Obstacles to Overcome
The Chinese have landed here to a warm welcome. But just to be on the safe side, Dave McMahen decided not to fly the Chinese flag outside the motor scooter factory.
After surviving for decades on the fortunes of poultry, Russellville, population 21,000, is now the unlikely home of what appears to be mainland China’s first U.S. factory built from the ground up.
American Sundiro, a joint venture between McMahen and China’s leading motorcycle firm, has55 employees assembling 10,000 low-priced motorbikes a year in its new blue and white plant. But what with all the talk in Washington about Chinese espionage, McMahen didn’t want to tempt fate.
“It’s wrong,” he says. “We’re saying, ‘We want your money and your jobs, but we don’t want you to say this is a Chinese company.’ I hate that. But I decided not to put up any flag until people here start to come around.”
For a rural community such as Russellville anxious for jobs and some link to the global economy, Sundiro was an unexpected source of help. But it hardly represented any grand Chinese strategy.
Indeed, its decision to move here owed more to the aggressive McMahen, then a local motorcycle dealer, than to any schemes hatched in Beijing.
And there have been problems from the start in this marriage between one of China’s largest state-run companies and a strong-willed Arkansan.
The experience suggests that for some Chinese firms entering the United States, anti-China sentiments may be a less formidable foe than their own quality problems and lack of sophistication about the U.S. market.
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When executives of Sundiro Motorcycle Co. met McMahen in June 1996, they didn’t even plan to put a factory in the United States. They just wanted McMahen, who owned the largest Honda motorcycle dealership in the U.S., to pave the way in this country for their Chinese-made motor scooters. After visiting the firm’s headquarters in southern China, McMahen came away convinced Sundiro could take on Honda, Yamaha and Kawasaki, the Japanese motorcycle makers that dominate the U.S. market for smaller motorbikes.
Since its founding by a local government in China in 1988, Sundiro has built itself into China’s leading motorcycle maker with the help of Japanese technology. Its bikes are sold in dozens of countries, including Germany, Venezuela and South Africa, and it operates a joint-venture engine plant with Kawasaki.
But here, Sundiro stumbled almost immediately. The first shipment of Sundiro 50cc motor scooters to arrive in Russellville in 1997 was a disaster. The fungicide used to debug the containers had corroded the metal and damaged the electrical wiring. Each bike needed extensive reworking.
At less than $1,000 apiece--at least 25% cheaper than its competitors--the colorful Sundiro Mantis and Eclipse scooters sold quickly.
But once they hit the road, the scooters started to have problems. Spare parts took months to arrive and often didn’t match the original shape or color. There were no repair manuals in English.
McMahen quickly learned one of the weaknesses of China’s big state-owned firms: They rely on a network of suppliers that changes regularly depending on price and availability. Quality control and accountability can be spotty at best.
A frustrated McMahen told his Chinese partners the only ways to resurrect their credibility were to improve the quality of their parts and to assemble the bikes in the U.S.
Given the much higher production costs in the U.S. and fierce price wars back in China, it was a very expensive gamble. But Sherman Yang, Sundiro’s assistant general manager, says McMahen convinced the Chinese that they must conquer the U.S. marketplace if they were serious about challenging the Japanese in other countries.
“Dave asked us, ‘Do you want to do this market or not? If you give up, you’re going back to China,’ ” Yang recalls.
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For McMahen and the Chinese, agreeing to establish a joint venture assembly plant in the U.S. was just part of the battle.
McMahen, a country boy, had no interest in leaving Arkansas for crowded cities with no room for his dozen mules. But the Chinese wanted to be in Miami or Los Angeles, places with easy transportation connections to China and with large Chinese communities.
“This is so far from everywhere,” complains Yang, who commutes among Sundiro’s San Jose office, a rented house in Russellville, and Los Angeles, where his wife and child are living.
Although Japan’s Bridgestone Tire now owns the former Firestone plant here, it’s easy to understand why the Chinese might hesitate to move to this predominantly white Bible Belt community in the Arkansas River Valley.
Accusations that China had attempted to influence the 1996 presidential campaign through illegal donations had critics of its communist government and of Arkansas’ political bad boy, Bill Clinton, working overtime the summer of 1997.
McMahen reassured his Chinese partners that Beltway politics didn’t mean much in his hometown, where the “big guys deal with the big issues while the country boy does the deals.”
Nor did Russellville offer much cover for a Chinese firm looking for a quiet landing. The only other Chinese in town were the owners of two Chinese restaurants and a group of students at Arkansas Tech University, most of whom were from Taiwan.
