Global Fastener News

Enter the Dragon: China Emerges As Industrial Superpower

Jason Sandefur

Before he introduced the panelists for the Western Associaton of Fastener Distributors seminar on China, MacLean-Fogg Fastening Division president Tim Taylor asked for a volunteer. When no one raised a hand, he explained why the volunteer was needed.
�We need someone to turn off the lights when the last fastener manufacturer leaves the U.S.,� Taylor quipped.
That comment set the tone for �Enter the Dragon,� a WAFD conference during the National Industrial Fastener Show/ West featuring U.S. manufacturers dealing with China.
Schnurr: More Than Cheap Labor
Textron Fastening Systems vice president Marty Schnurr said manufacturers are attracted to China for more than just cheap labor. The Asian nation�s economy is growing 7.5% per year, the fastest in the world. China also has the sixth largest GDP, and it attracted $46.7 billion in direct foreign investment in 2002. The country consumes one-third of global cement output and is expected to build 60 new airports by 2005, a promising development for the aerospace industry.
Doing business in China has its own set of challenges, Schnurr noted. Uncertain political leadership, a weak banking system and poor infrastructure create a difficult business climate.
TFS has six sales offices in China and a production strategy for blind and threaded fasteners, automation and full-service programs, Schnurr explained. About 50% of what Textron produces in China is exported to the U.S., he noted.
The auto industry is considered a pillar of the Chinese economy, with small car and truck segments growing 70% last year.
�Shanghai is likely to emerge as the Detroit of China,� Schnurr commented.
Surber: Global Engineering
Is Current Reality
ATF Inc. CEO Don Surber commented that the emerging consumer market is encouraging his company to set up operations in China to serve local demand.
�If your customers are in China, you have to be in China,� Surber stated.
Surber noted improvements in the business climate. He singled out the growing manufacturing base, noting that China will produce 30 million automobiles a year by 2025, as many as the combined total of the U.S. and Europe.
An abundant, educated and low-cost labor force is an undeniable draw as well, he said.
�We believe it�s going to stay low-cost for many, many years.�
Surber also noted China�s labor constraints, saying the culture has fostered weak management skills and that most workers require vast amounts of training. He also lamented the loss of white-collar jobs from the U.S. as more companies employ Chinese engineers to develop products.
�These high-paying engineering jobs are going to be leaving the country. Global engineering of products isn�t the future, it�s here now.�
Surber said the world has an interest in seeing China�s economic development succeed.
�None of us wants to see that country fail. The entire world has to prop up China,� he declared.
Lepore: More Art Than Science
Robertson Inc. president David Lepore said that when his company expressed interest in opening a factory in China back in 2000, they quickly discovered that little about the country was cut and dried.
�We knew then that (manufacturing in China) wasn�t going to be a science. It was going to be an art,� Lepore quipped.
The following year Robertson put together a multicultural management team to investigate the legal structure and accounting operations in China. It took a while to clear various hurdles, but the company had a 50,000 sq ft facility completed in seven weeks from the time approval was finally granted. Using six North American-trained Chinese nationals to manage operations, Lepore said his factory in China employs the same operational strategy utilized in Robertson�s U.S. facilities.
�If OSHA came to visit us, we�d be in total compliance,� Lepore emphasized.
Lepore said Robertson went to China for emerging opportunities, not to chase cheap labor.
�If you don�t have a line in the water, you�re not going to hook anything.�
China stands at the beginning of its transformation from an agricultural to an industrial society, Lepore observed. Once a middle class emerges in the country � a scenario he predicts will occur within five years � this group will drive market demand that will propel China�s economic revolution. Lepore noted that investment risks still exist, including a weak banking system and unresolved legal questions about intellectual property. Regardless, China is emerging as the world�s next industrial superpower.
�It�s China�s turn. It�s going to happen no matter what we say.�
Glynn: Price War is Race To the Bottom
Mike Glynn, general manager of Illinois Tools Works � Shakeproof Threaded, noted that ITW shrank its U.S. footprint based on disappearing demand. But Glynn vowed that ITW Shakeproof Threaded is not going overseas.
�My divisions are not going over to China. We�re going to stay here and be focused.�
However, Glynn did say ITW would develop China operations for local demand. According to Glynn, other companies are already jumping ahead to Vietnam and India in anticipation of more cheap labor markets, but that�s not ITW�s approach.
�If price is what you�re looking for, you�re on a race to the bottom and the winner loses.�
Glynn lamented the loss of U.S. jobs, but he predicted China will continue to erode domestic manufacturing. He singled out Rockford, IL � traditional home of the fastener industry � as a good example of where U.S. manufacturing is headed, noting that the northern Illinois city is constantly losing fastener operations to cheap foreign labor.
�Hopefully we preserve enough manufacturing jobs for our children,� Glynn stated.
Taylor: Know Your China Suppliers
China has not deeply impacted MacLean Fogg domestic operations, primarily because the company remains focused on critical application fasteners, something China has very limited success with, Taylor noted. China excels at producing high-volume standard fasteners.
MacLean Fogg currently owns three companies in China, one of which is fastener related. Future plans including setting up a fastener plant within two years to serve the local automobile market, which is expected to produce eight million automobiles per year by 2010. Taylor said China represents the bulk of global automobile market growth in the coming decades.
�By 2020, (China) may be the Detroit of the world,� he noted.
Delivery and quality are still big problems in China, so Taylor, former chairman of the Industrial Fasteners Institute, urged all suppliers to create a backup plan. He also said it�s difficult to operate successfully in China without knowing the manufacturers.
�You can get everything from a world-class producer in China to a whole lot less,� he emphasized.
China�s regulated currency remains an issue, Taylor said, but the U.S. can�t force China to float its currency because China also has an unemployment problem that could destabilize the country if the value of the Yuan changed drastically. However, Taylor predicted the world would eventually pressure China to float its currency.
�Ultimately they can�t be successful, but they can hang on for a really long time.�
Mom & Pop Manufacturers Have a Future
How do smaller �Mom & Pop� fastener makers in the U.S. compete with the global pricing pressure from China? Glynn offered some hope by saying there would always be a need for small, efficient runs from smaller manufacturers. He noted that short runs aren�t attractive offshore, but can be profitable domestically. Surber echoed the advice.
�Focus on short runs,� Surber encouraged. �Be the best. Be lean.
Glynn said ITW doesn�t try to win the global pricing war. Instead it focuses on great service.
�You need to be close to your customer. The closer you are, the more value you can provide.� \ �2003 FastenerNews.com