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China: Land of opportunity

By Carol Cain, Free Press Columnist
December 5, 2005

He's been at it 43 years, but C. Peter Theut would be the first to tell you he's never seen anything as exciting or frightening as the prospect of doing business in China.

"The potential is enormous," said Theut (pronounced "TOIT"), who runs the international law department at Detroit's Butzel Long law firm and has been to China more than 50 times in the past eight years. But Theut is quick to add that the complications of doing business there can be just as daunting. He cites regulations that change frequently, communication challenges and expensive set-up fees among the hurdles new businesses need to confront in China.

Regardless of the challenges, a growing number of small businesses across Michigan are looking at the Asian nation as fertile ground for expansion.

And why not?

China -- with 1.3 billion people -- is experiencing tremendous growth. Estimates are it could surpass the United States as the world's largest economy within the next 20 years.

Now that Michigan's fortunes are struggling, with an unemployment rate at 6.1% and companies like Delphi Corp., Ford Motor Co. and General Motors Corp. laying off workers by the thousands, it's no wonder more businesses, big and small, are taking a serious look at the Chinese market.

"If we do not understand how fundamentally the world has changed with the emergence of 1.3 billion new Chinese capitalists and instant communication through technology and take swift action to respond, we will become irrelevant and an economic backwater," says Tom Watkins, former Michigan school superintendent and an education-economic consultant who has traveled extensively in China.

Here is a roundup of some of the activity Michigan companies and government agencies have taken part in:

Wayne County

Wayne County Executive Robert Ficano took a 10-day economic trip to China in mid-October with representatives of several small businesses.

Ficano's group visited Chongqing, Wuhan, Nanjing, Beijing and Shanghai.

Chongqing, in particular, is becoming a popular destination for companies looking for alternatives to Shanghai. That city has been the place of choice for auto firms for the past 10 years.

Shanghai has more than 18 million people and has grown at lightning speed, and the costs associated with doing business there have jumped. This is why Chongqing looks good to companies that want to do business in China, Theut says.

"I was amazed by the building I saw going on," Ficano says of China. "Their national bird should be the crane as in building crane."

As a result of his trip, Ficano says Wayne County plans to open trade offices in Wuhan and Chongqing in 2006 to help spur investment between the two countries. Also, next year Century Automotive, a division of Beijing-based Tempo Group, will open a research and development facility in Canton with 200 jobs.

Officials from Covisint, the firm that helps businesses manage their technology needs, were among the Michigan company representatives who traveled with Ficano. Recently the Compuware Corp. subsidiary opened an office in Shanghai with five employees and it plans to add 10 more workers by March. "It's a phenomenal growth opportunity for us," explains Ron Paul, CEO of Covisint.

"The purpose of the new office will be twofold: to help North American auto companies that are looking to collaborate with Chinese automotive suppliers and OEMs and work with domestic Chinese automotive companies," Paul said, using the abbreviation for original equipment manufacturers.

Paul's advice to any company wanting to do business there?

"Do your homework, know the people you are doing business with and then your eyes will be wide open relative to the governance process and the rules of doing business there," he says.

Oakland County

"China's economic emergence is the most significant development in the world," says Oakland County Executive L. Brooks Patterson. He visited the country three years ago and is planning another trade trip with Automation Alley officials in late 2006.

Automation Alley, which Patterson launched several years ago, has grown into a consortium of private companies, colleges and governments from across southeast Michigan. The group aims to promote high-tech business and employment in the region.

Ken Rogers, executive director of Automation Alley, says the businesses that joined the trade trip to China in 2002 have reaped more than $11 million in contracts since.

"It's the fastest growing exporting market for the U.S.," he says. He adds that Automation Alley is contemplating opening an office in China. "They need everything from soup to nuts. It's a marketplace we cannot ignore."

China and other economic and quality-of-life issues will be discussed during Patterson's Business Roundtable gathering Tuesday in Troy. More than 200 executives will attend the annual event.

Patterson says it is critical for leaders in Michigan to prepare students, workers and businesses for new economic realities.

"When you see how their educational system is gearing up for the global technology, the comparison is frightening," Patterson says about China. "We are graduating lawyers and they are graduating engineers."

