Analysis on China’s Laser Processing Products Market

According to yearly statistics by the Laser Sub-association of China Optics and Optoelectronics Manufacturers Association, sales of laser processing equipment have maintained a rapid growth in China in recent years. Attributing to a range of public awareness activities including marketing campaigns, exhibitions, popularization and user trainings for the Chinese market, the laser processing market has been greatly developed and expanded, bringing confidence to Chinese users in adopting this kind of advanced manufacturing technology, which also creates a preferable market environment where laser processing technology can be much more broadly applied.

At present, there are over 200 laser processing machine manufacturers operating in China, supported by a strong industrial workforce consisting of nearly 20,000 employees, among which the technicians account for 50%, and specialists with medium to senior technical titles account for 30%. In the mean time, the industry development in China also attracted the attention and follow-up by many overseas laser processing equipment manufacturers.

Laser cutters

It is estimated that the current sales of 1~4KW laser cutters in the Chinese market have reached 300~350 sets, of which China’s supply could be over 200, and the rest (over 100) were from foreign countries, such as Germany, Switzerland, Japan, South Korea and Belgium. The biggest Chinese producer is Shanghai Unity Prima Laser Machinery Co., Ltd., ranked 8th in the global production, and its annual amount of orders has surpassed 100 sets. The other major producers are Huagong Laser Engineering Co. Ltd., Jinan Jiemai NC Engineering Co. Ltd., Shenyang Prima Laser Machine Co. Ltd., Jiangsu Jin Fangyuan Co. Ltd, etc.

Laser marking machine

At present, laser marking machine sales cover more than 50% of Chinese laser processing machine sales, occupying a wide extent of the Chinese market, and greatly expanding the application industry fields, with application range even much wider than the overseas. Its annual amount of sales is approximately 4000~5000 machines. The well-known Chinese marking machines producers are companies such as Han’s Laser, Huagong Laser, Chu Tian Laser, Da Heng Laser, Guilin Stars Laser, ZHD Laser.

25W~100W Laser processing machine

It mainly refers to the type applying a 25W~100W CO2 laser and a X-Y tabletop work-bench system, and also refers to the type applying a Nd:YAG laser machine integrated with vibration mirror. It can be applied in carving works, including inner carving, cutting, piercing, embroidering and cut processing. Its annual output is about 6,000, occupying the vast Chinese market, and it has been exported to regions such as the Middle East, Southeast Asia, South America, Eastern Europe, and Africa. The well-known producers of X-Y work-bench machines are Zhejiang Boye Laser, Guangdong Yueming Laser and Wuhan Golden Laser.

Laser cladding technology and equipment for re-manufacturing industries

Laser processing technology for the reproducing industry mainly uses 5KW~10KW CO2 high-power laser and its system. Its annual sales are approximately 100 sets. A comparatively outstanding company in this aspect is the Dalu Laser. They apply the laser micro profiling and cladding technology into practice and widely use it in industry fields. Meanwhile, the company also produces laser devices and units, becoming a leading enterprise of this technology in China. Other well-known firms are Wuhan Goldensky Laser, Huagong Laser, and Unity Laser.

Laser welding technology and equipments

Application of laser welding technology is rapidly expanding in China, with its sales just less than that of marking and cutting. It is mainly applied in industries such as battery, electric appliance, measuring instrument, hardware, steel and iron, air and aerospace, and automobile etc.. The current market capacity is 600~800 sets.

Its application is divided into three categories: the first category is for the welding purpose of cell phone battery, capacitance, electric appliance, measuring instrument and appliance. The second category is mainly for the laser welding purpose of diamond saw blade. The diamond saw blades are the most consumed parts in all diamond cutters used in infrastructure construction, with a large demand approximately worth 3 billion US dollars. In addition, with development of various infrastructure projects, air conditioning installations and the stone material industry in China, annual demand of saw blades is approximately equal to 1 billion RMB. As a result, Chinese enterprises have been encouraged into joining in the laser welding technology and equipment production. The current annual export value is approximately 30 million US dollars.

The third category is the laser-welded planks, applied commonly in the iron and steel industry, piece welding of automobile sheet plates and welding of various shell parts. It is estimated that this market may be worth more attention in the future. Chinese enterprises producing this kind of systems include Huagong Laser, Shanghai Unity Prima Laser, and Wuhan Chu Tian Laser and so on.

