Front Lines is a guest viewpoint section offering perspectives on current issues and events from people working on the front lines of Canada's technology industry.
Small and mid-size companies in North America have been slow to investigate China as part of their business models when designing, developing, and assembling electronics-based products. While the large players (Alcatel, Nortel, etc.) have been in China for years, it was perhaps initially too risky for smaller companies to pioneer. Today that's no longer the case — the time is right for every North American manufacturer to find its way in China.
We ventured into the Chinese market three years ago to form relationships on behalf of our customers, who are small- and mid-size manufacturers of low- to mid-volume electronics products. We believed that, given the right model, smaller organizations could also benefit from China's low labour costs. Our experience has been entirely positive and it reveals some dos and don'ts for entering China as a smaller player.
Behind the Red Dragon
Before a company can begin to form a plan to enter China successfully, it must first comprehend why China is an indomitable force in our North American economies today. Imagine an already densely populated country having to grow by 9 per cent GDP per year just to keep its population from starving. This is the case in China, which is driven by an entirely unique combination of political, social, cultural, and economic factors.
Despite incredible population growth, China's government makes it a priority to ensure jobs for its citizens. Every small town has rows and rows of small shops all manufacturing some piece or product required for government-initiated infrastructure building in its locale. But it is most visible in the Pearl Delta Region, the country's hub of economic activity and the area on which we focus in our business.
Shenzhen is growing at a rate of 15-20 per cent GDP per year and you can't turn around on a Shenzhen street without seeing the construction of new roads, factories, or residences. This infrastructure building is in support of the area's rapid development of many kinds of factories — all of which employ, house and feed labourers, rather than taking advantage of automation. In China, labour is cheaper and just as efficient as technology, and more important to the country's economy.
The pace of change in this region of China is staggering. I visited in January of this year. In two short years, my contacts' English skills have improved to the point where we no longer needed an interpreter during my week of visits to many factories. In that same time, our operations in China have become quite sophisticated, now providing original design manufacturing (ODM) and rapid prototyping services in addition to components sourcing, board assembly, and quality assurance.
This flurry of progress exists side-by-side with old communist habits. I experienced this while visiting an MSN news site in my hotel room. When I clicked on an article about China's latest missile tests the content was blocked. All Internet traffic in China enters and leaves through a few fat pipes controlled by the government and monitored by the largest Internet policing force in the world.
While China is roaring into the global economy at dizzying speeds, its reasons and rewards for doing so are far different from the mentality that we in North America understand.
It Pays to Get Personal
Many manufacturers in the West misunderstand what doing business with China is all about. Nearly everyone has heard or experienced first hand some horror story about sub-standard parts sourced from China or intellectual property theft. In these stories, China is a "black hole" — a nation of pirates with an impenetrable business culture and an opaque economy. Rarely do the stories reveal a more balanced truth: that smaller — and even some larger — organizations' first forays into China are often critically flawed.
The most common error I encounter is a desire to reap the benefits of "cheap Chinese labour" without a willingness to actually go to China and learn the lay of the land. Many of those horror stories begin with a company deciding to source its own parts from China over the Internet.