The China Alliance

During his four-plus decades practicing international law, Theut has helped his law firm and its clients expand into Japan, Russia, Canada, Mexico, Thailand and Vietnam. Never has he encountered the kinds of issues he dealt with in China.

Even with his well-honed resume, Theut says his foray into China eight years ago was hardly a success.

"The problem is, things there are changing so quickly," he says. The American style of business planning doesn't work because conditions and regulations change too quickly.

Butzel Long had an office in China and Theut and other lawyers traveled back and forth to assist clients.

But "not being on the ground was a major problem," he says.

Eventually he concluded there was strength in numbers. So three years ago Butzel Long teamed up with three law firms to create The China Alliance. The others are Armstrong, Teasdale LLP, of St. Louis; Michael Best & Friedrich LLP, of Milwaukee-Chicago, and Blacke, Cassells and Graydon LLP of Toronto.

That alliance has made a huge difference and Theut says the entity will be profitable this year, two years earlier than expected.

Today, the China Alliance has offices in Beijing and Shanghai and is considering opening a third, perhaps in Chongqing.

Butzel Long deals directly with more than 90 clients who do business in China, compared to just 10 clients three years ago.

One of those clients is Chaoli, an automotive air conditioner component maker in Chongqing. The alliance just helped the company set up its North American headquarters in Windsor.

Chaoli chose Windsor because of its advantageous tax laws and the fact that Chinese nationals can travel in and out of Canada easier than the United States, Theut says.

Chaoli also is planning to place a research and development center in Troy or Auburn Hills in the next few years.

"Our hope is once they have an R&D center, they will add salespeople and maybe expand operations here," Theut says.

But he says any small-business owner contemplating doing business in China needs to do his or her homework.

"If anyone is even considering it, they have to be familiar with China. It is not enough to just go there, you have to be there at least two to three times," he says.

He says one way to get started is to set up a representative office. That could take about 60 days and cost about $5,000. Chinese regulations prohibit a company with a representative office from selling or manufacturing anything, he explains, but it's a good way to learn more about the market and get acclimated.

The next step is to set up a wholly foreign-owned enterprise. That's more expensive, but allows a company to sell products in China. The entire process can take months and can cost more than $140,000.

"To a small firm, that would be too daunting, but to a firm with $20 million in revenue that is a different story," he says.

State companies

Michigan companies that have small budgets but are looking to do business in China are encouraged to contact the Michigan Economic Development Corp. as one resource because it has an office in Shanghai. But first, Michigan residents must become students of China.

Watkins, the former superintendent, has been enamored with the country since he learned about it in elementary school.

"Michigan put the world on wheels, now we must shift gears and become the innovation and creative center of the universe," Watkins says.

Recently, he released a report while working at Wayne State University. It examines learning in Michigan compared to China and other countries. See it at www.coe.wayne.edu.

Among its recommendations: Michigan's education and business community should develop a pilot e-learning exchange course or school that will pair a Michigan high school and one in China.

"You don't build a house from the roof down, you start with a strong foundation and build up, as China emerges as a world economic powerhouse in the 21st Century," Watkins says.

Jim Epolito, chief executive of the MEDC since September, is certain more Michigan businesses will be reaching out to China and other countries in the years ahead.

He mentions how Henry Ford and other auto leaders in Michigan started as small-business entrepreneurs who had great ideas that caught on. He hopes the same thing can happen again. But the MEDC isn't leaving things to chance. Officials in the group returned from a two-week investment mission not long ago. They went to Seoul, South Korea, and Beijing and Hangzhou, China, to tout Michigan as a place for companies to develop operations.

Though it's too early to point to any specific deals as a result of the trip, Harry Whalen, senior vice president of international development, says such programs are critical to generate future opportunities.


CAROL CAIN hosts "Michigan Matters" on WWJ-TV (Channel 62) 11:30 a.m. Saturdays and WKBD-TV (Channel 50) 9:30 a.m. Sundays. If you have information about your business, please mail it to Small Business, Detroit Free Press, 600 W. Fort St., Detroit 48226, fax it to 313-222-5992 or e-mail clcain@freepress.com.

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