Market forecast

Compared with the international laser processing systems, China’s laser processing systems have not yet caught up, producing only 2% of global output. The deficiencies are mainly reflected in the following: there are little or even no high-end laser processing systems; main-force lasers are not yet qualified; micro-laser processing equipment is in shortage. However, China’s manufacturers are steadily accumulating strength to step forward, and Chinese market has significant room for growth. It is forecasted that China’s sales will double in the next 2-3 years from 1.5 billion RMB in 2004, i.e. the output will reach 3 billion yuan. The reasons are as follows:

The government attaches importance to the development of the laser industry, and government departments at all levels are actively paying attention to it, making out plans and establishing projects, with an all-round investment. Particularly, the government stresses that project initiators should be progressed from colleges and universities, scientific research institutions to enterprises as the main force, which has promoted independent innovation and technological upgrading of enterprise products.

Chinese manufacturing industries of all kinds are adopting laser processing technology, and this would enable them to increase the technological content of their products, speed up product upgrading, reach to a “agile manufacturing” level and meet the requirement of the market for “personalized” products.

In China, laser industry clusters have been gradually formed. Enterprises of laser spares and parts are catching up step by step, and various types of laser processing system manufacturers with own product features are being established one after another. Four industrial belts for manufacturing laser processing equipment have been formed, mainly located in Central China; Pearl River Delta, Yangtze River Delta, and Beijing & Tianjin & Circum-Bohai Sea economically developed region.

Some of the internationally renowned laser processing manufacturers have invested and set up factories in China and some have set up joint ventures in China. As a general trend, they enter into Chinese market successively and establishing localized international competition in China.

Gain a Business Foothold in China With the ‘Build – Operate – Transfer’ Model of Outsourcing

China offers appealing business opportunities because of a highly skilled workforce, attractive wage levels, reliable IT and telecom infrastructure and government support for foreign ventures. Most attractive of all, of course, is the world’s largest and fastest-growing market.

Domestic demand for consumer products and services expands annually in China, and did so even during 2008-09 global economic slowdowns. In turn, there’s a strong need for Western expertise to design, market and administer insurance, banking, investment and credit services.

North American and European companies that have business process, R&D or manufacturing operations in India or Southeast Asia increasingly recognize that prudent risk management means diversifying with a second location in a separate region with a large, well-educated labor supply.

China provides an inviting commercial arena that meets all requirements to assure uninterrupted operations, although it has entry hurdles for foreign-based newcomers. They include:

o Extensive location choices: National and provincial governments support numerous High-Technology Industries Development Zones and software parks in regions with lower labor and facility costs than in the business centers of Beijing and Hong Kong.

o Navigating the bureaucracy: While China welcomes foreign enterprises and encourages private ventures, an elaborate series of permits, licenses and other paperwork are required by municipal, provincial and central government agencies.

o Site development: Leasing, remodeling, equipping and maintaining workplaces for international business requires prescreening local vendors, soliciting and evaluating bids, negotiating contracts and overseeing installation of work stations, electronic networks, telecommunications, backup capabilities and other logistics.

o Recruiting and training: Reliable, well-educated managers and qualified production employees are widely available — and in demand by Western firms. An experienced business process outsouricng (BPO) company can provide industry knowledge and local contacts that are essential to recruit, hire, orient, train and retain skilled workers who can perform back-office functions reliably — services a general employment agency clearly cannot provide.

This White Paper illustrates how the Build – Operate – Transfer approach lets foreign-based providers in the BPO industry or other fields develop an efficient production center in China through a limited-time startup relationship with an experienced local partner.

The Build-Operate-Transfer Model

As the name indicates, B-O-T is a three-stage process that lets companies outsource the logistics of establishing offshore capacity to deliver services, develop products or perform manufacturing. To gain a secure foothold in China at minimal risk, software developers and other Information Technology Outsourcing companies currently rely on this proven business model — which is especially well-suited to the BPO industry.

The business owner forms a strategic alliance with an experienced local partner already established in the same industry who plans and manages every aspect of opening and running one or more work centers in the first two stages — Build and Operate. (“Build” refers to constructing a client-dedicated operation, not a physical location.)

The final stage — which arrives after a contractually specified time, productivity/quality level or a combination of factors — brings a Transfer of all tangible and intangible business assets to the owner.

During each of the first two phases, the local partner’s industry experience and host country familiarity are applied to:

Achieve the foreign owner’s business objectives
Transfer knowledge from the client to managers and workers it will inherit
Uphold the owner’s best practices, quality levels and other requirements
Maximize short-term and long-range profitability for the owner

This model can be applied to a variety of industries and to small, mid-size or large MNCs, and has proven to be effective in China.

