Quick: Name an issue that both enrages and empowers, sometimes at the same time.
If you said China, you'd be right. Any discussion of moving work to the Pacific Rim brings talk of both opportunity and great risk, depending on how a company goes about it. The bipolar nature of any such discourse was brought to life during back-to-back speeches at the Management Day conference June 24 at Plastics Encounter Midwest in Cleveland.
The China debate kicked off with a talk by Jeffrey Wincel, president of Holland, Mich.-based LSC Consulting Group, during a panel discussion on managing supplier relationships. Wincel, a supply-chain consultant who has worked for several North American automakers and suppliers, talked of the fallacies inherent in any move to China.
While working in the purchasing departments of General Motors Corp. and Ford Motor Co., Wincel told his suppliers that they should follow the car companies to different parts of Asia. The promise of work and growth was dangled, he said.
``Offshore sourcing isn't new,'' Wincel said. ``We encouraged suppliers to come with us. We lied to them. Now, that's still happening in China and India.''
The pleas from original equipment manufacturers moving to China can be stirring, Wincel said. They include arguments that manufacturing is too costly in North America or Europe, that labor-intensive products bring great cost savings in Asia and that it is the company's duty to support growth in emerging markets, where potential is unlimited.
But the truth is far different from those ivory-tower arguments, Wincel said. It is bad enough that a move to China wipes out the U.S. middle-class and leads to a loss of goodwill between suppliers and customers, Wincel said. But even more alarming is the fact that short-term trends can be reversed quickly.
In other words, China might not be the hot location tomorrow that it is today. What can cause that to happen? For one thing, the cost of setting up an operation in China could be 25 percent higher than planned, just in fees to set up a difficult infrastructure, said Wincel, who has written a recent book on lean manufacturing. Suppliers also must contend with the low quality of resin and steel in China, as well as limited energy resources that cause frequent power brownouts, he said.
Couple that with interruptions in overseas shipments, and the future in China is not as rosy as some experts paint it. ``Don't believe the story,'' he said.
Yet, the story also has a flip side. While Wincel said a lack of ethical responsibility plagues some companies that move operations to China, Larry Hotaling said China cannot be ignored, unless a company wants to stick its head in the sand. China already is the world's sixth-largest economy, he said.
Hotaling, managing director of Global Diligence Ltd. of Hong Kong, provides support to companies hoping to tap growth in China. It is difficult to ignore the country's 300 million residents in its urban areas alone, or the fact that 20.4 percent of China's exports come to the United States, or its rapidly expanding technology and business base, he said.
A case in point: The country just completed the world's first magnetic-levitation train line in Shanghai, a $1.2 billion bullet train traveling at a top speed of 287 miles per hour. China built the high-speed train in one year, Hotaling said. A similar undertaking in the United States would take a decade just to get the right permits, he joked.
``China wants to exhibit to the world that they mean what they say,'' Hotaling said. ``The country is already becoming a global technology leader.''
Roads and factories consistently are being added. Some call Shanghai a New York on steroids. Its new Three Gorges Dam project - with 26 hydropower turbines providing the electrical juice of 18 nuclear power plants - will conquer the energy shortage in China within five years, Hotaling said.
And while quality steel is not plentiful inside China, buying good imported steel is not a problem: About 30 percent of all the steel produced in the world goes to China, Hotaling said.
But Hotaling recommends treading carefully. A wholly owned foreign enterprise, called a WOFE for short, is preferable to an equity joint venture, he said. Hotaling told a story of one such venture started a few years ago by New York-based venture capitalists - ``typical hard-charging Americans smoking big cigars.''
The company set up a joint venture and deposited $85 million in a Chinese bank. Pressured by the government to cut its debt, the bank made that investment disappear overnight after cajoling a plant manager to turn over company control to the Chinese officials, Hotaling said. The American owners were left with a bank balance of zero and had to pull out of China, he said.
But even going there independently takes some wheel-greasing, he added. Payoffs are not uncommon to customs and local government officials, nor are frequent dinners hosted by a company for those officials, Hotaling said. In China, work is all about guanxi, a Mandarin word for ``connections,'' and mianzi, or ``face.'' The latter requires a company never to show up or ignore an important local official.
``You have to play by their rules or you'll lose the game,'' Hotaling said. ``Nothing is as it appears in China.''
Still, even though a company must perform ``due diligence times five'' before committing to China, the country cannot be overlooked, Hotaling said. Many companies take a blended approach, keeping some business in North America while shifting some to China, he said.
``It's the world's biggest emerging market,'' Hotaling said. ``If you ain't there, you ain't selling there.''
Yet, another speaker, Marcella Turk, spoke briefly of the work done by GE Healthcare Technologies in China. Extruded sheet for thermoforming applications and some special materials, especially alloys or those for high heat, are not readily available there, she said.
``You have to know what you are doing there,'' said Turk, global sourcing leader for plastics with GE Healthcare in Waukesha, Wis.