Fine China

Asian country offers a full plate of opportunity

Wisconsin firms hunger for the work

By Jeremy Harrell

Construction workers smile as they stand in the area that has been cleared for the construction of the National Indoor Olympic Stadium during the ground-breaking ceremony in Beijing in May. Beijing, which will host the 2008 Olympics, has launched a massive series of construction projects to improve Olympic venues, subway lines, streets and public facilities.

Skyscrapers are shooting out of the ground in Shanghai, Beijing and dozens of big cities most Americans have never heard of.

Within three years, Starbucks will have more shops in China than in the U.S.

It's all part of a shift of global economic proportions taking shape in China.

The country has traditionally been a place for Western companies to make products cheaply and import them back to their home countries. But with a burgeoning middle class and a growing capitalist presence in China, American companies have come to realize that the old "Made in China" labels could soon be replaced with "Made for China" tags.

"People have historically thought of Asia as the manufacturing center of the world," said Gordon Pan, who oversees Chicago-based Baird Capital Partners' activities in Asia. "The increasing opportunity is to sell and distribute products in China.

I don't think of China as a threat. It's an opportunity."

It's an opportunity the construction industry is frantically trying to keep up with, and Wisconsin companies are looking to play a role.

The Manitowoc Crane Group, Manitowoc, is putting its equipment to the test in China, where the company is helping to build a new steel mill near Beijing in advance of the 2008 Olympics.

"There are so many business opportunities there it's overwhelming," said Larry Michael, a licensed agent with the Brehmer Agency, a construction surety writer in Butler. Michael recently returned from a trip to China.

"They cannot build fast enough. Anyone who doesn't look at China as an opportunity is missing the biggest business opportunity that may have existed in the last 100 years."

When Gov. Jim Doyle visited China in March 2004 at the head of a state trade delegation, he said Wisconsin could excel there in three business areas: medicine, agriculture and construction. By construction, Doyle referred to the segments of the industry that deal more with manufacturing and supply.

For instance, several lumber companies joined Doyle on the trade mission last year, and the lumber industry organized a second mission of its own in March this year, said Mary Regel, administrator of the state Commerce Department's Division of International and Export Development. China has become the third-largest market — behind Canada and Mexico — for Wisconsin goods. And the future looks bright for construction-product suppliers such as window-makers and flooring companies, especially since China's housing market is expanding rapidly, she said.

"What you buy is a shell," Regel said. "You have to put everything else into the house. They want to buy U.S. products."

China's infrastructure and commercial real-estate markets are also in full tilt, and two Wisconsin companies are rising to meet the building explosion. In 1999, Manitowoc Crane Group took full ownership of a manufacturing facility in Zhangjiagang, a city south of Shanghai. Manitowoc's production of tower cranes, counterweights for crawler cranes and boom sections has outgrown that plant's capacity, and the company is now building a new plant slated to open in 2006.

An Air China aircraft takes off above the construction cranes working on a third terminal for the International Airport in Beijing. Authorities are planning a $650 million expansion of the airport to cope with the rapid increase in passenger numbers expected for the 2008 Olympic Games and China's entry into the World Trade Organization.

Manitowoc Crane deploys the bulk of the plant's output to China and other Asian countries, and with the 2008 Olympic Games in Beijing fast approaching, demand is only going to get stronger, said Glen Tellock, the company's president.

"China can't do everything alone," he said. "What you have to do is say, 'It's a great market. Let's be a part of it.' They have so many things to do over there as they build their country."

Spancrete Industries Inc., the Waukesha-based maker of precast concrete products, has been in China since 1992 making floors and roofs for commercial and industrial buildings. Its Spancrete Machinery Corp. subsidiary shipped 17 fabrication machines to China between 1992 and 1999 and now averages one or two every year, said Joe Dugan, vice president of Spancrete Machinery. The company is now the only Chinese-licensed maker of machines that produce hollow-core concrete, a market niche that gives the Wisconsin company a leg up on its competition.

Although Manitowoc Crane and Spancrete have found success in China, tapping into the skyrocketing construction economy isn't as simple as opening an office in Beijing and waiting for the money to start rolling in. For starters, Manitowoc and Spancrete both had huge domestic and international capital foundations to support their overseas ventures.

For a midsize Wisconsin construction company, the prospect of doing business in China can and should seem daunting. It's practically unthinkable, for instance, that a Wisconsin concrete company would send its equipment to China to build a road.

Constructing the new steel mill near Beijing requires heavy lifting from a Manitowoc crane, which has already helped position two 100-ton gas storage vessels.