BOT also provides powerful advantages for business process service providers.Benefits for new and existing BPO companies expanding to China are evident from the following look at services furnished between the first steps and the final business transfer.

Services at Each Stage

A detailed contract specifies the work production, space, staffing, wage rates, English proficiency, productivity, quality levels and other metrics that the client wants in exchange for a management fee and reimbursement of actual costs. After this needs assessment and planning stage, the local partner then assigns a setup team exclusively to the project.

That team conducts a site selection review of real estate matching the client’s requirements for size, location, cost, capabilities, amenities and other factors. Reports, diagrams and photos are furnished so that the client’s project team can analyze options and the local partner’s recommendation.

Next, lease terms are negotiated and site preparation begins. Work spaces are configured, furnishings and production equipment are procured, and services are arranged (telecommunications, high-speed Internet with backup, etc.) In this Build stage, the local partner also secures required permits, licenses and other registrations from the Ministry of Commerce and regional government departments.

While workplace development is under way, the Operate phase starts with staffing (labor arbitrage). Qualified personnel are invited to apply, are pre-screened, are interviewed and are hired for work only on the client’s business.

Knowledge transfer is the next step — and one that continues throughout the Operate stage. Managers, supervisors and employees are given orientation and training to become well-prepared for handling the client’s work processes at an expected pace.

Maintaining and expanding skills is a vital part of the operating agreement. Clients should look for a service partner who recognizes the importance of continuous, adaptable training to prepare employees for:

Progressive advancement
New client projects
Next-generation software and hardware

Continuing education — combined with on-site English-improvement classes, if wanted — helps increase staff reliability, retention and value to the client. Human resources groomed by the local partner, after all, are among assets the client inherits at Transfer.

The Operate portion involves work supervision, quality assurance, record-keeping, purchasing, facility maintenance, government liaison and administrative support services (invoicing, payment processing and other accounting tasks, if requested).

At the Transfer to client ownership and management, after perhaps one to three years (based on a pre-determined scale), the local partner arranges a transition of leases, vendor contracts, utilities, personnel, administrative services and other functions during an orderly process of joint supervision.

The client inherits all training and procedure manuals, proprietary software, work product templates, business records and other intellectual property generated on its behalf.

–> Key points

Client-stipulated quality assured from the start and at each step of growth
New operation is a seamless extension of client’s work environment
Client inherits a smoothly functioning team familiar with its processes
Client captures valuable support documents and proprietary software
Fixed-fee arrangement eliminates startup risks and assures budget control

Ideal Fit for BPO

Unlike software or electronic product suppliers, who use small technical teams to conduct R&D at offshore testing and development centers, BPO providers typically rely on hundreds of multiple-shift employees to enter data, process forms, convert records, verify claims, perform coding and handle other back-office services.

BPO also has a critical need for absolutely reliable infrastructure — power, telecommunications, high-speed Internet access — to deliver deadline-sensitive work without interruption.

China’s size and sophistication assure that it can meet all labor and infrastructure demands.

Companies can achieve significant gains in costs, time and productivity through a BOT alliance with an established partner in China who has a working knowledge of Western business methods — knowledge that is transferred swiftly and seamlessly.

In addition to needing a large, skilled labor pool, BPO players depend on advanced, reliable infrastructure. broadband Internet access from redundant service providers, multiple international telecom lines, top-level data security and separate servers for each client.

Moreover, the nature of project-driven BPO accounts means that workflow can expand abruptly — again requiring readily available personnel with data processing experience. Scalable growth may require facility expansion or secondary site setup.

While IT Outsourcing may allow flexible project schedules and adjustable delivery targets at times, BPO providers cannot afford delays or workflow interruptions. Speed and dependability are essential for back-office service providers, whose own clients rely on timeliness in the same way that automotive manufacturers in China, Japan and the United States rely on Just-in-Time deliveries from parts suppliers.

Internal Perspective

Providers with deep cultural and business roots in China are well-positioned to pave an obstacle-free BOT path for newcomers who currently operate in India or in their home bases of Europe or North America. These indigenous Chinese entrepreneurs already have an inside perspective of Business Process Outsourcing — as well as of China itself.

