture with Hung Tat Ltd. The idea was to have the Chinese partner manage a portion of the project from China, with Plastikon handling much of the technical activities, equipment and sourcing from the United States. Once those pieces were delivered to China, "The two of us would work together to launch at the same time," Soofer says.
That's where some of the cultural differences reared their heads. Many of the challenges came from the pace at which the Chinese partners worked. "Their deadlines aren't truly viewed as deadlines. They're more of a guideline. It's more of a, ‘OK, we missed it, but we'll take care of it next week' sort of attitude," Soofer says.
"We would travel over there expecting to see something or be prepared for a certain meeting," he continues, "and we would arrive only to realize that their culture doesn't allow them to really, truly deliver bad news, or to say ‘no,' or to say ‘We're not prepared.'"
"Yes" is another tricky word. In the United States and in Western Europe, "yes" is a clear agreement. In China, that same word is more nebulous. "It means, ‘Yes, I understand what you're asking me to think about, but it does not mean that I'm agreeing to do what you're discussing,' " Soofer says.
"Not being straightforward is a cultural thing there," he continues. "Not delivering bad news is a cultural thing: ‘I didn't want to tell you because I knew it would bother you.' Well, it bothers me more to get on an airplane and fly 16 hours to meet with someone, and now you're telling me that they're not available."
In short, says Soofer, "You need to be prepared for a lot of surprises. There's going to be a lot of flexibility in their schedules, and what they say they're going to do typically doesn't happen at the time they say they're going to get it done."
Soofer and his colleagues ended up stepping in and managing much of the project in China as well as in the United States. "All the construction activities and everything else on their end of the table, short of the governmental relations activities, which we had no understanding of," he says. Looking back, Soofer says he would have had a U.S. project engineer on site the entire time to ensure the project's progress. In the future, Plastikon may have a representative continue to monitor activities there on a regular basis.
On the other hand, Soofer doesn't hesitate to champion the quality of workers and engineers in China. "There's a wide pool to choose from," he says. "On the technical end especially, there's a far larger pool of technical know-how in China than we have even in the United States. I wish we had the same pool to choose from here."
Keeping in Touch
Grenier, of Intel, says his company is completely comfortable outsourcing product to China. The main problems he faces now are more logistical, what he calls "time and space differences."
It's not unusual for Grenier to be on the phone at midnight in the United States, talking to his colleagues in China, because that's the middle of the next day there. "Your work week effectively becomes Sunday to Thursday. If you try to talk to them Thursday night, that's their Friday afternoon. So if you ask them on Thursday night for, say, yield numbers on a particular build, or quality data for a board, you may not get your answers until your Sunday, which is their Monday."
The other time consideration is simply that it can take more of it to discuss matters with Chinese colleagues, particularly given the language differences. Although it's not unusual for Chinese colleagues to speak English, it's not the norm, either. Grenier says he finds it helpful to send his colleagues visuals and an agenda, in English, prior to having a telephone discussion, which gives them an opportunity to share it with their team beforehand. "If you just start talking about something and say, ‘I'll send you an e-mail later,' that doesn't cut it," he says, "because they may have 10, 12 people in the room, and only a third of them speak English well."
Indeed, the operations and technical people may have only spotty English-language skills. "So it's good to get material to them early in their morning, and then try to meet them midday. That way they have time to digest it," says Grenier.
Just as important is to keep explanations plain and clear. Use illustrations whenever possible. "Visuals and illustrations go miles beyond anything you can write," says Grenier.
Soofer concurs: "We do a lot of things with pictures. We don't work with words anymore because there tends to be misinterpretation of what it is you're asking somebody to get done." (Another, perhaps unexpected plus, for companies dealing with China, says Grenier, "is you'll find out in a matter of weeks whether your documentation system is good.")
When he travels to China, Grenier says he doesn't use a translator. "There's always one or two people who speak English well enough that you can get by." Speaking Mandarin, therefore, is not a requirement for U.S. engineers, but "if you work in China long enough, you're going to pick some up just by default." In the central areas of major cities, where tourists are more common, English is widely spoken. "In fact, it's not uncommon to have an English menu dropped in front of you in a restaurant in central Shanghai, by default. I've even had knives and forks show up once or twice," he says. In rural areas, as well as on city peripheries, English is much less common.
Juarez, on the other hand, says that U.S. businesspeople traveling in China without their own translators do so at their own peril. "It's imperative that you bring one from the U.S., someone who speaks excellent English and Mandarin, and most likely is of Chinese ancestry." Ideally, the translator will also have expertise within your particular industry, though that's not essential. "The main thing is, you want someone who can help you get your key points across and help you navigate the cultural issues in a social setting." Otherwise, he says, there will likely be tension and apprehension on both sides, which is hardly conducive to good business.
Just as important is for U.S. partners to learn basic conversational Mandarin. "It shows that you're interested in more than just doing business. It will help gain their trust," says Juarez.
Grenier travels to China once or twice a year, typically for a week to 10 days. Given the double-digit travel time, it hardly makes sense to stay for a shorter period.
Once there, business and pleasure are difficult to separate.
Breyer, of Oconomowoc, notes that his Chinese colleagues have a high regard for personal relationships. "They get very personal with you-you'll talk about family, some of your beliefs, things that are usually taboo in American business," he says. "But they need to have that trust and personal feeling to do business with you."
Grenier says his most successful trips have been those when he and his Chinese colleagues convene after the workday for a meal or shopping or some other outing. "You bond," he says. "They get a chance to see you in a nonwork environment, and you do the same, and it breaks the ice a little bit."
Spending time with colleagues in this manner also has other benefits. "You essentially get a tour guide, someone who can help you figure out how to get around the city, where the bargains are in the marketplace, when to take the subways," Grenier says. Those same colleagues can also help with basic language instruction.
As a result of these interactions, Grenier says his business relationships are stronger even after he returns to the United States. "It helps when we're talking on the phone to know what the other person is like, what their personality is," he says.
If anything, working in China has become nearly routine for Grenier, who says it will become the norm for more U.S. colleagues in the very near future.
"China's technical capabilities, and the country itself, have grown tremendously in the past five years," he says. That's not to say the growing pains have disappeared completely. He recalls a visit to one factory, where he was told board production would be held up because the state electric company had mandated a 24-hour electricity shutoff in the plant for the following day. But such glitches will disappear in the next several years, he predicts, while technical capabilities will continue to march forward. "I don't think there's any stopping it," he says.
As a result, Grenier expects manufacturing engineers will begin looking to China from the get-go. "They're going to ask, ‘Why even start building product here? Let's just start it in China,'" he says.