Global Growth Opportunities: China and Beyond
Global Growth Opportunities: China and Beyond
By Sheldon Ripson
Much is being made about what will happen to the Chinese economy, which is set to grow in 2013 at the slowest pace in 23 years. The can making industry is watching with keen interest as the new Chinese administration faces slowing factory production and reduced investment. While some are cautious about the future in China and other portions of Asia, one of the leading systems integrators in the D&I industry believes the market will remain strong through 2014.
Roeslein and Associates Inc. opened a manufacturing and construction facility in Shanghai nearly three years ago to establish a local presence in a country it believes will eventually become the largest consumer market in the world. Per capita consumption in China is currently only about 17 cans per year, far below the 360 cans each person consumes in the United States annually. But Roeslein and Associates believes China’s 1.3 billion people and growing middle class point to increased consumption.
“China has very wisely invested in infrastructure. There are cities emerging before your eyes with skyscrapers, multi-family housing, highway systems, and state-of-the art transportation systems. That investment is growing the wealth and consumer prospects of the country. It’s why we see such potential there,” said Brian Sneed, Roeslein and Associates Chief Financial Officer.
The U.S. Commercial Service reports the Chinese food and beverage sector grew 29 percent annually between 2006 and 2011. That was a byproduct of growth in the country’s Gross Domestic Product (GDP) which more than quadrupled to $7.32 trillion from 2001-2011. A slowdown in such rapid economic growth was inevitable. Still, the International Monetary Fund projects Chinese GDP will grow 7.75 percent in 2013.
“We just need to go identify the opportunities and make it happen. The consumer market here presents great opportunity to grow in can making. Roeslein is the leader in this area, which gives us every reason to believe we will continue to be the top performer in the world,” said Gangwei Wu, Director, Roeslein Shanghai.
CEO and founder Rudi Roeslein is in a unique position to understand the opportunities in China and throughout Asia. The company serves D&I customers in more than 50 countries, primarily from manufacturing and construction facilities in the United States. Roeslein and Associates delivers high quality unitized and preassembled systems that provide customers certainty on engineering, cost, quality and scheduling for process applications. Mr. Roeslein credits a joint venture in China with Ball Corporation and MC Packaging in 1985 as a milestone that led to the founding of the company in 1990. The timing coincided with the beginning of China’s transition to a more open economy.
“We migrated from doing business with American and European customers to Chinese customers. Once we did that, we came to the stark realization that no matter how much we talked about quality and value purchasing, customer decisions are predominantly about price in China. And the only way you can overcome the price issue after you look at shipping cost, labor differential, and import issues, you have do things in China locally to serve the local marketplace,” Roeslein said.
Preparations for building the 3,000 square meter Shanghai facility began two years before it opened in 2011. The operation employs nearly 50 local engineers and manufacturing employees supported by staff in the U.S. and Europe. The Shanghai facility is currently working at full capacity in container manufacturing. The facility is also filled with projects for process and energy clients.
“Fortunately there was a stream of business at the beginning. We went to a customer who brought me to China originally, Ball, and told them what we are doing. They were very anxious to have that local presence and the cost benefits of doing things in China locally. That really provided the springboard,” Roeslein said.
The initial orders prioritized decision-making about the correct building space, equipment purchases, supply chain and personnel.
“These start-ups are difficult. It takes a lot of commitment. It was a real team effort on the part of the guys who came here to set things up,” Roeslein said. “But the sense of urgency you get when there is real work to do pushes you through some of those things. It provides the motivation to say ‘we are doing this for a reason’ rather than going through a lot of academic exercises that could end up costing a lot of money.”
The company needed the right personnel to succeed, which required hiring the local Chinese employees and quickly training them a according to Roeslein’s own quality and operational standards. That meant understanding the culture which drives traditional Chinese workforce practices, where managers tend to use discipline quickly and where employees are hesitant to make independent decisions.
"The first challenge is bridging the culture. A typical Chinese company does not expect employees to lead. They are expected to follow. But as a young company in Shanghai our expectation is that our people will be leaders," Wu said. "We support the employees. We don’t expect perfection every time. But we do expect them to improve every time. That is the culture we are trying to instill.”
“Communication within our U.S. organization was a key as well. We really wanted to keep the message consistent that the Chinese entity was to serve Asia and that it wasn’t here to cannibalize the work we are doing in the States,” Sneed said. “If we had been unclear about the intention we probably would have received some push back. But instead we got a lot of good cooperation.”
A demographic shift is moving large numbers of the Chinese population from rural regions to large cities. Coupled with signals that the Xi Jinping administration will promote further urbanization, Roeslein and Associates believes more people will move into the middle class to create more consumers in the Chinese market.
“One customer for example has talked about putting mini can lines in the west of China. Right now, there are no can lines there what so ever. So if that region starts to grow, customers will go in and we will be in a position follow. That is the trend," Wu said. “In five years the Shanghai operation will have 200 employees doing up to $50 million in revenue across Asia. I truly believe that can be accomplished.”
“We are in a position where a lot more doors are swinging open as a result of having the technology and know-how here along with the cost structure that allows us to compete locally. It could be that this opportunity will grow exponentially over the next five years,” Sneed said.
Roeslein sees a strong market continuing in the D&I industry for years to come and anticipates additional corporate growth coming its process and energy group. In China, the company believes a portion of that growth will spring from its modular construction methods serving customers in the emerging energy and agriculture sectors. Roeslein recently landed a contract with a multi-national agriculture company relating to a new Greenfield facility in China.
“We want to get involved not only in the consumer end of the economy that but also with infrastructure. That includes energy development and agriculture development. All of those things are going to be needed to sustain the rise in the quality of life you see in China.”
The company believes that as the Chinese market starts to mature and growth stabilizes, customers will factor value and quality into purchasing decisions to a greater degree.
“This operation allows us to keep the relationships built over 30 years and serve them through a mechanism that considers price, but also recognizes that Roeslein has a reputation for doing things very professionally and with a high degree of quality,” Roeslein said.
“We need to stick to identifying opportunities that line up with our strengths. For us, that means modular construction. That is what differentiates us and cuts through so many different competitors. Having the ability to engineer, design, fabricate and construct a project is unique. It is unique in the United States. It is certainly unique in China. So as we hone in on opportunities, that is how we will grow,” Sneed said.