They have well-refined recruiting networks, training procedures, operating methods and quality standards. Relationships with vendors, landlords, universities and government regulators all pay immediate dividends for their foreign BOT partners. As London-based

HSBC Bank says in advertisements: “Never underestimate the importance of local knowledge.”

–> Key points

Local BPO veterans have significant host country relationships
Established partner assures continuity of operations at new site
Reliable recruiting and training from a large workforce shorten startup time
Client avoids infrastructure investments during startup
Client can focus on marketing and core business, not support functions at new site
Strategic alliance maximizes ROI

Why a China Site Makes Sense

China is widely recognized as one of the lowest-cost producers in the world. But that’s just one reason why it is the base for a growing share of BPO for clients from North America, Europe and Asia.

Equally important are government support, social-political stability, technical skills, a large and highly educated workforce, Internet and telecommunications networks that meet international standards, cost advantages and entry into the World Trade Organization.

Since joining the WTO in 2001, China has rapidly become a global economic force. Thirty-seven Chinese companies are on the latest Fortune 500 list.

As more multinational corporations participate in China’s dramatic transformation, they and their local partners adapt Western best practices to Chinese cultural and economic conditions.

In addition to those attractions for BPO providers and other industries, a presence in China provides another huge opportunity — access to a country with 1.3 billion people and rapidly expanding markets for business services, consumer services and consumer products. China’s GDP grew by 9 percent in 2008 and 7.7 percent during the first three-quarters of 2009.

Outsourcing can strategically assist expansion into Asian markets, product launches and development of new business models.

As more companies move into China to capitalize on growing demand for industrial and consumer products, firms with little or no experience in China and are vulnerable to various mistakes.

Backup Capacity = Risk Management

The same principles behind business insurance, duplicate records storage, IT security safeguards and disaster recovery plans also apply to BPO operations overseas. Because quick turnaround and continuity are critical, BPO providers with sites in India increasingly recognize that maintaining backup capability at a second site within that country does not provide sufficient safeguards.

A study from AMR Research in Boston warns: “Companies with offshore experience should mitigate offshore outsourcing risk by moving beyond India. High worker attrition rates, the danger of natural disasters, a hostile relationship with Pakistan and religious strains as reasons why many companies are looking to non-India locations in order to minimize the risk of geo-political destabilization.”

Climbing wages, rising worker turnover rates, labor shortage forecasts and sometimes-unreliable infrastructure are among reasons why Western companies with support operations in India now also have partnerships with service providers in China. Corporations such as Whirlpool, United Technologies, Danaher and Sweetheart Consumer Products have diversified this way.

Even Indian-owned companies such as Infosys and Wipro now develop software in China, where labor costs are lower and a well-trained workforce is much more plentiful.

Government Addresses Concerns

Chinese leaders, eager to solidify and extend their republic’s major role in international commerce, are responding to concerns about legal protections, financial safeguards and communication skills. The government is committed to enhancing trust and confidence in China’s market economy, which has evolved significantly since reforms

began during the 1980s.

As part of the current Five-Year Plan, the State Council Information Office has drafted legislation regulating governing digital signatures and is working on methods to improve the security of information and communications systems. It prepared China’s first personal data protection law in 2005.

New privacy and intellectual property safeguards emerged from a year-long study into best practices in Europe, North America and Australasia. The legislation is seen as essential in the furtherance of both the ITO and BPO industries.

Education improvements to expand technical proficiency and English language abilities also are a priority.

–> Key Points

o Outsourcing to China diversifies risks for India-based operators
o China presence provides foothold in world’s fastest-growing market
o Government is responding effectively to legal protection and language education needs

For all reasons outlined, BPO providers with operations in India or Southeast Asia increasingly recognize that prudent risk management to assure continuity means diversifying with a location in a separate region that offers a large, well-educated labor supply with attractive costs.

All Aboard! This Is the China CCRC Express!

“It took more than one man to change my name to Shanghai Lily,” purrs Marlene Dietrich in Josef von Sternberg’s film 1932 adaptation of Harry Hervey’s book Shanghai Express. She certainly has her well-manicured talons sunk into more men than she can count in this exotic far-Eastern, chiaroscuro-cinematographic adventure. Among her fellow passengers on the Shanghai Express are her disenchanted former fiance’, unshakable British medical officer Clive Brook; over-zealous missionary Lawrence Grant; dope smuggler Gustav von Seyffertitz; and enigmatic Eurasian businessman Warner Oland. Coincidently, Oland made frequent appearances in other China-themed movies, most notably as Charlie Chan, the benevolent and heroic Chinese detective based in Honolulu as well as a future movie character for this article.

