Consultant Helps U.S. Companies Move to China

Hundreds of American companies have moved their businesses to China, lured by cheap labor and low production costs. But China's commercial laws and regulations are very much in their infancy and new foreign companies have to tread carefully. One consultant is helping businesses make the leap.

STEVE INSKEEP, host:

This morning, we're meeting a consultant who helps US companies move to China. American manufacturers say they have to compete against what they often call the China price. That's what their product can be sold for if it's made in China for less. Every year, many American companies move some or all of their production to China but it is not so easy once you get there. China is still a developing country and doing business there can be risky. NPR's Adam Davidson spent time in the US and China with a man whose job is to help American companies move.

ADAM DAVIDSON reporting:

Kent Kedl says he's helped about 200 American companies move at least some of their production to China. He's the number two man at Technomic Asia, a consulting firm, and he says that when he sits down with a client for the first time, he always says the same thing.

Mr. KENT KEDL (Consultant): `Why do you want to do this? Why are you interested in China? I mean, do you not have enough pain in your life?'

DAVIDSON: Chinese commercial laws and regulations are still in their infancy, Kedl says, so crazy things happen. Intellectual property is stolen. Some factories can't produce anything of quality. American companies lose millions. In the 1990s, mostly big multinationals went to China. Kedl says they did a lot wrong but had enough money to ride out their mistakes. Now he says more small or medium family owned manufacturers are heading to China. They have less room for error and fewer resources to analyze China correctly.

Mr. KEDL: You know, so they meet some Chinese company at a trade show and the Chinese company paints a beautiful picture about how they can move all their manufacturing to China and save a whole bunch of money. And they get giddy about that. And that's a pretty ridiculous way of looking at things.

DAVIDSON: A perfect example, Kedl says, is Alexandria Extrusions, which makes aluminum parts. They're in Alexandria, Minnesota, a two-and-a-half-hour drive from Kedl's hometown of Minneapolis. Kedl just returned from China to present a report here. A few years ago, Alexandria Extrusions did exactly what Kedl warns against. They met some Chinese businessmen at a trade show and decided to go into business together. The partnership ended abruptly. This time around, Alexandria hired Kedl to find the perfect partner. He and his staff looked at more than 200 Chinese aluminum companies until he came up with the five best. The first voice here is Tom Schabel, Alexandria's owner.

Mr. TOM SCHABEL (Owner, Alexandria Extrusion): Are there any pretty ones in there?

Mr. KEDL: Oh, yeah, there's a couple gorgeous ones in there. Again, we're going to have to dress you guys up but, you know, I think we can do that. No, seriously, there's some good-looking...

Mr. SCHABEL: There are.

Mr. KEDL: Yeah, I think there are very good-looking options and the thing that I like about it is that it's--compared to some of the...

DAVIDSON: Out of all those Chinese plants, Kedl found only one he liked a lot. On Alexandria's factory floor, a giant machine cuts large aluminum rods, heats them and then shapes them into parts for boats, cars, computers, medical equipment. Alexandria's work has to be precise, a level of quality that few, if any, Chinese companies can yet match. Alexandria's customers, mostly large multinationals, are becoming more and more global and want their suppliers to become so, too. Schabel, Alexandria's owner, says he'll never fire his workers here and start all over in China, but he has to find a way to manufacture there as well as here to stay in business. Schabel liked Kedl's report and they're planning a trip to China in October to meet with a company Kedl recommends.

A week earlier, Kedl showed me around Shanghai to see the other side of US-China business. We visited Wadong(ph), a company that makes cement mixing equipment in an industrial part of the city. Kedl, in his fluent Chinese, talks to the company president, Che Chen Yo(ph), about his vision. Kedl explains.

Mr. KEDL: This is the new area here. We're looking out over a field of--it looks like you're on the Plains of North Dakota here, looking out over a field of grass that's (Chinese spoken)...

Mr. CHE CHEN YO: (Chinese spoken)

Mr. KEDL: ...20,000 square meter building. He said he can build it as beautiful as anybody wants it.

DAVIDSON: Che wants an American partner on this new venture. He doesn't want just money, though he will ask for around $50 million. He's desperate for technology. Che wants to move up the value chain to make more sophisticated construction equipment. Kedl spends about half his time in China with Chinese factory managers and half his time in the US with Americans. He says the Chinese are as eager for American money and know-how as the Americans are for cheap Chinese labor and the enormous Chinese market. That mutual excitement often leads to quick and poorly thought through partnerships between American and Chinese firms. Kedl says you have to look more deeply to see if a partnership makes sense. So we go inside Wadong's factory for a tour. Kedl likes that this factory seems busy. We're in a section that makes cement mixers that go on the back of trucks.

Mr. KEDL: I mean, we see one, two, three, four, five trucks that are assembled. They're not fully painted yet. So they're just kind of pre-assembling them, make sure they work. Then they'll take them apart and paint them again.

DAVIDSON: But for every one person actually doing something, there seems to be eight to 10 people just kind of standing around, talking, hanging out.

Mr. KEDL: There's a lot of shovel leaners, yeah. Yeah. It's--yeah, that's typical. Again, the size of China, the number of workers, they say--well, you know, it doesn't matter how little they pay them, you know? `I don't care. As long as it gets done, it gets done, and it's still a lot cheaper than doing it in the States.'

DAVIDSON: Kedl says the factory tour is just a first step. He has a team of Chinese researchers who act a bit like spies, collecting information from customers and suppliers. They often find that a company with a beautiful factory would be a lousy partner. When we leave, Kedl tells me that with what he knows now, he could see Wadong being a great partner for an American company. Wadong could leap forward technologically and the US firm could access the huge and growing Chinese market, or, of course, it could all be a disaster.

Adam Davidson, NPR News.

INSKEEP: This is MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE (Host): And I'm Renee Montagne.

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