What's more practical, however, is that a Wisconsin company could export its knowledge of how to build that road. And that takes partnership. Even Manitowoc Crane and Spancrete, at least when they first started out, relied on Chinese partners to grow their businesses.

"China likes joint ventures," Michael said. "It's the simplest and cleanest method of doing business in China."
But forming a joint venture comes with perils.

"Partnering with Chinese companies is a dangerous proposition if you partner with the wrong company," said Pan of Baird Capital Partners. "You're only going to be as good as your partner."

That's especially true if a company is exporting its knowledge of how to build a road. Chinese intellectual property law, though getting stronger, is still much less mature than America's. L. Scott Harrison, a former CIA station chief in Beijing and now president of the Pacific Strategies and Assessments consultancy, confirmed as much during a speech at the Metropolitan Milwaukee Association of Commerce's Wisconsin International Trade Conference in May. He said American companies should expect to have their phones tapped, their computers monitored and their ideas stolen.

"If you have intellectual property that has intrinsic value, don't take it to China if you're not prepared to lose it," he said. "I'd be willing to pay anyone who has been able to protect their intellectual property."

Tellock said competitors have aped Manitowoc's design, and the company is taking legal action against former partners. "They basically moved down the street and opened their own shop."

And then there's the matter of patience. Just because Chinese construction seems to be struggling to keep up with the growing economy doesn't mean partnerships are sealed overnight. Business tends to develop slowly in China, partly because of the immense governmental thicket that shrouds commercial activity and also because the Chinese art of the deal takes much longer than most Americans are accustomed to.

"However long you think it's going to take, double it," Tellock said. "It's a very social process in the way they get to know people. You're going to get someplace by the end of the day, but you have to be patient."
ust ask Marc Brody, president of the U.S.-China Environmental Fund, a nonprofit conservation and development organization based near Mount Horeb. In 2001, the USCEF signed a memorandum of understanding with the Chinese government to build a Panda research center and tourist attraction in Wolong in the western Sichuan Province. Designers are just now getting going on concept drawings for a scientific facility, a 70-room hotel, teahouse and restaurant. The USCEF's project has earned the backing of essential national and regional government agencies, and Brody's group entered the deal in part because of a previous, successful ecotourism project at the Great Wall of China.

With construction booming in China, Spancrete Machinery Corp., Waukesha, blends in with this billboard atop a precast-concrete production facility. Photos courtesy of Spancrete Industries Inc.

Still, Brody said his experience working in China taught him that entering the country's construction market is worthwhile only if a company is willing to let its investment bloom slowly.

"If a person has all the business they can handle and not a lot time on their hands, China is going to be a very difficult road," he said. "But it's booming and booming and booming. If you're 65 and want a quiet life, China isn't for you. But if you're 25 and you want to have this big, glorious future, China is going to be the booming construction market for the next three decades."

Tony Puttnam, a partner with Taliesin Architects, Madison, is designing the Panda project for Brody's organization. Having recently spent time at the site, he can testify to the staggering "overlapping administrations" controlling the project, from a national parks department to a highway department to the provincial government, each with its own say in the job's outcome.

For all of China's growth, Puttnam said, a majority of the country's 1.6 billion people live in what Americans would consider Third World conditions.

"Everybody has a cell phone, but they plow with oxen," he said. "It's an intoxicating mix."

The country is butting up against a water-supply and -quality problem, as the traditional practice of dumping industrial, agricultural and residential waste into the nearest waterway catches up with the growing populace.

Wenbin Yuan, owner and chief executive officer of Dakota Intertek Corp., a consulting-engineering firm in New Berlin, said he thinks Wisconsin companies could truly make their mark through environmental engineering projects to supply clean water and generally make the country more sustainable for its unprecedented growth.

He said he thinks a Wisconsin company could take part in a joint venture with a larger engineering and construction firm to build huge infrastructure projects. A Chinese community could essentially hand over temporary ownership to a foreign venture that would build the project, operate it on a long-term lease for profit and eventually sell it back to the community for a negligible sum.

For now, though, Yuan's dream of working in China, where he grew up before coming to America in 1987 to study engineering, is just that: a dream. He's working on plans, figuring out how to join up with a large domestic firm or with a Chinese partner. But he's confident that his company could one day work there. If not, a golden opportunity will have slipped by.

"For most businesses in Wisconsin, they're not international businesses," Yuan said. "Most businesses don't have the experience of thinking of going that far away. I'd like to do some work there, but it's not for everybody."