As the train chugs through the more treacherous passages of war-torn China, Oland reveals himself as the leader of a rebel group, who plans to hold the passengers hostage to secure the release of his imprisoned constituents. In Boule de Suif fashion, Dietrich, who portrays a notorious “Chinese coaster” has remained sexually remote throughout the trip, gives herself to Oland to save the life of Brook, the man she truly loves. Directed by Josef von Sternberg at his most orgiastic (check out the long, lingering dissolves!), Shanghai Express is 80% style and 20% substance.

Tickets, please….

This article is about China’s 3 largest and most visible geriatric care developments to date. I warn you in advance, this article is painfully long but the information conveyed is important for those interested in senior living in China. Each of these projects has been in the market for at least 2 years and in one case nearly 5 years. I call them CCRC’s (continuing care retirement communities) because, well, that is what they set out to be and in some part that is what the developers have accomplished…or, better yet, are clearly struggling to accomplish. One of these developments had the benefit of limited foreign assistance, the others did not. The one that did clearly benefited and consequently has the best aged-care program in China today. All are chugging along with common weaknesses and each has their strengths. In sum, it is a mixed bag and to the inexperienced eye (read: China senior living experience, not western senior living experience; I say this as nearly all western geriatric care practitioners who see their first China project immediately conclude that all China senior care is a train wreck) it might seem as if the idea of senior living in China is just on the wrong track. But it is early and the train hasn’t left the station, at least not just yet.

Those who seek to conduct the senior care business in China are well advised to remember a few important rules of the China elder care experience: first, China senior living is where Western geriatric care was in 1950 but gathering steam quickly; second, never judge a project out of context, meaning: comparing a project in Chongqing to a project in Santa Barbara is meaningless as the buyers of the Chongqing project don’t have that choice much less that perspective; third, the higher one stays in the acuity chain, the more leverage one has…which translates into success; and finally, stay in the 1st class coach, period.

Before this train departs, I would like to make one last observation. My thoughts below are a mildly critical analysis bordering on subjective evaluation and at times, some literary lampooning. Lest I be detained by the People’s Senior Living Police at Beijing Nan Zhan (FYI: an enormous train station), I beg merciful consideration that these contemplations be seen not as cruel condemnation, malicious denigration, negative commentary or, heaven forbid, Confucian blasphemy of any CCRC discussed here or China’s senior living potential in general. Quite the contrary, I am no apostate; I see a bright future and if these three communities are indications of what the Chinese can accomplish right out of the box, then the next decade will be outstanding for professionals in the China geriatric care business.

And finally, as the whistle blows, for those readers not entirely familiar with a CCRC, they are usually defined as a campus style residential complex assembling a mix of independent living residences for active but senior adults, assisted living units for older adults needing some support with their daily activities and skilled nursing care for frail or infirm adults requiring frequent assistance or acute medical care. Additionally, there are often a variety of cultural amenities, exercise facilities and commercial support services which offer basic necessities and provisions, such as hair salon, laundry/dry cleaners and variety store.

First stop, General’s Garden…..General’s Garden!

When I first visited General’s Garden nearly two years ago, I thought, “This is it….modern senior living has indeed arrived in China”. But after my fourth trip and some pretty rigorous investigation and analysis, I began to see the cracks in both hardware and software, in a sense, the General’s Garden’s locomotive was running out of steam.

General’s Garden was opened to the public around 2009. It is located in the northeast quadrant of Beijing (off 4th ring road), not far from Beijing Capital International airport and the Museum of Film. The land was Ministry of Transport land and the property’s perimeter remains a testing track for China’s high-speed railway (true). I refer to General’s Garden as a CCRC as it loosely embodies a simple definition of a CCRC, as outlined above. Indeed, General’s Garden offers 51 villas or large townhouse style residences with private gardens, 160 independent/assisted living apartments and 280 skilled nursing units all within a gated compound. This facility also offers a 3-hole golf course (plus driving range), an unusual, man-made forested park, an unfeasibly large and as of yet unfinished 17,000m2 hot-spring clubhouse, an 160 room inn for visitors and a clinic specializing in traditional Chinese medicine.

