The Pacific Rim long has been both a fascination and an enigma for those in the West. Many in the plastics industry, especially mold makers, view Pacific Rim countries such as Taiwan and Hong Kong with a jaundiced eye. Now, China has emerged not only as a competitive force to be reckoned with, but as a huge potential market of 1.2 billion people.
Representatives from several U.S. plastics companies attended Chinaplas '96, held March 19-23 in Beijing, including Gerald Hobson of Hobson Bros. Aluminum Foundry and Mould Works in Shell Rock, Iowa.
Hobson sees China as an opportunity to increase business. With a booth at China-plas, Hobson came home with contacts from 37 countries, all asking if he would build molds for them in China.
With one full-time salesman and one part-time representative in a sales office in Beijing, Hobson's focus is on building blow molds for the automotive industry in China, a market that has explosive growth potential.
Jon Huntsman Jr., vice chairman of Huntsman Corp. in Salt Lake City, agreed that China offers tremendous opportunity. Huntsman said U.S. companies
``need to be optimistic and persistent when engaging the Chinese market.''
China has many barriers to business, such as high tariffs, that make it difficult for a U.S. company to maintain a permanent presence there, he said.
``With the exception of Fortune 500 companies, it's a very expensive proposition,'' Huntsman said. ``It costs between a quarter- and a half-million dollars annually per expatriate employee.''
Jim Meinert of Snider Mold Inc. in Mequon, Wis., went with a delegation from the Department of Commerce on a plastics trade mission to China last month. Meinert, who has visited China seven times, builds molds for multinational customers that operate plants in China.
Meinert's company molded the plastic seats for the airport at Beijing, and built pallet molds for Coca-Cola Co. and door molds for a company in Shanghai. On this trip, Meinert focused on the automotive industry and the possibility of building molds for interior trim and grilles for Volkswagen. He also toured the Peugeot plant.
Multinational firms look to suppliers outside China, particularly in the United States or Europe, because they have a problem finding reliable suppliers in China, Meinert said.
Mold makers in Chinese-owned shops work eight hours a day, he said. Most shops have more workers than needed, but bosses are prohibited from firing anyone. Keeping people employed often means slowing the work pace and using more people on a job than required.
Paul C. Roche, president and chief executive for injection molder Erie Plastics in Corry, Pa., also went on the trade mission.
``The highest priority of the government is creating a lot of jobs,'' Roche said.
For example, he said he saw 10 people changing an extrusion die in a plastics plant, and another 10 people descended on his hotel room each day to wash the window.
Roche said the socialist mentality is prevalent, and there is no thought of productivity or efficiency.
``Shifting the people to a free-enterprise system of doing business will take decades and generations to accomplish,'' he said.
Because the goal is to keep people busy, short lead times on molds are nonexistent. Meinert had a Chinese mold-making shop quote a large pallet mold. Although the price was one-third of what Meinert's own price would be, the lead time was eight to 10 months.
``The guy couldn't even guarantee me that, and said it might take a year,'' Meinert said. ``They just don't get it.''
Huntsman, who speaks fluent Mandarin Chinese, noted China is a continent divided into two parts.
``In the northern component the economy does not flourish and decision making is painfully slow,'' he said. ``There's not the entrepreneurial zeal there is in the southern region.''
Huntsman said that much wealth has been created in southern China in the past 10 years.
``In the south, there are some very enlightened policies which have served to level the playing field for business. That's where business is most easily enacted. People there take to the free market easier than those in the north.''
Business people in the south have more autonomy to conduct business without state approval, and more companies have been allowed to privatize.
The southern region also re-ceives most of the investment dollars that flow into China, Huntsman said. Its proximity to Hong Kong makes it more easily accessible to the rest of the world. The distribution system within China is not as advanced because the transportation infrastructure is lacking, so it's an advantage to be near Hong Kong.
The lack of adequate transportation in China is another problem businesses face, Meinert and Huntsman agreed.
``The highway system is almost nonexistent, making it almost impossible to move things around,'' Meinert said. ``One mold supplier uses a moving company to ship his molds, and some hire the army to move molds and equipment because they have trucks.''
That is why many multinational corporations want their suppliers to build plants near them. Companies such as Coca-Cola want bottle and pallet manufacturers to put plants adjacent to their plants to facilitate supplies, Meinert said.
Quality is another reason multinational companies want U.S. and Euro-pean suppliers to come to China. Meinert said the quality of molds and molded parts produced by Chinese companies is unreliable, and certainly not up to Western standards.
Huntsman compared the quality of finished goods produced there to what the Japanese produced in the early 1950s.
However, the Chinese want the technology and are gathering all the information they need to become a ``fully developed nation, an economic superpower, and nothing is going to stop them,'' he said.
``I fully anticipate we'll see some very high-quality goods in all industrial areas coming out of China.''
Obtaining the technology to bring Chinese mold making up to U.S. standards means finding a joint venture partner to provide the equipment and training.
