Tapping the China Market

More than 1.3 billion people – roughly five times the population of the United States – are taking part in the largest urban expansion in the world.

China has been experiencing economic growth of 9.5 percent annually for the last 25 years, and Springfield businesses should be – and are – taking advantage of that growth to propel their own ventures.

That was the message at the Ozarks Regional Economic Partnership’s annual Fall Partnership Meeting, held Oct. 28 at Highland Springs Country Club.

The discussion, “The Realities and Opportunities of China’s Economy,” featured Springfield Area Chamber of Commerce Executive Vice President Brad Bodenhausen, Lathrop & Gage attorney Randell Wallace, BKD accountant Andy Lear and Kingsley Group business broker Chuck Woolley. The four were part of a 21-member delegation that traveled across the Pacific in April for a chamber-sponsored visit.

“The important thing right now is to be aware of the reality of China’s growth and its modernization, because it’s only gaining steam,” Bodenhausen said. “Companies here need to look at how that’s going to affect them and see the opportunities to produce products that would be of use in the Chinese market.”

Springfield design firm Pellham Phillips Architects already is tapping that market. The firm is working on the $13 million Nine Dragon Lake Hotel in Guangzhou, China. The resort is part of a luxury residential development.

The early synopsis: The Chinese market is promising for area companies but not without challenges. Pellham Phillips Principal Engineer Larry Phillips said the difficulty for his company is that architects don’t have as much input in Chinese building projects.

“The developers have gotten a very strong hold on the building trades there, so that the architects don’t have as much control, ” Phillips said. “Here, the architect is basically in charge of what goes on (in the design).”

The personal touch

Another philosophical difference between American and Chinese business, according to several delegation members, is that the Chinese focus much more on personal relationships to forge business deals.

The challenge, however, is that those relationships take time to build – time, according to Joe Jenkins of Jenkins Diesel, that most small- and medium-size businesses can’t afford to lose.

So how do businesses make inroads into a highly introverted culture? One effort is the Missouri State University branch campus at Liaoning Normal University in Dalian, China.

In addition to allowing students to study an American curriculum in China, the school creates contacts that area businesspeople already are taking advantage of – the chamber’s April trip was scheduled through the university.

“It’s important for our businesspeople to make an effort to familiarize themselves with Chinese language and culture,” said attorney Wallace, who also is chairman of the Springfield chamber. “We walked into a meeting with a Chinese mayor and some of their business leaders, and (Springfield Mayor) Tom Carlson – who had a minor in Mandarin Chinese – was able to say a few sentences in Chinese. It lit up the room; they were impressed that one of our delegation members had gone to the trouble to try to learn some of their language. It’s not that we had to be fluent, but it showed that we were trying to meet them partway.”

Opportunities abroad

Those relationships will make it possible for other companies to get involved in business with the world’s most populated country.

“I think products for the (agricultural) processing industry probably will have an inroad,” Wallace said. “Environmental products should be a great market for our companies. There’s also probably a market for more professional services – banking, investing, real estate.”

Accountant Lear said the Pacific trading partners are in some ways ahead of and in other ways behind the United States.

“China is going through the Industrial Revolution simultaneously with the Technological Revolution,” he said. “If you take a trip out of the city toward the Great Wall, you’ll see people in the fields with their oxen tilling the fields – extreme manual labor. But when you’re on top of the wall, you’ll see a Chinese woman downloading her e-mail onto her Blackberry. It’s that contrast that’s truly amazing.”

Jenkins, who was part of the April China delegation, said the Chinese government estimates 300 million people moving from the less-developed western and central portions of the country into the eastern urban areas in the next 15 years. To accommodate that many people, it’s predicted the country will have to build the equivalent of Houston, Texas, every 30 days.

International trade

While American companies grade business on revenue gains, China’s companies judge by international trade volumes.

China exported $583 billion worldwide in 2004, 21 percent of which was sent to the United States, according to the CIA. In contrast, only 8 percent of Chinese imports came from the United States. Missouri exported $366 million in goods to China in 2004, up 41 percent, making the country the fourth-largest buyer of Missouri goods.

Marisol International has been doing business with Chinese trading companies since 2002. Carie Samuel, Marisol’s Springfield manager, said the company is hoping to open offices in Hong Kong and Shanghai by the end of the year.

“Of the customer base we have, at least 75 percent of what we import comes from the Far East – China, Hong Kong,” Samuel said. “If you’re going to be in international business, you have to be in international business in China. They’re the key player in exporting as well as importing.”

Tuthill Pneumatics Group, the Springfield division of Burr Ridge, Ill.-based Tuthill Corp., has two joint ventures in China, allowing the company to manufacture vacuum and blower parts at prices that can compete in the international trade market.

“We can compete in the U.S. (with the local operation). These ventures allow us to compete in India, Vietnam, other places,” said John Ermold, president of Tuthill Pneumatics. “It’s very difficult to compete in the international market if you’re shipping product out of Springfield, Missouri.”

China’s recent economic growth, according to Drury economist Bill Rohlf Jr., can be traced back to the country’s willingness to open up to outside markets.

“They’ve managed to get into the trade agreements – they’re part of the (World Trade Organization) now, so there are fewer of the trade barriers that prevented them from participating for decades,” he said. “Everyone’s looking for an edge, and now you have access to all of this cheap labor.”

Rohlf said there is a tremendous untapped labor pool in the interior of the country.

“You’ve got the potential to see growth there for some time,” he said.

Click below for more in the series on business opportunities in China:

Universities help build bridge across Pacific

Business philosophies influence each other

Local companies searching for trade options in China