The Capital of China

When Naples executive Arthur Allen signed his first deal with a Chinese company, rockets went off-literally.

After 40 years in the business world, including stints at General Motors, Cutler-Williams Inc. software and several companies of his own making, Allen had negotiated and signed more deals around the globe than he could remember. But when he began doing business with a Chinese company, he was amazed by the festivities involved.

"Little rockets shoot off, and this Chinese paper comes down from the sky," Allen explains. "There will be a young lady at each signing table. You initial and sign each page, and then they exchange the book just like you're doing a formal treaty."

Businessmen and women across Southwest Florida and the nation are discovering not only that trading with China may be an unusual experience, but it's one they ignore at their own peril.

The East-West trade route

The value of American exports to China rose from $11.8 billion in 1995 to $41.8 billion in 2005, according to the US-China Business Council. In that same time, imports from China to the United States skyrocketed from $45.6 billion to $243.5 billion. This trade imbalance gives fits to federal officials; nonetheless, it demonstrates just how rapidly trade between these two global heavyweights is growing.

Florida companies are right there in the fray. While the state focuses heavily on Latin American trade because of geographic location and a multicultural population, many businesses are eyeing the China market, or already entering it.

Of the state's top 50 merchandise trading partners, China is fifth, worth more than $4.7 billion in 2005, according to Enterprise Florida, a public-private partnership that promotes Florida's economic development. That's nearly 32 percent more than 2004.

"Enterprise Florida has identified 15 countries that we feel are so important that we have established an international office there. China is among those," says Lisa Nason, the organization's vice president. "In terms of a consumer population, the numbers are there. It's pretty clear that you have a market [in China]."

According to the Economic Development Council of Collier County, while we in Southwest Florida are looking at opportunities in China, the Chinese are eyeing us as well. After the United States and Canada, the next highest number of visitors to the council's Web site comes from China.

With an estimated 2006 population of 1.3 billion consumers and a rapidly growing middle class, China is quickly transforming from its rural, agriculture-based economy of the 20th century to a more high-tech manufacturing and service-focused system for the 21st century, experts say.

"China's gross domestic product has been growing at about 9 percent over the last 10 years, and in the United States it's been around 3 percent," says Dan Borgia, director of the Institute for Chinese Studies at Florida Gulf Coast University. "In the next 10 to 20 years, the Chinese are going to become wealthier and wealthier, and they're going to want more services and goods. They're going to become a major export market for the United States."

The stereotype of China producing only factory-made toys, shoes and trinkets for Americans also is changing, Borgia says. "China is making a big effort in financial services, customer service operations and even engineering services," he says. "A lot of businesses that are very big here in Southwest Florida have huge opportunities in China. Healthcare, for example: they need our expertise. Biotechnology, pharmaceuticals, medicine-it's an area that we do better than anyone else."

Emerging markets

Allen has seen the changes in China firsthand. He is president and CEO of Allen Systems Group Inc. of Naples, a $200-million-a-year software corporation. In 2002, ASG acquired a company that was doing a small amount of business with China. Since then, the company has expanded its presence there, opening new offices and adding staff. Today it has nearly 30 full-time employees based in cities around China with two more offices planned.

So far, ASG's business deals in China have been relatively

small; in 2005, deals there brought in about $10 million. ASG works mainly with Fortune 5,000 companies around the world, and there aren't many enterprises of that magnitude in China-yet.

"Over time, as more and more of these mid-range companies grow up into major corporations, then there will be additional markets for us," Allen says.

Currently ASG works primarily with government agencies in China and does business with SinoRail, a state railroad company. Now it's up for a pilot medical-records project there that would start out with a mere 50 million people.

"If that project comes to fruition, our growth there will be dramatic," says John Connor, a senior vice president of business development for ASG.

The opportunities in a country China's size may seem boundless.

HerbalScience of north Naples patents and produces medicines based on ancient Chinese remedies. NeoMedia Technologies of Fort Myers sells auto paint and related products to car dealers in China. In March 2006, the company announced it had orders surpassing $1 million.

"It's probably a cross-section of everything from selling high-tech medical components to offering telecommunications services," says John Adams, president and CEO of Enterprise Florida. "Any of the technology areas would be a transportable entity into that economy. They're a net importer of just about everything, but in the tech area there would be the greatest demand."

Still, setting up shop in China is anything but easy.

Be prepared-and patient

Besides government rules, regulations and red tape, more intangible impediments exist, such as language and cultural differences. "You have to clearly articulate what the business proposition is," says Allen. "Sometimes, because of the linguistic barrier, you just have to be very careful that what you're saying and what they're saying is understood."

Even more problematic is the critical concept of guanxi. Nearly everyone who has done business in China will tell you they've experienced this phenomenon that translates-more or less-to "relationship."

"It's more than just having connections," says Shania Hasz, a Fort Myers businesswoman who offers "China market orientation" seminars. "It's like you do someone a favor, they do a favor back. It's more profound than just connections."

Others describe guanxi (pronounced "gwan-she") as "you scratch my back, I'll scratch yours." The expectation is you will perform a good deed for a business associate without being asked. It implies a level of trust and friendship that many Western businesspeople find odd.

At times, guanxi can make Americans feel uneasy, almost unethical, especially when money or materials are trading hands. "It's not really a bribe," says Borgia. "It's just a way of getting things done faster."

Jim Hynes, president and owner of Hines Bending System in Fort Myers, experienced the questionable side of guanxi when he started doing business with China-requests for early down payments and so forth. However, that is all in the past. Hynes' company provides manufacturers with machinery that bends metal tubes and pipes. "Our machines bend everything from wheelchairs to race cars," Hynes says. "We have them all over the world. We have a couple down in the Panama Canal. They've had to replumb the whole canal, and they needed our equipment to do it."

In 1986, a group of Chinese men approached Hynes at a trade show in Chicago, saying they could build his complex equipment for a lower price. "I was like 'Yeah, sure,'" Hynes recalls. "This young fellow kept coming to my office every week until he drove me crazy. Finally, he said, 'We're going to make four machines for you, and we want you to come to our factory.' I went to Beijing, and that started it."

It grew into a 20-year-and-counting relationship that has proven a boon to companies on both sides of the ocean.

Hines Bending System now has all its machines produced in Shanghai and shipped to the United States. The quality of craftsmanship and better prices have allowed the company to stay competitive.

The Chinese company has not only had a reliable and steady American partner in Hines, but it's also used some of Jim Hynes' innovations in products it now sells domestically in China. In the true spirit of guanxi, this doesn't bother Hynes at all because of the loyalty shown by his Chinese counterparts. "They said, 'Hey Jim, we have used your ideas here,'" says Hynes. "It's an ongoing, real trusting relationship. We're close personal friends now."

Another stumbling block for some is the concern over human rights in China. The country has a Communist government, and those 1989 images of troops and protesters clashing in Tiananmen Square are still fresh in the minds of many. Couple that with fears of sweatshop labor and some American companies, along with their stockholders, get skittish.

Indeed, communism may be the official mantra of the Chinese government, but it's hardly the reality on the streets of Beijing, Shanghai and thousands of other cities there.

"It's probably the most capitalistic system that I have ever seen anywhere on the planet," Allen says. "When you get down below the Central Committee, it's very capitalistic across all the enterprises in China."

Allen and others praise the Chinese government for the progress they are making. From students studying English starting in the third grade to the hundreds of thousands of engineering students graduating each year, from dramatic growth of private businesses to the newfound prosperity being experienced by tens of millions of middle-class Chinese-the China of today is not the China of several decades ago.