But Gina Wu, owner of Madame Wu’s restaurant, a regular winner of the Best of Arkansas Chinese cooking award, says Russellville has always treated her as one of its own.
“It’s a very nice, very simple town,” says the immigrant from Taiwan, who reared two daughters with her husband during their 14 years here.
Russellville’s slow pace of life may not have changed much in recent years, but its aspirations have.
While its 50-plus churches handle the spiritual side of things, the town’s economy is dominated by a large nuclear plant and food processors--ConAgra and Tyson Foods are among the leading taxpayers. Other large employers are Bridgestone and auto parts firm Dana Corp.
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But many of the blue-collar jobs, particularly those in the poultry business, are filled by Mexican immigrants because locals don’t want the low-paid, tedious work. Unions have historically been weak in Arkansas, and most of these jobs pay minimum wage with no medical benefits.
Russellville’s business leaders rallied around the Sundiro project, offering the Chinese subsidized land and help in getting state worker-training funds.
“Perhaps this will bring other Chinese companies, maybe suppliers of Sundiro, if this is a good experience,” says Jeff Pipkin, director of the Russellville Economic Development Partnership, who spent months locating a site and shepherding the project through the city planning process.
Pipkin braced himself for local opposition, given Russellville’s conservative background and the community’s lack of exposure to China.
“It’s not something you hear about every day,” he says.
But with the exception of a few angry callers on a local radio talk show who complained about the “Commies coming to town,” Sundiro’s arrival met no public resistance and there was no shortage of job applicants.
McMahen’s biggest headaches were inside the plant, where it quickly became obvious that he and his Chinese partners had very different ideas about how to do business.
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Most of Sundiro’s local employees had grown up around motorcycles but had never met a Chinese person. The two mainland executives originally sent over by Sundiro in the fall of 1998 had spent years working in a large Chinese state-owned company but had never set foot in the U.S.
Chinese executives used to giving orders and having them followed without question suddenly found themselves up against American employees with their own ideas.
“In China, because labor is very cheap, they work very easily and follow instructions,” explains Yang, who came to Russellville after the first two Chinese managers were transferred home. “Here, people know a lot about things and you cannot push them. You should work with them.”
Fearful of a worker rebellion, McMahen convinced the Chinese that American employees responded better to rewards than to punishment.
As the quality of the Chinese-produced parts improved, other problems cropped up. Faced with lagging demand for small motorcycles, McMahen urged his Chinese partners to develop a small version of the ATV, the popular four-wheel all-terrain vehicles that had taken off like wildfire in the U.S.
But the Chinese balked at investing millions of dollars into a product they couldn’t sell back home. Few Chinese could afford such an expensive, gas-guzzling toy.
In frustration, McMahen secretly agreed to help a firm from Taiwan develop a small ATV for the U.S. market. He had already tendered his resignation from Sundiro when the Taiwan partnership fell apart.
Zhao Huhong, Sundiro’s chief, was stunned that McMahen had set up a competing venture with a firm from Taiwan, China’s political blood enemy. The unhappy Chinese executive told his American partner, “You’re the one that brings the wolf to our door.”
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But Sundiro officials also admitted they had made a mistake by not moving sooner, given the 35% annual growth in the ATV market. The two sides agreed to give their partnership another go and made plans to launch a small four-wheeler aimed at the children’s market.
The Sundiro Sunray, a 50cc ATV that began rolling off the assembly line at the Russellville plant last month, may be this Chinese firm’s last opportunity to prove itself to Americans.
Wes Harris, general manager of the Yamaha/Kawasaki cycle dealership here, has taken a spin on one of Sundiro’s new models and was impressed by the quality and the way it handled. He thinks the Chinese have overcome what he called their “checkered past” and is considering carrying the brand at his store.
“Of course, everybody’s skeptical any time there’s anything new, particularly given their past history,” he says of Sundiro. “But if you take a look at what they’re doing now, everything looks like it’s top-notch.”
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China’s Overseas Money
As China opens up and grows economically, so are its investments in other countries. About 13% of the total is estimated to be in the United States. Cumulative foreign direct investment worldwide, in billions of dollars:
1985: $131 million
1990: $2.5 billion
1995: $15.8 billion
1997: $20.5 billion
1998: $22.1 billion
Source: United Nations Conference on Trade and Development, World Investment Report 1999
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How Big a Role?
Today: Chinese are making rapid economic inroads in America, and policymakers must decide what to nurture and what to worry about. A1.
Monday: Mainland China’s best and brightest are streaming into Ssilicon Valley.A1
