Questions and Answers: Excerpts from interviews with Chris Runckel,
President of Runckel & Associates (Business-in-Asia.com)
on Wire Journal
International Magazine
 Obviously, all consultants are not created equal, Can
you tell us a little about your company and your background?
 Runckel
& Associates is a small U.S. based company with an extensive reach.
We have associates in three locations in China, Hanoi and Ho Chi Minh
City (Saigon) in Vietnam, Phnom Penh. Cambodia, Bangkok, Rayong and
Chang Mai in Thailand, Laos, Singapore/ Malaysia and Korea. Our
website, www.business-in-asia.com,
is one of the largest websites focused on business with Asia. The site
gets over a million hits a month and involves no advertisement or
sponsorship but is dedicated to the principle that understanding more
about business in Asia benefits all, inducing our company. My
wife and I, who own the company, each have more than 30 years of
experience in Asia. We speak Thai, Vietnamese and Chinese, and we have
lived and worked in all of these countries. Our background allows us to
look at opportunities across Asia, not just China, and to guide clients
through the obvious and not-so-obvious challenges that come with
locating a business in Asia.
Where could a
company most easily go wrong trying to pursue "an Asian strategy"?
The easiest
mistake to make is not to spend enough time exploring
options in terms of countries and regions within countries. For
example, Shanghai and Guangzhou in China are both great places to site
a project but both have become relatively expensive in terms of labor,
rents and other costs. Today you need to look farther afield in China,
say to Zhejiang Province, which is about on hour's drive from
Shanghai, or to the North to cities like Weihai and Yantai in Shandong
Province, or even to Vietnam or to an old standby like Thailand, which
can look more expensive at first but is actually quite competitive when
all cost factors ore examined and compared.
How can a company
determine whether it would benefit by either manufacturing or entering
a joint venture in Asia? Are there some general "qualifying" rules that
apply to any business?
Whether as
a point for sourcing of product, manufacture, OEM production, sales
and/or in some cases design end engineering, Asia offers a host of
opportunities and challenges for companies in the U.S. and other
countries. That said, we recommend going offshore only when there are
no other options or as part of a long term strategy for expanding a
business. I am not a big proponent of defensive business. If your focus
on Asia is strictly on reducing costs, you ore missing out on part of
the advantages of being there. The benefits of an Asian strategy apply
to small and medium sized companies as much as to bigger corporations.
Companies with $2 million to $5 million in sales have worked with us on
projects in Asia, so the range of companies that can benefit in
examining opportunities and challenges in Asia is considerable.
Does the fact
that China attracts so many multinational OEMs mean that it should be
the place to go?
One should
put aside any pre-conceived notions like China is always the cheapest
or best location because that can easily be wrong, depending on what
one wants to do. Look at all the costs and look at them in detail. Pay
attention to taxes, fees and expenses as they can either limit your
profitability or doom your operation. Focus on shipping, and not just
the cost of shipping a 40-ft container but all the incidental fees,
times in clearance, etc. These matters are not as clear as they may
seem to be but they have to be factored into any business plan.
Again, keep an open mind. In China, this may mean looking past
locations you have heard of in favor of locations like Taizhou, if you
have a project that involves plastics, plastic molds or automotive
parts, or a place like Yantai or Weihai, if your project involves
crankcases, tires, automotive spare ports or electronics, or to Hanning
or again Weihai or even to Ho Chi Minh City if your project involves
furniture. For wire and cable companies there ore several locations you
might want to consider, such as Zhejiang province in China and Rayong,
Thailand. For any sector, however, there are comparative advantages
that cause like industries to co-locate there. It is a rare company
that can choose a location and arrange for all the logistics on their
own, so it is essential to go there with someone who is experienced in
the country thorough in their research and able to understand you and
your company and your needs.
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A company
considering establishing a presence in Asia understands that this is
not a simple matter. Can you give us an example of a few of the types
of logistical problems that can happen that might be outside of the
realm of what one might expect?
Runckel: The changes in oil and other commodity prices have been a
worldwide phenomenon. Plastic is derived from oil and the prices for
plastic resins have often moved rapidly. These oil related cost
increases have had affects across the spectrum of projects this past
year. Although all companies in Asia have born the brunt of these cost
increases, some have been less willing to pass along all of the costs
of the increase and this has affected selection or best sourcing and
OEM partners. Shipping costs both inland freight and sea freight have
also been affected by this but again the effect has not been evenly
spread across all countries. Some have been affected more than others
and this has affected selection of the best company and country for a
project.
What factors
might make other Asian countries a better location?
:
China is a very good choice for some projects, but it is not
the best solution for everyone. China is low cost in many areas but not
so low in others. The lack of a convertible currency is a hindrance but
can be dealt with. The risk of currency appreciation moving forward is
increasing although I believe still a ways off. The weak rule of law
and lack of predictability of commercial dispute resolution is more of
a worry. China Is a particularly bad choice if the project involves
substantial intellectual property (IP) as the reality In China is that
China's continued performance in this area is very unsatisfactory.
In terms of other countries, Vietnam is fast coming up as a low cost
place for many projects such as computer software, furniture and some
metal projects. Thailand is a great location for projects where a wide
range of well trained and experienced suppliers are critical. Malaysia
can also be a good choice although it is gradually becoming a
relatively higher cost location and there often has to be more
substantial value added in the project to justify being there.
Indonesia is a low cost country but a country where we do not recommend
many projects as the political and security situation there has become
less predictable. India can also be a good choice for some projects
although it remains a very bureaucratic country where much more
revision of procedures and laws is still most needed. A company needs
to compare various Asian locations (say China, Thailand, Vietnam and
India or some other combination) in terms of what business costs,
incentives for location there and long term growth prospects they
offer.
Is China on an
unstoppable momentum roll for world manufacturing?
I am not as willing as some to count American business
out of the competition. China has strengths, but it also has lots of
weaknesses. I believe the news stories are generally only seeing pert
of the picture. Yes, costs are low. The reality, however, is that most
of the manufacturing base in China was built on cheap credit, is
running at less than 50 percent of capacity and that thousands of
factory buildings and even whole factories have been built on "spec"
without a reasonable business plan and without the sales and customers
that would drive an investment decision in the west. I believe many
Chinese factories are not economically viable for the long term; that
Chinese manufacturers have not sufficiently valued the importance of
knowing their customers and developing a sales network. Many U.S.
companies undervalue their own knowledge of customers and what will
sell and what won't and ultimately there will be a shakeout on both
sides and American business will find opportunities to adapt and profit
by being closer to the customer, more attuned to where the market is
moving and ultimately more agile than the competitors.
About
Runckel & Associates:
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