For all the hoopla about China`s opening to the world, relatively few foreign businesses have managed to crack the Chinese market.
One exception is Foxboro Co. of Foxboro, Mass.
Nine years ago, when China opened its doors to overseas companies, Foxboro was near the head of the line. There was, at the time, an almost giddy feeling of expectation among foreigners and the Chinese–not just over Foxboro`s possibilities but with every potential foreign deal.
Everyone paid lip service to the idea of making long-term commitments to the Chinese market. But everyone clearly was counting on quick profits, too.
Then the reality of doing business in China set in. One veteran foreign executive recently characterized, briefly and bluntly, what he felt was the normal pattern of negotiations:
”The Chinese believe what`s theirs is theirs and what`s ours is negotiable,” he said, without a trace of a smile.
Foxboro officials, like many others, however, were patient and persistent. After four years of shuttle negotiations between the United States and China, they finally signed an agreement in April, 1982, establishing Shanghai-Foxboro Co. Ltd.
Press releases then, and promotional brochures now, describe Shanghai-Foxboro as ”the first American high-technology joint venture in China” and the ”first joint venture in the instrumentation industry of China.”
Foxboro manufactures ”process control panels” and switchboards used by industries such as oil refineries, petrochemical plants, steel mills and cement factories that convert natural resources into usable products.
”We build what you might call the nervous system for these processing plants,” said Ernest J. DeBellis, deputy general manager of Shanghai-Foxboro since 1985.
”We`re successful because what we`re doing is what China needs. We`re an import substitution business, and the equipment we`re building is what they need for modernization.”
Shanghai-Foxboro opened for business on April 13, 1983, and by the end of 1984 DeBellis said the company had reached profitability–somethin g few joint ventures can boast.
Statistics on the profitability of joint ventures in China are hard to come by, since most companies refuse to release details of their operations. But conversations with scores of foreign executives, diplomats and visiting financial experts during the last two years indicate that most joint-venture operations are a long way from profitability, or even acceptable levels of productivity.
”I know of a few, but you can probably count them on your fingers,” one Western diplomat said recently.
In any case, profitability is a difficult term to define in Chinese joint-venture operations.
Shanghai-Foxboro, for example, has made a profit the last three years. However, none of that money can be sent overseas, because the U.S. partners agreed in their joint-venture contract to re-invest their first five years of profits.
In addition, much of the so-called profit comes in the form of Renminbi, or People`s Money, the local currency.
Until recently, Shanghai-Foxboro officials had a difficult time converting huge supplies of Renminbi into dollars or other ”hard
currencies,” which are needed to buy vital imported parts and other supplies on the Chinese market.
Late last year, however, a new foreign currency exchange center was set up in Shanghai as part of the continuing economic reforms, and many joint-venture operations, including Shanghai-Foxboro, rushed to trade in Renminbi for what even the Chinese sometimes call ”real money.”
To further complicate matters, most companies and all tourists in China trade in their hard currency for ”Foreign Exchange Certificates,” or FECs, instead of Renminbi. The advantage of FECs is that they can be used to buy certain imported goods from local dealers who will not otherwise accept Renminbi.
The exchange rate of an FEC to the dollar has been about 3.7 to 1 this year, meaning that every dollar brings 3.7 FEC. But at the new Shanghai Foreign Currency Exchange Center, the rate is roughly 4.7 to 1. In other words, joint-venture operations now have the option to trade in some of their local currency for hard currency, but they pay a premium to do so.
”Even so, it`s helped us a lot,” said DeBellis, who will be going back to Massachusetts this fall. ”We managed to convert a lot of our local currency reserves at the end of the year, and we`ve got a good supply of hard currency to handle our purchases for a while.”
One of the keys to Foxboro`s success has been its willingness to transfer top-level technology to the Shanghai operation.
While joint ventures in other fields have tried to get by importing outdated technology, Foxboro is producing plant switching centers and components that were state of the art in the U.S. as recently as 1985.
Another key to success has been the working relationship a succession of Foxboro executives have developed with Yang Tong, the general manager of Shanghai-Foxboro who also happens to be the factory`s Communist Party secretary.
Having a competent general manager on the Chinese side who also serves as party secretary is crucial. A number of foreign operations have been hampered by having to deal with party secretaries who wield ultimate power but often lack the training to make intelligent decisions.
”We`ve been lucky in that we`ve had the same general manager involved in the project since 1979,” DeBellis said. ”There`s been continuity on both sides, and that has meant a lot.”
Yang and DeBellis get together regularly and control the day-to-day operations of the plant. Long-range planning is determined by a board of directors made up of five Chinese officials and four Foxboro executives.
”None of the board`s decisions can be made by a simple majority,”
DeBellis said. ”It takes a two-thirds vote, which essentially means all our decisions are unanimous.”
Shanghai-Foxboro has a work force of 340, a third of whom are engineering graduates from technical schools or universities. Another 70 people work for the wholly owned Chinese sales and service wing of Shanghai-Foxboro.
”We were highly selective, and we`ve been well pleased with our people,” DeBellis said. ”We`ve had to fire some people, but not very many
–not very many at all.”
On a tour through the main work areas of the factory, DeBellis points to row after row of nearly completed switching panels destined for refineries and power stations across China.
”Our market potential in China is incredible,” he said with a smile.
”You have to believe China is going to industrialize, and our equipment is the key to much of that industrialization.
”We`re making money. If we weren`t, why else would we be here?”
