Extending Manufacturing Into China. Exploring the China Marketplace September 24, 2002

Transcription

1 Extending Manufacturing Into China Exploring the China Marketplace September 24, 2002

2 We Manufacture Industrial Networking Equipment for Worldwide Markets 2

3 Industrial Networks Facilitate Communication Between Controllers, Sensors and Actuators 3

4 We Have Several Business Locations Worldwide With Three Manufacturing Sources Contemporary Control Systems, Inc. Downers Grove, Illinois USA Contemporary Controls Ltd Coventry, United Kingdom Contemporary Controls GmbH Eisleben, Germany Contemporary Controls (Suzhou) Co. Ltd Suzhou, PRC 4

5 Machine Assembly of Small Components Using Surface Mount Technology 5

6 Hand Assembly of Larger Throughhole Components 6

7 Functional Testing of Completed Products is Accomplished Manually 7

8 Our Company is Committed to Captive Manufacturing Manufacturing is one of our distinctive competencies. Our product families have options that must be built on a machine creating small lot runs and frequent setups. Our business model is to ship from stock so we must be responsive in replenishing stock. Contract manufacturers would be disinterested in the level of business we could give them. We can control our product quality better by self manufacturing. 8

9 Like it or Not the Future of Manufacturing is in China Most of our electronic components come from China anyway. Not only is labor inexpensive but the components are cheaper as well. Many US, German, Japanese and Korean companies are there now. It is only a matter of time before our competitors will be there as well. 9

10 Why Did We Choose to Build a Manufacturing Plant in China? We wanted to gain access to their industrial automation market as China modernizes it plants. We wanted to gain access to their building automation market as China embarks on an unprecedented building program. We wanted to obtain a low cost source for components and semi-finished goods. We want to be part of an economy that is growing more than 7% per year. 10

11 First We Established a Representative Office in Shanghai A Representative Office is considered an extension of our US operation and not a Chinese entity. We can promote our products through trade shows, advertisements and by supporting our distributors. We cannot trade. We cannot import, export, stock or invoice customers. Basically, the office simply represents the interests of our US company in China. 11

12 Next We Established a Whollyowned Foreign Enterprise (WOFE) We did not want a Chinese partner due to the inherent risks of having a partner. We were required to make a minimum $200,000 capital investment. We received a business license that allows us to manufacture assemblies and finished-goods for either domestic or foreign consumption. We are not allowed to function as an import/export company on products we do not manufacture. 12

13 Our Chinese Company is Contemporary Controls (Suzhou) Co. Ltd. We occupy a 1500 sq.-m. manufacturing facility in Suzhou New District We purchased all new generation surface mount equipment from Panasonic and Vitronics. The building has been specially prepared for electronics manufacturing. The Shanghai Representative Office has the added responsibility as a Suzhou sales office. 13

14 Pardon Our Dust 14

15 Flooring in an Electronics Facility Must be Electrostatic Discharge (ESD) Protected 15

16 Why Did We Choose Suzhou? Low-cost labor, rent and materials. Excellent assistance from the SND people. Close to Shanghai but without the cost of Shanghai. We can clear customs in Suzhou. Many of our suppliers are in or near Suzhou. There were financial incentives to invest in Suzhou. An abundance of skilled and professional people. We have nice Illinois neighbors such as Andrew Corporation and S&C Electric. 16

17 Labor Rates Are Definitely Lower in China But You Must Add 46% for Benefits Annual Salaries in US Dollars for Suzhou, PRC Supervisor 8700 Buyer 4640 Accountant 4350 Clerk 2900 Technician 2175 Operator 1500 Compare this to our US health insurance premium for a family of three - $11,705 per year (company pays 80%) 17

18 We Have Manufacturing in Suzhou and a Sales Office in Shanghai 18

19 Suzhou New District is Located Adjacent to the Ancient City of Suzhou 19

20 Challenges in Doing Business in China Policies subject to interpretation and may be inconsistent from time to time. Extra effort required when dealing with government entities as they relate to taxes and duties. Credit system not established in China and payment is frequently required before delivery. Relationships (guanxi) is very important in China and we try to be friends with everyone. 20

21 Realities of Doing Business in China You need to instill a sense of teamwork. Chinese are surprised how we work as a team in the US. English skills still a challenge for most Chinese and you must guard against miscommunications. Although we do not provide housing, we do provide a lunch allowance and transportation to work. Government requirements regarding invoicing seem primitive and bureaucratic. 21

22 The Good News About Doing Business in China Chinese people are hard workers and prefer to work for US companies making recruitment easy. With several electronics companies in the area, we have no difficulty finding people with proper skills. Our suppliers and contractors are knowledgeable of current electronics manufacturing technology and the level of quality required by our customers. Chinese people will put in whatever effort is required to accommodate a customer. 22

23 Our Gripes Regarding Doing Business in China Even as a WOFE we are not considered a Chinese company. Our company pays more for exhibiting at the same trade show than a Chinese company. Our business license does not allow us to function as an import and export company. However, a Chinese national with less of a required capital investment can. These issues will probably change with WTO. 23

24 How Are We Doing Now? Our build-outs to our ready-made building are completed. We have hired nine people for Suzhou and three people for Shanghai. Production equipment arrived in Suzhou in May. US people will assist the Suzhou staff in starting up the equipment and training on the products. We are currently using a domestic distributor to handle orders for our products. 24

25 We Had Help Along the Way We participated in a World Trade Center Chicago mission to China in 1997 where we visited Suzhou. The Suzhou New District Development people have been very helpful guiding us through the process. The State of Illinois Shanghai staff have assisted us whenever they can. Our Suzhou neighbors have given us suggestions, experiences, recommendations and introductions. Our Chinese national employees based in the US and Suzhou have been great. 25

26 Questions?