Firms Seek High-Tech Trade Niche With China
While on a business trip in Beijing a few months ago, Western Digital executive William Sala struck up a conversation with a young Chinese woman about computers.
As Sala tells it, the woman--a well-educated hotel employee in her early 20s who spoke excellent English--did not know the Chinese word for computer. In fact, she had no idea what a computer did or looked like.
“I was flabbergasted,” recalled Sala, who was in China to drum up sales for the Irvine-based manufacturer of personal computer equipment.
The example helps illustrate just how far behind China lags in computerizing its society, at least in contrast with the United States and other Western nations.
But China has embarked on an ambitious plan to catch up, and U.S. computer companies are likely to play a major role in providing technology and hardware to aid that effort.
Sales Stepped Up in County
Hoping to seize the opportunity for new business in a potentially huge market, some county computer makers have stepped up their sales efforts in China. A few examples:
* In June, Western Digital announced its first major sale to China, a $3-million order to supply computer components to China’s largest personal-computer maker.
* Last month, CMS Enhancements of Tustin announced a deal to sell about $1 million of its computer storage devices to China through a Hong Kong distributor.
* CalComp of Anaheim has been selling computer graphics equipment to China since 1978 and opened its first office in Beijing three months ago. In November, CalComp’s chairman and other company officials will go to China to discuss the possibility of establishing a manufacturing joint venture in that country.
U.S. computer companies have been eagerly watching the Chinese market for some time, but only in the last several years have U.S. computer exports to China been picking up.
A key reason for the increased activity is China’s modernization drive. Chinese leaders believe that computerization is a key ingredient for advances in science, industry, defense and communications, said Denis F. Simon, a professor of international business and technology at the Fletcher School of Diplomacy at Tufts University.
U.S. computer makers have also benefited from improved political relations between the United States and China, which has resulted in increased economic trade.
In 1981, two years after President Carter normalized relations with China, the federal government liberalized its export policy toward China to allow shipments of more sophisticated technology than could legally be sent to its Communist neighbor, the Soviet Union.
Washington Eased Restrictions
In 1983, China was granted friendly, nonaligned nation trading status. And as recently as Aug. 1, the federal government eased restrictions on computer exports to China, allowing shipments of machines that can process data at up to 550 million instructions per second, which is about the power of a low-level mainframe computer.
The Chinese goal is to build an electronics industry that will not only turn out computers for its schools, offices and factories, but eventually will begin exporting machines to other nations, said Simon, who has written a book on technological innovation in China.
“The Chinese are very protective as far as developing their own indigenous industry,” Simon said.
“They are not about to become dependent on anyone for their computer industry.”
Simon said China is seeking to create what he calls “mini-IBMs,” or computer operations that will handle research and development, manufacturing and marketing under one roof.
manufacturing and marketing under one roof. “Previously, these have all been separate entities in China,” he said.
As China moves closer to that goal, it will need foreign assistance in acquiring computer hardware and software, technology and manufacturing know-how. Orange County, with one of the nation’s largest concentrations of high-technology companies, is already playing a role in development of China’s computer industry.
“China is an important part of our five-year business plan,” said Robert C. Milo, president and chief executive of EECO Inc., a Santa Ana maker of hotel computer systems, computer keyboards and video products.
Milo said he was amazed during a business trip to China in June by the rapid industrialization he saw: “The commitment to the government to industrialize is astounding.”
During a seven-hour trip by van through southeastern China, Milo said he saw several hundred industrial complexes being built and was told that the government plans to fill those facilities with domestic and foreign businesses.
EECO has been selling computer systems used for hotel management in China for about three years. With the personal-computer market “about ready to take off,” Milo said, EECO hopes to expand its business by selling keyboards to Chinese computer makers.
AST Research began shipping personal computers to China about a year ago, but sales have been unspectacular.
Albert Wong, a Hong Kong-born founder of AST, visited Beijing last month to try to stir up interest for the company’s products. AST is considering opening a sales and service office in the Chinese capital.
“Even though there is a fair amount of activity in China, we still don’t have a feel for what the true market potential is,” said Wesley Nelson, AST’s vice president of international sales.
‘Substantial Sales’
“We want to do well there, and that should involve substantial sales of computers.”
But AST and other U.S. personal-computer companies may face an uphill battle selling to China, which is trying to develop its own personal-computer industry. China has already begun clamping down on imports of personal computers to protect its domestic industry and limit foreign exchange spending.
To be successful in the Chinese market, Simon said, U.S. companies need to understand that country’s strategy for developing its computer industry. China is placing a high priority on acquiring foreign technology and is also encouraging foreign firms to establish joint manufacturing ventures in China.
“If you just try to sell into China, it won’t work,” Simon said. “The Chinese might buy the first 500 machines from you, but the next 500 you’re going to have to make with them.”
Already, some U.S. computer makers have been disappointed in the China market because “they aren’t seeing the long-term implication of what’s happening,” Simon said. “You’ve got to have a partnership with the Chinese if you hope to stay in the game.”
Larry Sanders, CalComp’s vice president of sales and marketing, said: “There are a number of countries around the world that look more favorably on your products when you have some kind of manufacturing in their country.”
Product Assembly Operation
For that reason alone, he said CalComp is considering setting up a product assembly operation in China.
“While our business has grown steadily (in China), it has not grown at the rate we would have forecast five years ago,” Sanders said. “We are guardedly optimistic about the potential in China.”
CMS Vice President Tarek Ayoub was more upbeat about the prospects of doing business in China, saying that the market has “phenomenally huge potential.”
SOME ORANGE COUNTY COMPUTER COMPANIES DOING BUSINESS IN CHINA
Company Product Exported AST Research Personal computers, add-on boards CalComp Computer graphics equipment CMS Enhancements Computer disk drives EECO Hotel computer systems Western Digital Personal computer components
