Coming to Grips With China

There’s no doubt that China is on the minds of many U.S. manufacturers today, both large and small. And that’s as it should be, says John F.

Jack Perkowski
Jack Perkowski

“Jack” Perkowski, chairman and chief executive officer at Beijing, China-based Asimco Technologies Ltd. (www.asimco.com), an automotive components maker with 18 manufacturing plants in the country.

“Based on what I’ve seen happen in China, it’s absolutely essential that U.S. manufacturers of all types of products come to grips with China, and in some way incorporate China into their manufacturing strategy,” declares Perkowski, a former Wall Street investment banker who founded Asimco in 1994. The company today is one of the largest independent components manufacturers in China, and also operates three plants in the United States.

Given the huge size of the Chinese market and the country’s rapid economic growth, it is inconceivable that any manufacturer 20 years from now could be a global leader without a meaningful presence and participation in China, Perkowski believes. That means that U.S. manufacturers, including small to mid-size companies, must find a way to get involved in China, be it through joint ventures or by other means, he advises.

As scheduled keynote speaker for National Manufacturing Week 2006, March 20-23, in Rosemont, Ill., near Chicago, Perkowski will discuss some of the things he has learned about manufacturing in China. And during a recent conference call with reporters, he previewed some of his thoughts on the topic.

Time warp

One thing that U.S. manufacturers must recognize is that China is at a different stage of development than the rest of the world, Perkowski says. During the socialist period from 1949 to 1978, China went through a “time warp,” during which the country developed very little from an industrial point of view, he says, while the rest of the world developed enormously. As a result, some U.S. companies make the mistake of trying to implement a business model in China today that was designed for the much more developed U.S. economy, Perkowski says. But in fact, he notes, a business model that was used 30 years ago in the United States may be more applicable in China today.

Far from being a centrally planned monolith, as some believe, China, in fact, is very decentralized, and business is done on a local level, Perkowski points out. This means that business relationships must be developed locally. The extreme decentralization can produce problems for manufacturers, including “overcapacity in just about every industry in China,” Perkowski warns. And it also fosters “spotty enforcement of issues like intellectual property (IP) rights.”

Perkowski says that IP violations tend to be most severe in China for products that are relatively easy to manufacture, and that are sold into the retail market. Golf clubs or pens are good examples. But for more technically sophisticated products of the kind that go to the original equipment market, there are fewer IP violations, according to Perkowski. “I think companies are finding that bringing sophisticated, higher technology products to China is not the kind of intellectual property nightmare that one would normally think about.”

Nonetheless, Perkowski notes that manufacturers can take steps to protect their IP in China by setting up their own wholly owned subsidiaries in the country. Another approach involves breaking up the manufacturing process for a product into more than one location, he adds, which makes IP theft more difficult.

Find Chinese managers

Perkowski also stresses the importance of local management. “The way to be successful in China is to identify, develop and empower local managers,” he asserts. This can be easier said than done. While many U.S. companies employ Chinese managers, some have trouble overcoming their fears enough to truly empower those managers and “give them the keys to run the business.”

Further, local managers in China can be difficult to find. While there is a “vast heritage” of engineering in China—some 37 percent of Chinese undergraduates study engineering, says Perkowski—the same is not true of management. “Management as a science has really only been taught in China since the early 1990s, when China established its first business school,” he says. “So there isn’t really a plethora of management talent.”

This means that local, on-site training is important in China. “And frankly, it’s something that Chinese managers welcome and really look forward to,” says Perkowski, who adds that a strong training program can be an important tool for the retention of Chinese management talent.

China, not India

Upon founding Asimco in 1994, Perkowski made a conscious decision to focus on China, based on its strong record of economic development after 1978, and on faith that this trend would continue. He hasn’t been disappointed. But when the topic turns to India, and its manufacturing potential, Perkowski sees a significantly different scenario.

“I have visited India a number of times recently, and frankly, the infrastructure there is worse than it was in China in 1994,” he says. Good Indian companies have generally focused on business models that don’t rely on physical infrastructure, but basically rely on a broadband Internet connection, he contends. “So I think the Indian market is developing very differently than the China market.”

Ten years ago, the car markets in China and India were about the same size, but the Chinese car market today has grown to about five times that of India, according to Perkowski. “And I think that has probably happened in industry after industry,” he adds. “So clearly, India is going to play a role going forward, but I think that China is the country today that is really dominating Asia.”

In exhorting U.S. manufacturers to get involved in China, Perkowski maintains that the opportunities are boundless. But he also offers a caution. “I’ve learned that there are really only two rules in China,” he concludes. “Rule number one is that everything is possible. Rule number two is that nothing is easy.”

Wes Iversen

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