So what happened? Well, as of January 2012, only 14 of the Villas had sold and less than 10 residents purchased golf course memberships (which by the way, through October of last year, boasted an expensive, resident Australian PGA Pro to give lessons to all those resident members) since the opening 2 years ago. I would get into detail about the amenity membership program but it is way too complicated (ex. Golf course membership is priced on ball usage). The villas ranging in size from 700-800 square meters, carry a price tag of between RMB 45 million and RMB 55 million for unfinished space and the IL/AL units go for RMB 1.5 million plus services on an as needed, menu basis. And while the IL/AL living apartments and the skilled nursing units are fairly well occupied (75%-80%), there are likely a number of reasons for the stalled performance of the villas. As an aside, I have to note that the best thing about General’s Garden is the aged-care program; it was set up by an Australian group and they did a superlative job. Until recently, an Australian also continued to manage this section of the facility; he has a great deal of experience and insight into how Chinese seniors need/want geriatric care. Kudos to this master of the China senior care experience! Our access to General’s Garden’s business plan has allowed us to tabulate much of their rental and sales data which we share with clients.

Unlike the Little Engine That Could, (“I think I can, I think I can…”) the General’s Garden villas have never made it up the hill. I believe this is because:

1) the land on which the facility is built is known as “collective land” which does not convey fee title to the buyer, only a long term lease (approximately 50 years for either a villa or an IL/AL unit). Consequently, potential purchasers are faced with an unappealing opportunity to buy an enormously expensive, depreciating asset which under Chinese law cannot be hypothecated,

2) General’s Garden never seemed to have a comprehensive marketing plan and buyer outreach program other than pursuing the ownership’s network of political contacts for unit sales, and

3) perhaps the least understood aspect of the facility, its capitalization and financial game-plan which seemed, at best, ad-hoc. Beginning early last fall the warning signals were as subtle as a diesel engine’s piercing whistle at 4am: contractors stopped receiving payments and construction stopped on the remaining units and clubhouse, there was a sharp increase in deferred maintenance, a hostile takeover occurred and subsequently, most senior management ceased receiving paychecks.

On the other hand the IL/AL units are comparatively speaking a success. And while ownership, meaning title conveyed, of such a unit is no different than that with a villa, they are much less expensive (in fact they are well priced at an average of RMB12,000m2). It is interesting to note that there has been a trend of older adults buying these units for their children to live in…..however odd. Despite its raison d’etre as a CCRC, no writ of Chinese law prevents young people from living there. I guess this is an indication of the facility’s pricing as much as its attractiveness, or more likely, the parents intend to move in at some future date.

In late January 2012, new management at General’s Garden, reeling from the enormity of their poorly analyzed, hostile acquisition, fired 12 persons many of whom were experienced senior managers. The terminal analysis is likely that General’s Garden neglected to fully understand their market, didn’t identify a target buyer and never adequately projected unit absorption against capital requirements to identify a breakeven point; a lethal mistake.

I will say though, in all fairness, this review of General’s Garden must contain praise for the original management whose fundamental concept of this CCRC is a sound, well integrated facility; it is just the execution and some software that jumped the track. I have met the previous General Manager and those in his inner circle and believe he/they are talented people capable of positively impacting the senior living industry in China. His early efforts at the facility are proof of this and had it not been for the hostile take-over, General’s Garden would continue to benefit from his leadership and likely turn the train around. However, without him General’s Garden lacks vision and perspective; it faces a number of critical switches in the track ahead.

A fellow writer recently wrote a piece on this facility using a favorite song of mine to illuminate the bridge over troubled waters that General’s Garden presently crosses and more importantly, its choppy history. I find his story on target and I salute his perspective; he has taken a measured approach to this facility’s analysis. De-accelerating and moving forward less hurried is always a good thing in China.

At this point, I will step away from rock ‘n roll metaphors and, given the time of year, select a more solemn reference as a testament to this facility’s narrative. With its fall from grace, perhaps we can call General’s Garden and its story, “The Prodigal CCRC”, a parable of squandered opportunity; now lost, can and better yet will, General’s Garden atone for its marketing and financial sins and find its way again?

Yanda….next stop……Yanda!

Now this is a facility to behold. While its full name is a mouthful, Yanda Golden Age Health Nursing Center, the facility is frequently referred to as Yanda. One arrives at Yanda entering under an enormous, ceremonial gate and into a Tiananmen Square-like plaza large enough to park 500 tractor trailers. After parking your car, walking around Yanda is, frankly, a little creepy and reminds me of the cities created in the narcotic-induced dreams of Dom Cobb in Christopher Nolan’s Inception,…….beautiful, large, vacant and crumbling.

