Chinese business: How Utah is embracing the dragon
Beehive State's exports to China Grew by 184 percent in 2011
Michael De Groote, Deseret News
Click here to take a closer look at how the Beehive State is embracing the dragon.
NORTH SALT LAKE, Utah — When Utah Gov. Gary Herbert visited senior officials in China last April, he didn't bring the standard diplomatic gifts. He brought something better: four basketballs signed by the Utah Jazz team.
"They loved them," said Lew Cramer — president and CEO at World Trade Center Utah. "You could have offered them a million dollars and it wouldn't have had as much impact as a signed Utah Jazz basketball."
Chinese officials, and apparently many Chinese, love the NBA. Who knew?
And they love American business as well. And if the 2011 trade numbers that came out on Feb. 10 are any indication, the Chinese are not just up on the Utah Jazz, but on Utah products and businesses as well.
In 2011, Utah's exports to China totaled $4.3 billion, the U.S. Census and World Trade Center Utah reported. That is a lot of money when you consider the state has only about 3 million people. It is about $1,535 per Utahn. Utah's exports to all countries around the world equals $18.9 billion.
So while some political voices are pushing Chinese business away, Utah is showing how a different attitude can pay huge dividends for building a state's economy.
Jonathan Huneke is the vice president of communications for the U.S. Council for International Business based in New York. He said China is the second largest economy in the world and may become the largest economy in the world. "It is growing like gangbusters," he said. "For American business — and business around the world — China is not only an enormous manufacturing center, but a huge market to sell your goods in."
For example, Huneke said, China has about 300 cities with populations of more than 1 million people each. There are 52 cities with more than 10 million people.
"It is almost unfathomable," he said. "And they are all urban centers that are fast growing."
For K.C. Ericksen, CEO of Orbit Irrigation Products Inc. in North Salt Lake, the attitude is bluntly economic.
"There are certain products you can't economically build in the United States," Ericksen said. "What we can do here, we do here."
Orbit was incorporated in 1986 but has its roots in Ericksen's father's company that installed irrigation systems in the 1950s and moved to distribution in the early 1980s.
Orbit began manufacturing products in Taiwan and then moved into China. Ericksen said they use China to build products that take a lot of labor to construct.
And things made out of metal.
Primarily, Orbit uses China to manufacture items made in metals such as brass. "We can manufacture almost anything here in the United States — but metal products and other items that can't be automated cost too much to make here," Ericksen said.
In one of Orbit's assembly plants in North Salt Lake, Ericksen walked to a station where a sprinkler was being assembled. He picked up the inside of a sprinkler — featuring a brass head — in one hand,
"This was made in China." Then he grabbed the outer plastic housing with his other hand, "And this was made next door." Behind him, two workers were assembling the parts together.
It was the perfect symbol of how an American business was using global economics to create local jobs and wealth.
Orbit employs 464 Utahns and can make injected plastic parts and assemble things locally. But brass, zinc and other metal items are "almost impossible" to make domestically without the price going up "tremendously," Ericksen said.
For example, there used to be many brass foundries in California, he said, but they were run out of business because of environmental concerns and fines.
"It is a good thing we cleaned up the water," he said, "but are people willing to pay more for their metal products?"
Sometimes even China doesn't get the contract. Orbit had another product with a cast-iron part that used to be made in China. Now it is made in Mexico. That part is combined with plastic parts made in Utah to create the finished item. "This is the most economical way to produce this product," Ericksen said.
Orbit has an office in Shanghai with two Utahns keeping an eye on its China operations. The company has four joint ventures with Chinese companies and one wholly-owned operation.
Orbit distributes some of its products through a Chinese retailer called Sorara Outdoor Living LTD. The products include sprinkler heads and electric valves made in Utah. Orbit's sprinkler heads are even installed at the Great Hall of the People in Beijing which is the equivalent of the U.S. Congress.
But not everything always works the way a company wants it to work in China.
Tension and challenges
Huneke said China uses a different system than businesses are used to in the United States — one that is dominated by the state and that intruded more into how a business is run.
"One of the biggest problems is counterfeiting and piracy issues," he said.
"The central government has done a lot of the right things, but the problems happened at the local level. … There are problems with getting your products or creative works purloined by a local competitor."
Ericksen said one of the hazards Orbit faces by manufacturing in China are the country's primitive patent laws. People have taken photographs of some of the items Orbit manufactures and then taken out a Chinese patent on the item. Without the patent, Orbit was prevented from shipping those products out of China. "It seems like a lawless environment sometimes," Ericksen said.
Trying to fight back against such patent piracy is difficult. For various reasons, it may not make sense to go through the expensive process of patenting something in the United States. But Ericksen said an American patent is the only thing the Chinese judges will accept as proof to counter the patent thief's claims.
The judges wouldn't believe the American company designed and manufactured the item first — a years-old product catalog was rejected as proof because they said it could have been counterfeited. "So rather than fight them in China, we move that item out to produce in another country," Ericksen said.
Another area that trips up companies in China is the way business is split into two pieces — two sectors in tension. One is what Huneke called a very vibrant private sector that works with multinational companies.
The other is the state champion sector that enjoys huge benefits, loans and favors from the Chinese governments. Such preferential treatment makes it difficult for outside companies to compete in China.
Competing for business
Of course Utah does have a few competitive advantages of its own over other states, according to Cramer at World Trade Center Utah. It doesn't hurt to have a lot of people who served two-year missions for The Church of Jesus Christ of Latter-day Saints in Taiwan or Hong Kong and came back speaking Mandarin or Cantonese. They also carry a greater appreciation and understanding of Chinese culture.
When four Chinese provincial governors visited Utah in July 2011, they heard from Mayor Mike Winder of West Valley City and Mayor John Curtis of Provo — both who speak Mandarin. And a children's choir from a Mandarin language immersion program brought tears to the officials' eyes, Cramer said.
The language immersion program is no small thing. Of Utah's 80 dual immersion schools for 2012-2013, 25 are in Mandarin Chinese. That is one-third of all elementary Mandarin Chinese programs in the entire United States.
It also didn't hurt to have as the state's former governor Jon Huntsman Jr., who was fluent in Mandarin and who later became U.S. Ambassador to China.
Cramer said World Trade Center Utah is working on boosting exports to China. "Our goal is to create more companies that can export to China," he said. "The only reason we care about exports is they create Utah jobs."
So far, the trend is good, with Utah increasing its exports to China by 184 percent, from $1.5 billion in 2010 to $4.3 billion in 2011. From 2007 to 2011 Utah's exports grew 786 percent.
But Huneke said China is still a geopolitical rival and concerns about losing jobs to China are part of the political campaign atmosphere.
"The US/China relationship is everywhere," he said.
But doing business with China is a mix of the familiar and the unusual, the frustrating and the harmonious.
On the trade mission last year where Herbert was giving away the signed basketballs, Cramer remembered when the governor's wife, Jeanette Herbert, spoke to a room full of Chinese diplomats.
After her speech, the first question from audience was, "Why in the world did you trade D-Will to the Nets?" The second question: "How is the Jazz going to do, with Jerry Sloan retiring as coach?" The third: "How is AK47's shoulder going to be in the coming season?"
The Chinese, obviously, have priorities they share with Utahns.
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