Evco Plastics President Dale Evans first started doing business with China in 1986, back when China was on almost no one's radar screen in the U.S. plastics industry.
Looking to save money on molds, Evans and Chinese-born employee Liu Qingchang took a trip to the rolling grasslands of Inner Mongolia, to visit the simply-named ``Plant Number Two'' in the industrial city of Bao Tou. A Chinese newspaper article Liu found said it was the mainland's first shop to export an injection mold to the United States.
The trip was not easy to arrange, either logistically (a very slow 17-hour train ride from Beijing to Bao Tou) or politically. Plant Number Two was owned by Chinese defense contractor Norinco, and Evans' request was so unusual, he learned years later, that the government sent two security agents to quietly shadow him.
But the business appointments went well, and Evans hosted a return delegation at Evco's DeForest, Wis., headquarters. Norinco was looking to diversify and modernize, and after several more trips, Evco in 1989 bought 51 percent of a Norinco mold shop in Shenzhen, next door to Hong Kong, in one of the first places in China to open to investment from the West.
Today, Evco owns 85 percent of that factory, and China is a key part of a global strategy that includes operations in Mexico and the United States. The company opened up a wholly owned injection molding and assembly plant in Shenzhen last year, and anticipates more growth there.
It has given Evco and Evans a front-row seat at the changes sweeping manufacturing in China and the United States.
Riding the wave
During a tour of the facilities in June, it becomes clear that some things in China have changed a lot since Evco first went there, when everyone rode bicycles to its factory.
The mold-making shop sits in the very well-to-do neighborhood of Shekou, where the wealthy BMW drivers, Starbucks, Subway sandwich shop, waterfront condos and golf driving range would blend in with any upscale American suburb.
Shekou and the rest of Shenzhen are certainly not representative of China, any more so than boomtowns like Silicon Valley are representative of the United States. But Evco's operations there do offer an interesting glimpse at one potential road ahead for U.S. manufacturers.
With $74 million in sales and 700 employees, Evco is not a small company, but neither is it among the industry giants with vast global resources. Still, Evans said he has to be able to offer the same manufacturing options they do to stay competitive.
``I would love it if all this China stuff went away, and I would love to produce more in the United States,'' he said. ``But you have to be realistic, China isn't going away.''
So far at least, Evco's been able to ride that wave successfully, he said.
Evans said the company has not had any layoffs as a result of its global push (although it has had some he blames on general economic doldrums), and its U.S. business is up 30 percent this year.
Having a presence in China has actually helped gain new business back home and keep U.S. employment steady, Evans said.
During a day spent touring Evco's two China operations, some advantages become obvious, like cost. The company's NE Mould and Design Co. Ltd. joint venture can make molds at 50 percent of the U.S. cost, with the same quality, said Liu, now general manager of the tooling company.
But challenges are also apparent.
Like many companies in the heavily industrialized south China coast, the molding plant loses power frequently, typically every Wednesday. So the company is paying to put in a better generator.
Electricity is in short supply in Guangdong Province, so the local utility makes use of scheduled, rolling blackouts. It's able to provide one day's warning before each cutoff, or at least it does, ``nine times out of 10,'' said Jason Lam, administration manager of the Shenzhen operation.
Labor conditions in factories in booming Guangdong can also be a challenge. Newspapers periodically describe strikes or riots over working conditions, including working seven days a week for less than the equivalent of US$100 a month.
Evco officials said they have to deal with substantial employee turnover, which is common, including among workers who have migrated there from poorer provinces inland.
Lam said Evco tries to minimize turnover by offering better pay, working conditions and accommodations than many nearby firms. Like many Chinese factories, the company provides housing for employees.
Lam said Evco houses four workers per apartment, in a building it rents near the plant, while most other companies in the area put eight employees in similar units. Supervisors or higher-ranked employees have two people to a unit.
Evco also pays overtime, tries to schedule only eight to 10 hours of work each day, and provides employees with at least one day off each week, he said.
The company follows Evco's U.S. standards for safety, he said, and it tries to cut down on turnover by hiring married women, who are seen as less likely to leave the coastal boomtown to return home.
Lam said the company wants workers to feel comfortable bringing concerns to management.
``We let all our employees talk freely to their bosses or supervisor, so they can express themselves,'' Lam said. ``That strengthens their sense of belonging.''
The plant is built on the same model as any another Evco plant. One of the company's goals is to have the same systems and training in every plant, to make them indistinguishable. All the company's plants are climate controlled, for example, whether in the United States, Mexico or China.
``People think we're crazy in China to do that,'' Evans said.
