For American Mike Bellamy, skittishness about what can go wrong with manufacturing in China has become a business opportunity.
Bellamy, who operates a small plastic mold-making, assembly and manufacturing company in China, Passagemaker Inc., believes concerns Western firms have about intellectual property theft and poor quality in China are creating chances for his Shenzhen-based company.
The firm, which started sourcing plastic and metal parts in the late 1990s and formed a joint venture in 2002 with a Chinese manufacturing partner, got its start after some multinational clients came to him with concerns about getting their product designs ripped off in Chinese factories.
Now, the company is taking its contract manufacturing business model another step, to form joint ventures with customers where Passagemaker sets up a new factory and operates it with the existing customer, typically in an equity partnership, Bellamy said. Thus far it has formed two: one to make a piece of emergency medical equipment and another to manufacture synthetic rubber auto parts.
``That is the future of our company,'' said Bellamy. ``The idea of the joint ventures just developed organically as customers came to me and said we want to bring more technology over to China, but we need our name on the business license.''
It's negotiating two more JVs, to make antennas and children's toy carts, and it's searching for other companies that would be a fit, he said.
Right now, the JVs have come from existing customers it does manufacturing for at its factory in Dongguan. If volumes get high enough and the customer wants it, the companies move the work to a new factory, with both firms as partners, he said.
``Right now I'm putting a lot of energy into helping to spin off these JVs,'' said Bellamy, speaking in an interview at his Shenzhen headquarters.
Bellamy, who speaks Chinese and Japanese and has lived and worked in Asia for a decade, said he built Passagemaker as a ``black box'' that would source key components for customers and then do the final assembly in his factory.
The firm started as a consulting firm sourcing components and evaluating potential manufacturing partners for Western clients, but some, including those making products for large U.S. home-improvement stores, suggested he get into manufacturing.
``Customers would come to me and say, `Mike, we have these great designs, and the products coming out were decent quality, but we're really worried that if the Chinese mega factories with the best pricing get a hold of our designs, they're going to run with it,' '' he said. ``They recommended I get out of the service business and into manufacturing.''
Passagemaker's evolution from a startup into a firm with 200 employees provides a snapshot of how one company is adapting to changing manufacturing in China.
The firm, for example, stopped doing most plastic molding in-house because there were too many local competitors to make it profitable. To protect product security and quality, though, it retains its 20-person mold-making shop, said Brian Garvin, director of new business development.
Bellamy's business success seems linked to how foreign firms view China's IP situation - the more concerns they have, the better his potential business. But he acknowledged the country's IP environment is getting better.
For Passagemaker, IP protection boils down to physical steps, such as tightly controlling final assembly and having Passagemaker staff closely oversee molding at subcontractors, rather than relying on courts and legal protection. He's testified in Chinese courts for clients.
``Every intellectual property court case I've been involved with, four, we've won,'' he said. ``We're winning in the courts, but it's such a hassle to go through a court case in China, it just makes so much more sense to physically control and not rely on the legal documentation so much.''
His advice for foreign firms in China is to take the time to register your IP.
``The biggest piece of advice I give to new customers, if you have a brand or some IP you want to protect, is register your trademarks and your brand name first,'' he said. ``You have to play by the Chinese rules. In America, it's a first to market system; in China, it's a first to register system.''
He said criticism of China's IP system often ignores how firms in the United States and elsewhere fuel the problem.
``China gets a black eye in the papers every day about intellectual property, but the real drivers of this knock-off game are unscrupulous competitors in America that take your product and go to their Chinese suppliers and say `Tweak this a little bit or replicate it,' and then they put the blame game on the China side,'' he said. ``Really it's your competition in America that might be taking your ideas and telling the Chinese factory to make this. It's really a pull rather than a push.''