Companies that look for growth opportunities beyond their own national boarders will discover a simple truth: Like politics, all business is ‘local’. Meeting demand globally requires flexibility as you understand the local markets where your global customers compete.
Roeslein & Associates learned this early by serving customers in more than 50 countries, primarily from manufacturing and construction facilities in the US. Delivering unitised and pre-assembled systems almost anywhere provides certainty on engineering, cost, quality and scheduling for process applications inmany industries including beverage containers that allows customers to focus on their own local markets.
But China is unique in terms of size, geography and culture. The domestic beverage canmarket is nearly 20 billion units per year. East Asia and South East Asia are expected to represent 23 percent of the globalmarket by 2014.
As the Chinese market developed it became abundantly clear that D&I beverage can customers were demanding the lowest price. To retain business and customer relationships, a mechanism was required that addressed the price issue while recognising our reputation for quality, leading to the decision to locate amanufacturing operation in China. The 3,000 sq m Shanghai facility opened two years ago and now has nearly 50 local engineers and manufacturing employees supported by staff in the US andEurope.
Rudi Roeslein, the founder and chief executive of Roeslein & Associates, had the experience to understand the situation. He credits a joint venture in China with Ball Corporation and MC Packaging in 1985 as a milestone that led to the founding of his company in 1990. The timing coincided with the beginning of China’s transition to a more open economy and growth rates that averaged nearly ten percent annually for two decades. The pace has slowed recently, but even conservative projections show China and the Pacific Rim growing more rapidly than mature economies for years to come.
“We have to be prepared for the opportunities when they come around,” says Rudi Roeslein. “We came to the stark realisation that no matter how much we talked about quality and value purchasing it was predominantly about price. The only way you can overcome the price issue, after you look at shipping cost, labour differential, and import issues you have do things in China locally to serve the local market-place.”
The significant capital commitment for facilities and equipment was supported by a new stream of Chinese business that started to present itself in 2010 and 2011. That focused our decision-making about building space, equipment, local supply chain, and organisational structure. The sense of urgency created by real business opportunities forced the team to accept that doing business in China has its own set of challenges, and provided motivation to act quickly.
Human Resources presented two specific challenges. First, the company needed to hire the right local Chinese employees and quickly get them trained according to our quality and operational standards. That task fell to Gangwei Wu, who before joining Roeslein had experience developing packaging lines in China for Anheuser-Busch. Chinese-born with a PhD in Mechanical Engineering, Dr Wu has a keen understanding of the culture that drives traditional Chinese workforce practices,where managers tend to use discipline quickly and employees are hesitant to make independent decisions.
“The first challenge is bridging the culture,” says Wu. “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 peoplewill be leaders.
“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.”
The second key HR consideration was communication within our US organisation. Roeslein & Associates wanted to keep the message consistent that the Chinese entity was established to serve Asia and that it wasn’t going to cannibalise work taking place in the US for the rest of the world. If we had been unclear about the intention we probably would have received some push back – but instead got a lot of good co-operation. Today, we are in a position where a lot more doors are swinging open as a result of having the technology and know-how in Asia coupled with the cost structure that allows us to compete locally.
There is some debate in the industry about howmuch opportunity still exists in China. Roeslein & Associates is optimistic, with a view that China is in a transition from being the world’s manufacturer to becoming the largest consumer in the world.
A demographic shift continues to move large numbers of the country’s more than 1.3 billion people from rural regions to large cities. Coupled with signals that the new Xi Jinping administration will promote further urbanisation, we believe more people will be moving up to the middle class, which brings more consumers into the market. One company that also sees this opportunity is Ball Corporation, which described in its 2012 annual report plans “to prudently add capacity where necessary to continue to supply this growing market”.
Wu adds: “The consumer market here presents great opportunity to grow canmaking operations. One customer for example has talked about possibly putting ‘mini’ canmaking lines in the west of China. Right now, there are no canmaking lines there whatsoever. So if that region starts to grow, customerswill go in and we will be in a position follow. That is the trend.”
China is also investing significantly in its infrastructurewhich is another reason we see such potential. Roeslein & Associates is looking to apply the core competencies developed in beverage packaging to other industries. As we spread our wings into these various other process industries, whether it be natural gas, oil, traditional refinery work, or alternative energy, a lot of big players are starting to come to China in a big way as well. And those players are already asking about our capabilities in China.
“They have done an amazing job industrialising and developing China,” says Roeslein. “But at the same time it has come at a big price. They have some really big challenges to overcome in terms of pollution control, air quality, water quality, and agriculture. The problems won’t go away without some really creative solutions. But it presents opportunity for peoplewilling to push the envelope.”
The facility in Shanghai should grow exponentially over the next five years. But the key to success is to have a balanced customer base and geographic diversity in manufacturing capability. Companies need to stick to identifying opportunities that line up with their strengths. For us, that means modular construction – the ability to engineer, design, fabricate and construct a project which is unique in China, as it is in the US. And as we hone in on these opportunities, that is how we will grow.
*Brian Sneed is chief financial officer at Roeslein & Associates« Previous Next »