U.S. companies, even small ones, flock to do business in China
Like many of his peers, Pierre Paroz, chief executive of American Micro Products Inc., worried about competition from China.
After attending an industry meeting in Washington to lobby for higher import tariffs, Paroz said: "I decided I had to go to China to find out what was going on."
He came back marveling at the economic transformation under way.
"How are you going to beat growth like that?" he recalled thinking. "I thought: Let's find an opportunity there."
More than five years later, Batavia Township, Ohio-based American Micro Products, which produces precisely machined parts for original-equipment makers such as Caterpillar, Goodyear and Cummins Engine, is running a 60-employee plant in the Chinese coastal city of Xiamen and has relationships with six smaller machining companies in China and nearby countries.
China now accounts for about 20 percent of American Micro's $30 million in annual sales. As large manufacturers streamline their supply chains to use fewer vendors who can do more for them globally, American Micro has been able to expand its sales and employment in its home county in southwestern Ohio.
"Cummins used to have 94 suppliers of precisely machined parts, and now it has nine," Paroz says. "We're one of the nine."
2008 is expected to be the Year of China.
Newsweek devoted a recent issue to the "new superpower"; the Summer Olympics will be held in Beijing; and in the last year, Newsweek says, China emerged as the first country to contribute more to the global economy than the United States, the first time since the 1930s that has happened.
With a population of 1.3 billion and one of the world's fastest-growing economies, China has for decades been on the radar screen of large corporations such as Procter & Gamble Co. and GE Aircraft Engines. But an increasingly global economy, driven by technology, floating monetary exchange rates and a mind-set popularized by author Tom Friedman's best-seller "The World is Flat," has made a presence in China an imperative for even the smallest companies.
"You can't not be in China," said Bob Taylor, managing partner of accounting firm Grant Thornton's Cincinnati office, who recently spent two weeks in China on behalf of clients who handle logistics and distribution there.
Companies are pushed to China by their customers, who demand suppliers be globally competitive with the lowest costs. Others are lured by the potential to tap the emerging Chinese market, a $2.7 trillion economy with an emerging middle class estimated to eventually become as large as the entire U.S. population.
Paul Allaer, partner in the Cincinnati law firm Thompson Hine LLP and an expert in international mergers and acquisitions, thinks it's only a matter of time before the Chinese begin investing in the Midwest, much the way the Japanese began locating auto plants there two decades ago.
Allaer, who spent a couple of weeks in China late last year, said Chinese officials told him repeatedly they were planning to make U.S. investments.
"We need to be ready for it," he said. "The Chinese are dependent on the U.S. economy. If there's a U.S. recession, there will be hundreds of thousands of jobs lost in China."
China isn't for everyone, says Rick Turner, 47, who first went to China a decade ago to help GE launch an engine repair operation and stayed to open his own company, China Solutions Co., in 2002. Turner helps medium and small companies do business on the Chinese mainland.
Cost of labor in China, which is about $2 an hour versus as much as 10 times that for the same job in the United States, is a big driver, but Turner said that advantage can be offset by transportation costs, import duties and tariffs and the longer lead times to ship products back to the states, which can increase inventory and carrying costs.
American Micro has tripled its revenues to $30 million and increased employment to 225 in Ohio since expanding into China. But cost pressures are forcing it to consider relocating its operations further into the Chinese interior to take advantage of lower costs. And the company is looking at sourcing parts in other low-cost areas such as Vietnam and India.
"China is our first overseas operation," Paroz said. "It won't be our last."
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