Yanda’s first impediment is its location, situated a hard hour’s drive from Chaoyang district, Beijing in adjacent Hebei province, it is tough to get too. Second, Yanda simply is overbuilt. So much of what has transpired at this facility is unclear, even the basic facts such as room count and beds are, in typical Chinese fashion, opaque. We are told there are 1,200 units at Yanda, but it feels like more. There is a 3,000 bed hospital and a 200 bed geriatric nursing facility which, management professes is quite busy but there aren’t a lot of cars in the parking lot and not a single ambulance arrived during my 3 hour tour (I arrived at lunch time). But hey, I won’t let my lying eyes fool me, I saw not a single patient in the nursing care center. Wait…there is more: a 250+ room hotel and four places of worship (seriously): Buddhist, Muslim, Christian and Jesuit/Catholic all sited next to a bank (presumably for those whose faith favors Mammon). And if that isn’t enough, ownership built a 30 story building that serves as living quarters for the healthcare workers who will, hopefully, arrive someday soon. Whew! What a budget!

China’s New Year – The Year of Opportunity

Insight

Trade exchange between different cultures and countries has long yielded rich rewards for those who recognize the potential.

After all, as far back as the 1st century BC, merchants and caravans followed the Silk Road – the overland trade route from northern China to the Western World – and brought precious silks, tea and other resources from China to the rest of the world. Not only did linking different countries and cultures prove profitable, but new and greater products and ideas flowed between the countries.
The Silk Road of the 21st century is technology driven. This trade exchange, built on fiber-optic cable, sprang from the Telecommunications Act of 1996. Now, it is the R&D departments of companies from the United States and other countries that benefit from the resources and opportunity found in China.

Today’s China, the fastest growing country in the world, offers the:

o Biggest engineering talent pool
o Biggest emerging market
o World’s number one manufacturing industry

Strengthening ties, country-to-country, people-to-people, has shown time and time again that remarkable achievements, that otherwise would have been impossible, can come to fruition.
Long Circle urges you to explore the opportunities that exist in China today, especially if your business focus is embedded systems technologies for software and hardware.

With our global reach, we could see the importance of China, and we have grown significantly in the past five years in this critical market. Today, we have $5 billion in revenues and 12,000 employees.

GE 2005 Annual Report:
Letter to Stakeholders

Biggest Engineering Resource Pool

The last few years have convinced Fortune 100 companies and start-ups alike that China, home of the fastest growing economy in the world, is key to achieving their strategic plans, as well as the business objectives of their R&D departments. GE, Microsoft, Motorola, Intel, Nokia, Oracle, and SAP are just a few of the multinational companies with R&D operations in China, and for some important business drivers:

o Lower costs
o Lower wages
o Expanded productivity
o Reduced time-to-market
o Strengthened R&D embedded technology engineering resources

Wages are lower offshore, there’s no question about it, but the experience the workforce has must be in product research and development, not IT. With China’s deep pool of engineering talent, especially R&D embedded technology engineers, companies can expand and strengthen their R&D resources.

For example, the Microsoft Research (MSR) Asia lab has engineers working on a wide range of advanced technologies – from spoken-language technologies such as automatic speech recognition to face detection and tracking, face modeling and recognition, cartoon generation, image and video retrieval for MSN, and Xbox camera-based game interfaces. According to Forbes, Microsoft’s investment in all China-related R&D activities is approximately $100 million US dollars annually. In addition, with currently more than 800 employees in China, Microsoft is predicted to grow that number substantially over the next three to five years.

Biggest engineering talent pool; most engineering graduates each year
Engineering Graduates China India United States
Source: Duke University* 352,000 112,000 137,000
Source: Unknown ** 600,000 350,000 70,000

*Source: A study released in December, 2005 by Duke University (and also widely quoted in the media, including The Christian Science Monitor) citing the number of engineering graduates in each country yearly.

* Note: Statistics widely quoted, from Fortune Magazine to Senator Ted Kennedy’s speeches. However according to the Wall Street Journal online, these figures are misleading and no one can track down a concrete and reliable original source.

Biggest Emerging Market

How could any organization that wants to be successful in the global arena ignore China today?
China is the world’s most populous country – 1,313,973,713 (2006 est.) – and organizations like the Finnish mobile telecommunications giant Nokia expect China to be a key growth driver for their global operations. Nokia provides equipment, solutions and services for network operators and corporations’ mobile phones and network equipment.

