China a key market for U.S. business
Timken Co. has been developing operations in China since the 1990s and anticipates continued growth as the country develops a capitalistic economy.
Doing business in China can be complicated, but a country with 1.4 billion people can’t be ignored.
American companies have flocked to China since the 1990s. That’s when Timken arrived, seeking new opportunities and following other U.S. manufacturers who were customers.
Timken now has more than 4,000 employees in China at five factories, 14 offices, a technical center and three shipping centers.
“It’s an industrial revolution happening right before our eyes,” Timken executive J. Ron Menning said of China’s growth.
Menning discussed doing business in China during a presentation April 8 at Kent State University’s College of Business Administration’s Global Management Center. His presentation launched the Global Management Center’s new speaker series.
Spending four years leading Timken’s Asia Pacific Division, based in Shanghai, gave Menning a perspective of China and Asia. Menning has worked 32 years at Timken and was president of the aerospace division before being assigned to lead Asian operations. Now he’s back in Canton as Timken’s senior vice president of planning and development.
Menning is optimistic about continued growth an development in China.
The Chinese government is pushing capitalism. It creates five-year growth plans and stays with them, Menning said. The plans have been reasonable, and there’s no interference from special interest groups.
China is experiencing urbanization, and construction is a constant in its cities. Menning noted that 75 percent of the world’s skyscrapers are found in China and that the country has 221 cities with populations topping 1 million people.
That growth is a reason businesses have been swarming into China for the last 20 years.
China has welcomed outside investment. But establishing a business in China can be complicated.
The easiest option is to begin a joint venture with a government owned company. But while that is an easy way into the country, it’s a difficult business model to sustain because of heavy overhead costs tied to employees and retirees.
Timken chose to establish new operations in China. It’s an expensive investment, but more sustainable over the long run, Menning said.
Timken’s managers early on were American transplants. When Menning took charge in 2010, about 45 of Timken’s managers in China were Americans. The number had dropped to seven when he left. Timken has tried to bring in more Chinese managers as the business evolves.
The government and Communist Party are key players in the Chinese economy, Menning said.
Potential customers often do business based on relationships, and an initial meeting with a potential customer is all about establishing a good relationship.
Meetings will include the customer, the mayor of the city where the business is located and the Communist Party counterpart to the mayor and business executive, Menning said. The party official is along to ensure that the company and elected officials follow party policies.
Government influence can be good or it can be bad, Menning said.
China’s economy is an experiment in communism and capitalism. The party and government have done well, managing the large population and developing business. While many people still live in poverty, China pushed through the 2008 economic collapse better than most counties. A key factor was the government’s ability to manipulate the economy.
While China offers opportunities, drawbacks exist.
It’s challenging for companies to maintain their intellectual property. The Chinese government often demands that product information be shared. Refusing to share can mean that a company won’t do business in China.
Timken and others have tried to protect intellectual property. Sometimes a company will mask production processes or limit the amount of training workers receive.
“It’s a fine line to play, but you see most companies trying to protect it,” Menning said of the intellectual property battle. Timken has turned over some intellectual property — bearing units used in some railcars are one example — in order to gain contracts with new customers.
The country’s economy continues to grow, although the pace has fallen into a single-digit range.
Meanwhile the government hopes to see central and western China develop. Most business is concentrated in major cities along the eastern side of the country, similar to the United States. Projections are that China will continue as a leading economy as the government pushes for development away from the coast.