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Elephants Are the Answer- Part II

Feb. 16, 2010
Where the Chinese Excel at Producing Things, It's No Secret That the Quality Often Is Horrendous. Their Acceptable Standards Aren't the Same As Those in Western Countries
By Mike Bacidore, Managing Editor

In my January column, I offered pertinent and poignant elephant jokes as vehicles for explaining why time is running out on machine builders and controls engineers who want to avail themselves of the opportunities presented in China. Madcap hilarity ensued, and those opportunities were revealed.
This time, with a bit more emphasis on real-world examples and research, I'll lead the elephant that is China back into the middle of the room, so that we might give it a closer look and make more jokes about it. The fun just never stops. If you missed Part I of this piece and would prefer to read both parts of this column in its entirety, visit www.ControlDesign.com/elephant.

While the Chinese are dedicated financially to improving their machine quality, they appear content to stick to their strengths and let the rest of the world speak the higher-level machine languages, which bring us to our next riddle: What did the cat say to the elephant?

"Meow." That is what cats say, after all, and western machine builders confidently speak their own languages and allow software like E-CAD to translate. Art Sawall, vice president of global electrical business, Bentley Systems (www.bentley.com), opened an office in Beijing almost 10 years ago when he owned ECT and one of his employees, a Chinese native, wanted to return home. "I've been there 30 times since then," says Sawall. "We were one of the early entries in the market. I wondered why companies would want to buy our product when they could have a Chinese engineer? Then I realized it's the quality of work."

Where the Chinese excel at producing things, it's no secret that the quality often is horrendous. "Their acceptable standards aren't the same as those in western countries," says Sawall. "For every three Chinese developers, you'd need one American developer. The smart Chinese companies that want to export their goods figured out they need the right tools and engineers to make their machines acceptable in foreigners' eyes. The Chinese are clamoring to be accepted."

Demand for industrial controls in China is forecast to expand 13% per year through 2013, according to "Industrial Controls in China," a new study from the Beijing office of The Freedonia Group (www.freedoniagroup.com), a Cleveland-based industry research firm. Growth will result primarily from the ongoing expansion of manufacturing output in key industries such as motor vehicles and electrical and electronic products, according to the study. The Freedonia Group also predicts a move toward integrated, high-end application performance enabled by software-based motion controls in China.

This begs the question: How do you make an elephant float?

While everyone knows the ingredients include one elephant, two scoops of vanilla ice cream and 12 oz of root beer, the important takeaway here is China requires controls components, software and expertise from other countries for more-advanced manufacturing technology. It needs other ingredients.

One advantage of foreign-based companies is the ability to customize for specific clients, which helps in the market for special-purpose industrial controls, such as material-handling controls and metal-mill controls, says Hanxing Huang, industry analyst at Freedonia. Foreign firms participate in the Chinese market either by directly exporting to China or by establishing a manufacturing presence through joint ventures (JVs) or wholly-owned foreign enterprises (WOFEs), explains Huang.

"Both WOFEs and JVs are popular choices for foreign companies looking to participate," he says. "Many companies engage in both. When foreign firms decide to set up a JV, their work revolves around searching for and selecting a suitable partner. In the case of setting up a WOFE, selecting a location is key, as regional disparities in logistics, markets, levels of economic development, human capital and government policies are enormous in China. Foreign firms seeking to export to China are occupied chiefly with searching for distributors or agents."

Yes, those are a lot of details and options to digest before creating a strategy, but making the most of the opportunities in China can be accomplished by simply remembering the best way to eat an elephant—one bite at a time.

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