Doing Business in China 2

A view of the Pudong Skyline from the river-front in Shanghai. A group of GW EMBAs gather on the upper deck of the floating restaurant.

After our week in Beijing we flew south to the economic capital of China, Shanghai. This city of 18 million people has been a key regional port for hundreds of years. Situated on the Pudong River near the Yellow Sea, Shanghai is the "New York City" of China. Shanghai looked and felt very modern in comparison to Beijing. As with many port cities around the world, Shanghai had a more "international" feel.

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After settling in at our hotel and taking a short tour of the city (details in another post), we started our first day in Shanghai with Mr. Your Chen who runs a Venture Capital firm in Shanghai. He walked us through the VC process in China and pointed out how it might differ from what they are doing down on Sand Hill Road in the Silicon Valley.

Our first two days in the city, the Shanghai Stock Market - China's main exchange - dropped almost 20%. The Chinese stock market had been on a tear over the past five months and it seems the regulators decided to cool things off by increasing the "tax" or "fee" on transactions.

After our meeting at Mr. Chen's, I ducked into a brokerage across the street to see how people were taking the volitility - it was pretty crowded

Inside a woman watches the board for news of her investments:

It seems everyone in Shanghai is trying to get on the investment bandwagon - our tour guide kept us up to date on his losses each day...

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After another great lunch - the food in Shanghai was really terrific - we headed out to the other side of the river to visit the GM Factory in Pudong. Elvis Oxley, a member of our class, helped arrange the visit through some of his GM contacts back in DC.

The factory is located on a large campus about 40 minutes east of the river in a newer part of the city. The modern facility builds Buick models and other GM cars for the domestic market. There is a six month waiting list to buy a Buick in China...

We started with an introduction from our guide as we gathered around a model of the campus factory complex:

Professor Yang and Elvis in the showroom:

Unfortunately, photography was prohibited inside the factory, but we had a comprehensive tour of the huge modern facility. All the things you would expect to see in a car factory were present - conveyor belts with whole cars on them moving slowly down the line, guys in jumpsuits and hard-hats checking body panels, large high-tech robots doing spot welds, etc. - very cool. Those of you who know me well understand how much I enjoyed this...

After the tour, an expatriate Executive at GM's facility answered our questions and outlined the nature of the car business in China.

After GM we headed back to the river for dinner (where the opening photo was taken) and then off to Shanghai Circus World! I have nothing to say about Shanghai Circus world except that the last time I saw people ride motorcycles so recklessly I was in Boston, Mass...

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I am very interested in architecture and design, and Shanghai has some amazing buildings. Some are finished like the famous TV tower below:

And some in process like the new 101 story Shanghai World Financial Center which is slated to open next year:

Some of the curvature in the photo above is due to the extreme perspective of where I was standing, but the building itself has a curve incorporated into its design:

(rendering courtesy of Kohn Pedersen Fox)

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On our third day in Shanghai we travelled out to the city of Changshu (pop. 1.3 million) to visit a leather goods factory, tour the planned economic zone, and meet the Mayor of the city. Changshu is about an hour and a half north of Shanghai and is situated around a hill and adjacent to a large lake. The officials in Changshu were very proud of their air quality and green space and used these as selling points in their promotional materials to attract international investment.

First we visited the Maydiang Company - a firm specializing in fine leather goods.

Mr. Mao, the firm's founder and our host, is an old friend of Professor Yang, so he rolled out the red carpet for us. Here Mr. Mao and Professor Yang talk about starting a manufacturing business in China. Begun a number of years ago as an official supplier of Coach and other brands, Maydiang now makes $100 million worth of product a year.

Mr. Mao took us on an extensive tour of his facilty where more than 4,000 employees work in the tanning, cutting, assembly and packaging departments.

These large machines are used to process the leather. Interesting fact - all the hides are imported from Texas and only processed in Changshu.

After tanning, the hides are processed further with a flattening machine:

(photo courtesy of Joe Bechtold)

Mr. Mao shows us leather that is ready to move on to cutting and assembly.

We had no idea of the scale of Mr. Mao's business when we first arrived, but it became clear soon enough - this is only one of many parts of the facility

These women - and most of the employees in the assembly portion of the factory were women - make $0.50 - $0.75 an hour to put together Coach wallets, hand-bags and briefcases for export. This might not sound like very much, but for China, this is a very competitive wage. Remember, more than 800 million people in the countryside survive on only $1 a day. China has specific overtime and employee safety laws, and although some facilites do not comply with these laws, Mr. Mao made it clear that all his facilities were in full compliance with the law.

I found the facility clean, the conditions comfortable and the employees seemed happy. Granted, we were touring with the boss, and they were pretty focused while we moved through the facility, but at one point I snuck off and watched some of the employees in a break room and they were laughing, joking - taking it easy.

A woman tracing and cutting the leather:

Elvis and James on the factory floor:

As I watched these bags and briefcases take shape, I realized why they are so expensive. Granted, much of the price of a hand-bag is label and status, but the quality of the leather, design and the care in assembly was apparent at Maydiang. Mr. Mao noted that where it was possible, he automated the process, but in many cases there was no substitute for human hands, especially in detail work such as the stiching on women's hand-bags.

Briefcases - I was hoping to buy a sample, but Mr. Mao's agreement with Coach prohibits him from selling any product outside established channels.

Shane poses on the factory floor:

After a tour of the factory, Mr. Mao hosted a lunch for all of us. His personal chef put together the best meal we had in China, by far. In addition to countless familiar dishes, we were served "Rice Bird", or whole sparrow. It appears that the bird's feathers and feet are removed, then the whole thing was cooked in a sweet sauce until it turned all crispy and delicious. I wish I had not filled up on the freshwater clams and jellyfish as I only had room for a few Rice Birds...

One eats the whole thing - head, wings and all - the light hollow bones are easy to masticate, but you have to be a little careful of the wings...

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Just down the road from Mr. Mao's leather factory was the main office of the Changshu Economic Zone. The city is very interested in attracting foreign investment and a number of international companies have set up facilities in the area. They gave us a quick orientation as to why we should choose Changshu as a good place to do business. Another cool model - this one of expansion plans...

After the orientation, we travelled to Changshu's main park where electric carts carried us to the Tea House on the Lake for our meeting with the City's Mayor.

Bo is ready to go!

As is Elvis!

In the rear, Bob acts as security for the Alpha Cart...

The Mayor showed us a video touting the natural gifts of the region, its suitability for foreign investment, served us tea and took our questions.

On the way through town we passed a familiar sight - this super-store is expected to open soon.

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On our final day of business meetings in Shanghai, Mike Stolker set up a visit to Nortel for us. Some of the discussion of telecom equipment and enterprise solutions was over my head, but I was very interested in how a foreign company deals with doing business in a country where the government has a more "hands on" approach to exactly what its citizens do and say online...

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Next post, roaming the streets of Shanghai - back alleys and cultural attractions....