WorldCity Business Magazine

The China equation

by Joachim Bamrud

Whether the goal is outsourcing, competing for a share of the world’s fastest-growing market, or exporting know-how to fuel a roaring economy, China is a huge opportunity, one that companies of all shapes and sizes ignore at their peril

That was the message delivered by all three speakers at WorldCity’s April DHL Connections seminar.

The level of China experience on the panel ranged from nearly two decades, in the case of Harry Schulman, CEO of home appliance maker Applica, to a mere 90 days for Ralph Gazitua, CEO of the Miami Free Zone. But unbridled enthusiasm for China was shared by all.

No one was more excited about the opportunity that China represents than Joe West, dean of the School of Hospitality & Tourism Management at Florida International University, who will open a campus in Tianjin in August 2006: “This is our opportunity to train China’s (hospitality industry) leaders of tomorrow. Imagine, they will all be FIU alumni.”

An inspiring thought for South Florida’s international business community. But that is the tip of the iceberg.

By featuring three very different, yet powerful, China case studies, the event served to expose the important and growing connections between China and South Florida. It also served to emphasize the importance of coming to grips with the China colossus and the impact that it will inevitably have on just about everything we buy, sell and do.

China is currently South Florida’s No. 7 ranked trade partner and its No;. 2 ranked import trade partner.

“Many people really do not understand China,” said Schulman, whose Miramarbased company began manufacturing in China in 1982. “The value that China offers from an exporting standpoint and the opportunities that exist in the country itself are phenomenal.

“And if we, the international business community, can’t find ways to take advantage of this and learn to work together with the Chinese, we will be left in the dust.”

Schulman, who has visited China an average of five times a year for the past 17 years, has learned plenty. And the learning curve has accelerated in recent years. Since 1998, when his company purchased the Black & Decker household products group, Applica has tripled annual revenues to over $700 million by leveraging the power of China’s cheap and skilled labor force. “For a mid-size company like ours, the ability to take advantage of what China has to offer is what it is all about.”

Years of working in rapidly-evolving China have taught Schulman that the keys to success are “be flexible and fast on your feet.” Last year, he proved that he’d learned those lessons well when he sold all of Applica’s manufacturing operations in China to a local Chinese company.

Not only did Applica outsource its production in Asia, the company last year streamlined its supply chain from Asia to Latin America, where it does $100 million of annual sales. By setting up a consolidation point just outside of Hong Kong, Applica now ships irons, toaster ovens and other small appliances directly to major clients in Latin America, thus eliminating the need for warehousing and trans-shipment in the Miami area. The result has been double- digit growth in Latin American sales, well above the industry norm of 1-3 percent, said Schulman.

But if outsourcing to China was the answer for Applica to compete in the global marketplace, West discovered exactly the opposite: China was more willing to outsource to FIU’s renowned School of Hospitality the task of training Chinese hotel managers and bringing their hotels up to U.S. standards.

Beating out other heavyweight contenders, such as Cornell University and the Hotel School of Lausanne in Switzerland, FIU signed a 20-year contract with the government of Tianjin, the closest seaport to Beijing in northeast China, to deliver the same undergraduate hospitality and tourism management program offered to students in Florida at its Biscayne Bay campus. Classes begin in August 2006.

In the meantime, the Chinese government is investing $35 million in a new campus on 80 acres designed to accommodate up to 2,000 students. It will include a 20-story dormitory for 1,000 students, apartments for FIU professors, a 500-seat auditorium and wired classrooms for ultrahigh- speed transmission of lectures direct from FIU Florida.

The good news for South Florida doesn’t stop there. In fact, that’s where it begins.

As West pointed out, “The great universities do more than educate; they become economic drivers for their communities.” FIU’s venture into Tianjin opened the door for the Miami Free Zone, a hub for international trade in Miami and the only privately owned Foreign Trade Zone in the United States.

Ralph Gazitua, chairman and CEO of the Miami Free Zone, was part of an official Miami-Dade trade mission to China, led by County Commissioner Pepe Diaz early this year that included the Port of Miami, Miami International Airport and the Jay Malina International Trade Consortium. A key destination was “TEDA” the Tianjin Economic Technological Development Area an industrial park the size of Coral Gables. It is home to some 2,000 companies, including more than 350 U.S. companies, that employee 250,000 and manufacture and export on a massive global scale.

That mission led, in turn, to a one-day visit to Miami by TEDA Vice Chairman Jhang Jun in mid-April. Gazitua is hopeful that TEDA will soon announce plans to open an office in the Miami Free Zone. “We have only been in the Chinese market for 90 days, but we seized the opportunity,” said Gazitua.

TEDA already has offices in New York, Chicago, San Francisco and Dallas. But what would make the Miami location unique is that TEDA officials foresee using the Miami Free Zone as a warehousing and consolidation point for re-export of goods to the Caribbean and Central America. “This is an opportunity for Miami to become a distribution center for Chinese exports,” said Gazitua.