Through joint ventures, Chinese mold makers can find the technology, equipment and training to ``bring them up 30 years immediately,'' Hobson said.
Huntsman said China has a talented labor pool, and companies seeking partners find workers with many of the necessary skills, such as engineering knowledge. Mold making itself might be as good as in the United States, but locating quality raw materials still is a problem.
Some U.S. mold makers believe that joint ventures offer easy access to the otherwise difficult Chinese market. But the pitfalls of joint ventures exist.
Because it wants to own technology, China has imposed stiff trade barriers, making it nearly impossible to manufacture outside the country and export products to that country, according to Roche.
``Whatever you do, you have to do it in China and you have to bring your money with you,'' Roche said. ``All China has to offer is a pool of labor.''
China's political instability remains a concern. Whatever investment a firm makes in China today could be taken over by the Chinese government tomorrow.
Todd R. Kennedy, president of McClarin Plastics Inc., a custom thermoformer and fiber-reinforced plastic composites fabricator in Hanover, Pa., dislikes the lack of autonomy businesses have in joint ventures in which all the labor is assigned by the government.
``You have people working for you, but they really work for the government. You have to pay for their housing, medical care and retirement,'' said Kennedy, who participated in the recent plastics industry trade mission.
In China, there's no such thing as ``right-sizing'' your company, Kennedy said. The government ``tells you, based on the amount of your investment and the size of your company, how many workers you will hire.''
One concern Hobson has about the prospect of a joint venture is protecting aspects of design engineering, mold making and other proprietary processes.
``Once we expose our technology and show them how to [build quality molds], how do you monitor that and keep receiving payments on it?'' he asked.
Hobson Bros. is exploring a joint venture partnership with one of China's premier makers of blow molds, which supplies molds for Volkswagen and Audi fuel tanks. The principals from China visited Hobson the week of April 8.
Hobson said that because the company he is talking with does not have the cash to invest, Hobson Bros. will do the engineering and design, the Chinese company will build the molds and the two companies will split the profit.
Hobson said a firm could protect proprietary rights by selling the technology and taking royalties on each mold the Chinese company makes. But then the question becomes, how do you ensure that you are being paid on each mold and collect the money?
Huntsman said U.S. companies must be wary when it comes to technology transfer. According to some published estimates, U.S. companies lose $2 billion annually in intellectual property theft by the Chinese.
``The Chinese hold technical seminars and invite anyone with new technology ... pick your brain completely for what you know and implement it themselves,'' Huntsman said.
Meinert said he is not so much worried about technology theft as he is the more practical side of running a business there.
``It's a stretch to maintain molds for some of my customers there, so the next natural step would be a joint venture with a Chinese mold-making company for repair and maintenance,'' Meinert said. ``I was thinking seriously about a joint venture until this trip, and now I've totally reversed my thinking.
``I would only have a wholly owned company that I'd start from scratch,'' he added. ``To try to teach old dogs new tricks would be impossible.''
McClarin's Kennedy said he learned a great deal about the country and the way China does business during the trade mission. His conclusion:
``We won't be part of China for a long time, if ever.''
Kennedy said there are other Asian countries, such as Singa-pore, that better understand the capitalist structure and the forces that drive it, such as productivity and efficiency.
Some types of plastics manufacturing might work in China, said Kennedy, such as proprietary manufacturing of consumer goods for a large company there. But for a design and application engineering firm that manufactures custom products, China just does not make sense.
``I think we were interested because China has great potential,'' Kennedy said. ``But I realized on this trip that its potential will always be unrealized from a perspective of molding.''
Politically, Kennedy said China is ``very complicated'' - a nation broken up into hundreds of provinces and a ``maze of fiefdoms,'' each with its own political structure, idiosyncrasies and ways of doing and attracting business.
Despite the negatives of doing business in China, large multinational companies encourage their suppliers to consider that country. Erie Plastics molds consumer packaging for large companies such as Procter & Gamble Co. and Gillette Co. that are establishing a presence in China, which is why Roche signed up for the trade mission.
``[These customers] told me I need to prepare to be a supplier to them in that market,'' Roche said.
People along coastal areas such as Hong Kong have access to consumer goods, but there are more than a billion people in the interior of the country that have barely been approached.
``In [the United States], market growth is driven by increases in population or market share,'' he said. ``Market growth in China is driven by the income level rising enough to enable people to afford a bottle of shampoo.''
Roche said that only about 5-10 percent of China's population can afford to purchase consumer products. As incomes rise, so will demand.
The prospect of selling products to more than a billion people becomes tantalizing for companies that conclude that if they could just sell one hamburger -or widget or bottle of shampoo - to each person in China, they'd have it made overnight, Hunts-man said.
``If you visit China and attempt to do business there, you'll be respected,'' Huntsman said. ``They use the term lao peng you, meaning an old friend, as someone who becomes familiar with the culture and market of China. But, China is an acquired taste and takes getting used to.''