Evans said the company's policies in China probably do make it less competitive, but he said closely following Chinese laws, even if he suspects others may not, is a good idea because laws in China can be selectively enforced, and the country can be a challenging place to navigate.
Having Norinco as a partner in its tooling venture, for example, opened doors and made it easier to do things, he said. In 1989, Norinco was one of the few Chinese firms with a license to export, making a partnership necessary at the time.
Evans said he negotiated seriously with several companies at the time, but chose Norinco because its officials were ethical in their dealings with him, while other companies hinted at bribes.
``They were honest people, they did what they said they were going to do, in the time they said they would do it,'' Evans said. ``It's been a good relationship, they have clout and if we want to do something, problems just go away.''
Still, when the company built its injection molding plant last year, it decided to take advantage of looser Chinese laws and start the operation on its own, without a local partner.
It worked, Evans said, but even with Evco's experience there, they found that everything took six months longer than they thought.
``Everything in China is relationships,'' he said. ``In tooling, we had long-term relationships. In injection molding, we were kind of starting over.''
While company officials say they are happy with the pace of their molding start-up, it has not been quite what was expected.
The Shenzhen molding plant, in fact, is not growing as fast as Evco's Monterrey, Mexico, plant did when it opened. That facility started at a pace of $1 million a year when it opened in 2000 but grew very quickly to $1 million a month within the first 12 months, Evans said. Evco is getting ready to open a second Monterrey plant this summer.
China has been slower. Shenzhen opened in January 2004 and had about $3 million in sales that year, and will hit $5 million this year, Evans said. The 73,000-square-foot plant has eight injection presses, but room for 30.
``We opened the plant and expected a lot to happen and for six months, nothing did,'' he said. ``But eventually, projects started coming in.''
Right now, all the work in Shenzhen is exported, either to Evco plants in the United States or to customers in China, who in turn ship it outside China. Evco Shenzhen bought some larger presses, up to about 1,350 tons, with the plan to develop large-part molding for the local market.
Another contributing factor to the slower-than-expected China growth, Evans said in an interview from his Wisconsin office, may stem from his own ambivalence about sending work offshore, if he has a choice: ``We're maybe not pushing as hard as we could have, to protect the business here.''
He said China is a cheaper manufacturing spot, although the privately held company declined to talk in much detail.
Evans said the firm saves money on labor, of course, particularly salaries for supervisors and engineers. Good equipment made locally costs about half what similar equipment in the United States costs, but raw materials costs are about the same, and electricity costs can run higher.
One area where Evco sees significant savings is in taxes: The operation has a 15 percent tax rate, and if it reinvests that back into the firm, Evco gets an 80 percent rebate, making its tax rate about 3 percent, Evans said.
The company's presence in China has come a long way from its initial $300,000 investment in the Norinco plant.
Evco spent a lot to upgrade the plant, making it one of the first in China to use computer-aided-design software and bringing a skilled mold maker from the United Kingdom to live in Shekou from 1992-94 and teach its employees, said Liu, general manager of the operation. Today, NE Mould looks like any mold shop in the United States.
Liu, who was a management student at the University of Wisconsin when he met Evans, seems at home in the two cultures, and has two adult daughters who live in the United States.
China is more of a market economy than many outsiders realize, and it can no longer really be thought of as a planned economy, he said. The country has issues with too much disparity between rich and poor, like many countries, he said, and its companies sometimes worry about losing jobs to lower-cost areas as well.
Heavily industrialized spots worry about jobs going to new industries in cheaper areas, he said: ``Shenzhen has that feeling toward the northern part of China.''
And China faces other challenges, Evans said, that could burst what looks to the outside like an economic miracle. Its weak banking system could stumble; or rising unemployment, once the country opens its agricultural markets under World Trade Organization rules, could threaten social stability.
Right now, China's draws for Evco are the same as for many smaller U.S. companies: low-cost manufacturing and being able to serve larger global manufacturers.
The injection molding plant cranks out labor-intensive components and assemblies for products from hunting equipment to cameras to garden hose nozzles, and the manufacturing platform reflects that focus.
The U.S. operations, for example, have 88 injection presses, with about 55 robots. Mexico has 24 presses, with five robots, and China does not have any automation. But, ``we'll probably start to buy robots in China pretty soon,'' Evans said.
He compared China to Japan, another country not known for quality when Evans first started exploring ventures there in the 1970s.
He said he feels like he missed opportunities in Japan, but thinks that China, which is at the early stages of exporting its own brands of appliances and cars to Western markets, will catch up.
``China is following the same path, and there will be a point in time when China is known for quality,'' Evans said. ``They are going to do more with less, and they are going to be more productive. That is a scary thought.''