Days 4 & 5: Shanghai

Day 1 is here. The next two days were all about getting acclimated.

Days 2 & 3 are here. These days were pretty much spent as a tourist in Shanghai.

Day 4 (January 5)

The quality of the fitness center and breakfast buffet at Le Meridien Shanghai hotel should not be understated. I used the gym each day and the buffet had a terrific selection of foods from around the globe. Most mornings I had a traditional Asian breakfast of rice, fish, and fruit. Sushi, congee, normal American choices (pastries, pancakes, custom omelets, bacon, etc.), cheeses, cereals, and salads were also available.

Today we began the real content portion of our FDIB program. We started by meeting with Stephen Jacques, the Deputy Principal Commercial Officer of the US Commercial Service  which is somewhat like an FSO position but it is part of the Department of Commerce and not part of the State Department. He spoke candidly about his role trying to help US companies start businesses or branches of businesses in Shanghai and nearby areas. In 1990, Shanghai was first opened to foreigners and the economy is growing strongly. He shared both success and horror stories of companies that have located here. Most of the horror stories stemmed from the US company’s lack of due diligence prior to entering China or after initiating contracts. We spent some time discussing “quality fade”  and some of the recent product safety issues like the melamine in the milk, lead paint in Mattel toys and the less than optimal practices of some prescription drug manufacturers (see e.g. this article). Stephen recommended that if your company was considering relocating to Shanghai that you start by exploring the resources available from the US Commercial Service (his organization) as well as the branch of the American Chamber of Commerce   located in Shanghai. He outlined several major challenges to establishing a business or branch of a business in Shanghai and other regions of China remain especially when compared to Hong Kong: (1) the RMB is still not fully convertible, (2) there can be a lack of clear Intellectual Property protection or enforcement and (3) there are regional variations in enforcement of certain laws. In comparison, Hong Kong has a long history of British Common Law, 100 years of Western (British) influence, and a more established financial system. In spite of this, he has observed that some companies moving to China for the first time are choosing Shanghai as their corporate headquarters.

We had a very different presentation from Kyle Sullivan, Manager, Business Advisory Services of the US China Business Council, a 200+ member non-profit NGO that was established in 1973.  Their role is to provide members business services, government advocacy and host educational programs and events. Their website has a number of reports and articles that highlight much of what we discussed with Kyle (US-China trade deficit, the volume of trade the US does with China, the growth and change in China over the last decade). Kyle was much more optimistic and positive about the opportunities available to businesses in China.

These meetings were followed by a group lunch at the Red Chicken Restaurant.  This trip was memorable for the roller skating waitresses and the non-Western toilets (see my Flickr pictures).

In the afternoon we drove to tour Baosteel. They are the largest steel company in China and the third largest (or most comprehensive) in the world – the grounds of the company are larger than Macau. An entire city has built up to support the steel production and processing facility. There was a university, high end shopping mall, and all of the normal city infrastructure. We toured one of their hot steel pressing plants seeing large sheets of hot steeling moving down conveyor belts getting pulled, thinned, narrowed as water was sprayed across it. At the end, big rolls of steel were being produced about every minute or two. If I understood our guide correctly, each roll has a value of approximately $15,000 US. Almost all of the iron ore is imported from other countries: Australia, Brazil, etc. They built an entire port and delivery system to transport the coal, iron ore and other materials needed to efficiently manufacture the steel. The steel is used almost exclusively here in China with a small percentage being sent to the pickiest international customers.

The infrastructure that has been built around Baosteel and in Shanghai is simply incredible. For example, 20 years ago the Pudong District, where the airport is located, was farm land. Now it is a massive metropolis with some of the tallest buildings and biggest highways in the world. All of them less than 20 years old. This is a country that builds for the future.

Day 5 (January 6)

We toured two additional major businesses today: Desano Pharmaceuticals  & GM Shanghai.

Desano  is a large (5500 employees) pharmaceutical company founded in 1996 and located in the Zhangjiang Hi-Tech Park. They are primarily involved in the creation of generic and biosimilar drugs with an emphasis on anti-retroviral drugs (especially for HIV and Hepatitis) and anti-malarial drugs. The production capacity for some of their drugs or active ingredients was impressive and on the magnitude of 14,000 kg per year per drug. Desano Holding Company has several other subsidiaries in development with different foci: Cdymax (oncology & steroids), Hegno(vitamins & animal health ingredients), and Biomabs (monoclonal antibodies, biosimilars).

GM Shanghai  is a joint venture with SAIC (Shanghai Automotive Industry Corporation) producing Buick, Cadillac, and Chevy. Some models have been 100% designed and sourced here in China. Some of the new models, such as the Chevy Cruze , are currently available in China and will be coming to the USA in 2011. We were able to tour one of the GM Shanghai manufacturing plants. We saw the steel get converted to frame, and then get painted prior to final assembly. It looked like one new car rolled off the assembly line every 2-3 minutes. Even though they are producing about half a million vehicles each year in China, they cannot fully meet the current demand. Even in this economic downturn, sales have been strong. While we might hear that GM is struggling in the USA, in China, it’s one of the largest and most profitable car manufacturers.

After several days of Shanghaiese cuisine, I was delighted that we dined at a Thai restaurant for dinner. I love Thai food. It was a very special restaurant with singing and dancing waiters and waitresses. They sometimes performed solo (e.g. they did a great rendition of Michael Jackson’s beat it – complete with choreography) and sometimes invited restaurant patrons to dance with them. Our more extroverted group members enthusiastically joined in.

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