Made in China, Part One30 Sep, 2005 By: Kenneth Wong Cadalyst
Scramble for cover or dance with the dragon.
If global economy is an international conglomerate, then China is its factory floor. When Frontline correspondent Hedrick Smith asked port officials at Long Beach, California, to comment on the shipping containers being shuffled back and forth between the United States and China, he was told, "We export cotton; we bring in clothing. We export hides; we bring in shoes. We export scrap metal; we bring back machinery" (Frontline, "Is Wal-Mart Good for America?" www.pbs.org). And if you want more concrete proof, try this: The Dragon accounts for almost 50% of the world's concrete consumption, 40% of steel consumption and 35% of coal consumption (The Jakarta Post, "Spillovers from China," May 7, 2004). It's difficult to imagine a supply chain that lies beyond the Dragon's clutch. When a powerful creature is awakened from its long slumber, there are two ways to deal with it: scramble for cover or learn to dance with it.
To do justice to this broad topic, I'll devote two installments, beginning with opportunities and anxieties this month, and concluding with the North American advantage next month.
Greetings from the Celestial Kingdom
In October 1997, China President Jiang Zemin flew nearly 7,000 miles from Beijing to the Big Apple to strike the opening gong of the New York Stock Exchange, a signal that the Forbidden City was now more open than ever to foreign businesses. His invitation was heard, and answered. As large manufacturers began setting up shops in Chinese port cities to take advantage of the low-cost laborers available there, new CAD/CAM/CAE markets emerged overseas. Intercontinental manufacturing activities are also expected to spawn a greater demand for supply-chain management, data management, quality assurance management, processing planning and regulatory compliance software. According to reports from e-Works of China (www.e-works.net.cn) and Daratech (www.daratech.com), overall global PLM spending is expected to grow 11% between 2004 and 2005, but the expected growth in PLM sales for the same period in China is 30%.
With Chinese engineering graduates outnumbering their United States counterparts, China is likely to become a popular research and development destination for many technology companies. Autodesk Inventor s wire harness, piping and tubing applications shown here were developed overseas in the company s Chinese application development center.
Trying to make up for lost time, the Dragon has an insatiable appetite for new technologies. Andrew Anagnost, senior director of product management for the Manufacturing Solutions Division at Autodesk, observes, "When the Chinese start a new initiative, they start in 3D. They don't even mess around with 2D. There is a massive amount of 2D data, still a lot of manual processes, but their buying behavior is very 3D-centric." SolidWorks COO Jeff Ray remarks, "There's a great sense of urgency in China. Leading Chinese companies want to sell products beyond China and are investing heavily in 3D CAD technology to help them demonstrate the same design excellence and innovation as Western companies."
Adrian Scholes, director of product marketing for Solid Edge, believes, "China is right now in what you would call the early adoption phase, but the economy is on a roll and a lot of companies want to get a jump start, to get an edge over their competition. They see technology as a way to lower product cost or to get the product to market faster."
According to Monica Schnitger, senior vice-president of market analysis at Daratech, China has one significant advantage over North America in technology adoption: "Chinese manufacturers are not trying to integrate legacy systems with the latest technology, so they can configure business and IT processes that take full advantage of what's available now."
Data from e-Works of China and Daratech reveals that combined spending for process-centric 3D CAD and design-centric 3D CAD account for $68 million (71%), and 2D CAD for $28 million (29%) in China in 2004. A detailed report titled PLM: Chinese Markets & Opportunities is in development by e-Works of China and Daratech.
Our Man in Beijing
Not too long ago, to deal with what analysts refer to as "oversubscription of resources," China began looking inward, literally. Under its "Go West" policy, the central government set aside 400 billion yuan (U.S. $48 billion) to improve infrastructures. The aim is to transform the agricultural regions in its rural west into industrialized regions so they can take the pressure off the overcrowded eastern delta. And that spells opportunity for Autodesk, a firm with a comprehensive line of infrastructure solutions.
In 2003, Autodesk lured back Dr. Jack Q. Gao, its former point man for China who left briefly to run Microsoft China Co. Ltd. in 1999. Now based in Beijing, Gao is the vice-president of corporate strategy and business development for Autodesk China and regional director of the Greater China region. A UCLA graduate and a Sichuan University professor, he straddles two worlds. With deep roots in the local community, Gao has what Bill Gates and Carol Bartz probably don't—Guanxi, or personal connection—something the China experts have long acknowledged as a critical advantage in navigating the country's arcane negotiation protocols.
IronCAD also has a firm foothold in the China market, but you may not be aware of it because its product is embedded into and sold under the name CAXASolid by its joint-venture partner CAXA (www.caxa.com), a leading CAD/CAM/ PLM vendor in China. With high-level contacts in the Ministry of Science and Technology and the central government, CAXA president Dr. Yi Lei can sort through China's bureaucratic labyrinth. He knows his way around the Standardization Administration of the People's Republic of China.
Dr. Lei points out, "Simply using foreign software cannot fully satisfy the requirements of Chinese customers. Chinese enterprises need solutions that match Chinese local standards, use model and enterprise characteristics." Dr. Lei is poised to reshape the technology that first originated in Scarlett O'Hara's hometown Atlanta, Georgia, so Chinese engineers can feel right at home with it.
Made in China
By and large, Chinese manufacturers are known for what is sometimes politely referred to as "reengineering," or recreating variations of consumer products designed elsewhere (the not-so-polite term is "imitation"). But this is rapidly changing. As they gain experience and expertise, they are creating products based on original ideas uniquely suited to their domestic market, which they understand better than foreigners. This can have far-reaching impact on some foreign companies counting on China's population of 1.3 billion to buy their products.
And their technological sophistication is increasing. China is churning out 3.3 million college graduates this year, 600,000 of them in engineering. Compare this to the 1.3 million the United States is producing this year, with 70,000 in engineering (Fortune, "Can America Compete?" July 2005).
Do you know, by the way, that some of the most recognizable 3D CAD products contain components developed in China? Autodesk Inventor's wire harness, tubing and piping applications were built overseas in Autodesk's Chinese application development center. SolidWorks conducts some of its research and development in Chinese facilities. In fact, some sophisticated COSMOSWorks features in future versions of SolidWorks could very well come from China.
New Markets, New Opportunities
"The pendulum always swings back," says Autodesk's Anagnost. He reminds me about the U.S. manufacturing sector's jitters about the Made in Japan label during the 1980s. "The American manufacturers did not die—they innovated, they bounced back," he says. SolidWorks' Ray says, "Successful companies recognize that the global market is changing and then take advantage of these new opportunities, rather than ignoring China altogether."
Next month, I'll examine some areas where the United States may still have an advantage over its overseas competitors. Hope you'll return for another round with the Dragon. To discuss this topic online, go to Cadalyst Discussion Forums | MCAD | Outsourcing.
Kenneth Wong is a former editor of Cadence magazine. As a freelance writer, he explores innovative use of technology and its implications. E-mail him at firstname.lastname@example.org.