CC manufacturers: It's time to debunk myths of doing business in China

12/01/2003

BY MARK A. DeSORBO

ANAHEIM, Calif.—Countless manufacturing jobs are continually lost to China, where salaries pale in comparison to those of American workers. And while that alarms many in the United States, the shift by life sciences, chip and microelectronics companies to Asia Pacific is not likely to end anytime soon.

At the CleanRooms China (CC) Summit held here recently, George Burns, president of Strategic Marketing Associates, a Santa Cruz, Calif.-based research firm, called the China manufacturing phenomenon "one of the most exciting things I've ever seen" in the 20 years he has been involved in the semiconductor and microelectronics industries.

"China has emerged and is in the process of building up one of the biggest chip industries in the world and is becoming a manufacturing center of the world," he adds.

The National Manufacturers Association calls China's emergence as a manufacturing powerhouse—coined by the mainstream media as China Inc.—a phenomenon unlike any other in modern history, with many products coming back into the United States.

But while many rooted in the contamination-control industry say that China is providing a bevy of opportunities, resulting in tremendous growth during what has been a recession riddled with cutbacks, closures and consolidations, some U.S. manufacturers are quick to say the Asian competitor is the bane of their existence.

This year alone, critics point out, the U.S. trade deficit with China swelled to $110 billion, while a significant chunk of the 2.7 million U.S. factory jobs began vanishing in early 2001 through late 2003, when microelectronics and chip giants like Motorola Inc. began shutting down plants in Mesa, Ariz., and investing millions in facilities located in Malaysia.

Nevertheless, some manufacturing officials counter that Asia Pacific—namely China—has become too big of a business opportunity to pass up, and that's why many in the chip, microelectronics, life sciences and contamination-control industries have stepped up efforts to cash in.

Many chief executives, in fact, are anxious to debunk the prevailing wisdom that the sole reasons for bringing manufacturing operations to China is because of the cheap labor; or, that intellectual property is virtually non-existent there and that American companies are going out of business because of Chinese imports.

"It ticks me off to hear what I consider isolationist and provincial comments," says Murray Collette, chief executive of Oak Technical Inc., a Stow, Ohio-based maker of vinyl cleanroom gloves. Collette is putting the finishing touches on a plant in Shijiazhaung in the Hebie province of China—three hours southwest of Beijing.

"It's not the cheap labor that attracts people to China," Collette adds. "It's the overhead cost, like health benefits. Cost of energy is lower, too. The raw material meets specification, and consequently it's a lot cheaper to make the product."

Big business in the United States, he explains, is dealing with a substantial, yet fundamental economic shift to which American companies must adapt. Once content to make such low-cost products as textiles and toys, China almost daily is seeking to be an even larger player in many industries, including the semiconductor and microelectronics sectors.

"It is extremely difficult to do business in the United States," says Collette. "The regulations and compliance issues are profuse. We have made it very cost prohibitive here."

In China, however, Collette says there is a "great deal of cooperation between those who are trying to conduct business and governmental agencies that are in control."

While China has attempted to consolidate and even eliminate agencies that are duplicating efforts, Collette acknowledges the infrastructure still needs work before the nation can become a sophisticated, economic contender. "There are still an overwhelming number of small and medium manufacturers that are facing unfair trade rules, and are being shut out," he adds. "If they want you, you can do some good business, but if they don't, then you are dealing with unfair trade barriers."

Unfair trade barriers and logistics are also problems, but Collette says his experience in China is that the economic system is not any different than the vagaries of the U.S. system.

Craig Wallentine, global business manager for DuPont Contamination Control, agrees with Collette, saying that adhering to United Nations protocols for international relations and the World Trade Organization for intra-business dealings ensure a "level playing field."

For nearly seven years, Dupont has been active in the Chinese manufacturing scene with products such as Tyvek cleanroom garments in Shenzhen. "We have found very strong trade partners there, and we have found them to be very reliable business partners," Wallentine says.

Originally, Dupont Contamination Control started a typical export business in China that blossomed into product-line expansion.

"The pharmaceutical or life sciences industries will stay based in the North America and Europe, but we looked at China as the area where the electronic industry is going," Wallentine says. "We want to be local, now we're in Hong Kong. We're in Taiwan, and we have a growing office in Shanghai."

Echoing Wallentine, Richard M. Swanson, executive director of the U.S. Commercial Service, says knowledge of international trade protocols is a step in the right direction. It is equally important, he says, to not just outsource manufacturing in China but to keep control of the process as part of the U.S.-based business.

"China does not want to be the OEM center of the world," Swanson told CleanRooms China Summit attendees. The U.S. Department of Commerce, he adds, wants American manufacturers to find growth and prosperity in China, but not to the demise of he U.S. economy.

"We want you to go to China," says Swanson. "But we also want you to repatriate your money back to the United States."