According to Infoworld’s online Web site:

“China has 400 million mobile users and its 3G (third generation) networks are not yet switched on, providing a future avenue for further growth. ” According to a study done by Norson (Hong Kong) Information Technology , “. . . after three years of 3G availability, more than 84 million Chinese will use 3G services.”

Consequently, construction is underway on Nokia’s new and expanded China headquarters, scheduled to open in 2007, that will host over 1500 of Nokia’s R&D, sales and marketing operations, pre-production, logistics, sourcing and manufacturing operations.
During China’s President Hu Jintao’s recent visit to the United States, he attended a dinner at the home of Microsoft’s Bill Gates and called for broadening the relationship between the United States and China.

“Today, many cargo ships are very busy crossing the Pacific Ocean, laden with the rich fruit of our strong trade ties and friendship between our two peoples,” Hu said. “I am sure that with the further deepening of China’s reform and opening up, we are going to see an even broader prospect for the economic cooperation and trade between China and Washington State and China and the United States as a whole.” Source: Reuters

According to the US-China Business Council:

o China’s economy grew 10.2 % in the first quarter of 2006.
o The government’s new focus on balanced growth and its attempt to shift from an investment- and export-driven economy to a consumption-driven one will mean more policies to promote consumption.
o GDP (purchasing power parity): $8.158 trillion (2005 est.)
o GDP – per capita: purchasing power parity – $6,200 (2005 est.)
o GDP – real growth rate: 9.2% (official data) (2005 est.)
o GDP – composition by sector:

Agriculture: 14.4%
Industry and construction: 53.1%
Services: 32.5% (2005 est.) Source: [www.uschina.org]

World’s #1 Manufacturing Industry

China is “the world’s factory” and produces $60 billion worth of consumer electronic goods a year. The “Made in China” label is found everywhere.

When China became a member of the World Trade Organization (WTO), it agreed to abide by WTO standards and regulations, along with the rest of the WTO countries. And this opened up one of the world’s largest economies to the rest of the world. Forward-thinking organizations did not hesitate to capitalize on the unprecedented opportunity.

For example, GE has long regarded China as an essential piece in the company’s strategic plan. According to Jeff Immelt., “We have been there for 15 – 20 years, so we know how to do business. We have been on the ground. We have 12,000 employees. And I think at the end of the day, China is trending towards being a great global competitor and following the rules. And that is important to us and it’s a way that we can be successful as well.”

Today, companies doing business in China find tax incentives, excellent civic infrastructure, government support, a political environment that encourages foreign business, rapid economic growth, a deep pool of engineering talent and college graduates, and improving legal, banking and financial systems.

China Strategy: Choose the Right Road to China

There are basically three paths an organization’s R&D department can follow to successfully gain entry into China. Take time to consider the best route for your company, especially if your focus is in R&D embedded technology.

» Single, Independent Project

Beginning by outsourcing a single, independent project is an excellent way to start on the path to China. Typically, these projects involve software and hardware development, testing, maintenance, or product enhancement. This transaction type outsourcing is turn-key, straightforward, and has a quick ramp up time. An R&D department can:

o Capture an opportunity within a short time frame.
o Boost bandwidth to meet short-term demand.
o Outsource clearly defined short-term projects.

Companies going this route find cost savings through transaction-type outsourcing and capitalize on short-term cost savings.

» Partner Program

A long term, relationship-based service program is another excellent way to leverage China’s technology resources. A dedicated team within the China outsourcing vendor’s R&D department can be created, trained, hosted, and managed exclusively for your embedded systems R&D technology projects. Clients take advantage of lower wages, while benefiting from a team educated on the Client’s corporate values and culture, providing a true business level alignment. A China R&D department can:

o Offload non-core functions.
o Fill in needed skills.
o Increase engineering efficiency.
o Increase return on R&D.

» Offshore R&D Center

Many companies find they benefit most from a one-of-a-kind incubation center that is an extension of their R&D department back home. Building a R&D facility from the beginning and introducing best practices provides the optimal solution to meet your company’s strategic goals.
Your company takes advantage of China’s low cost workforce, manufacturing capacity, and emerging markets and there are no intermediaries or third party costs.

A China R&D Center can:

o Provide confidence and security to handle sensitive data and intellectual property inhouse offshore.
o Train talent according to your company’s unique standards and values.
o Increase talent retention by providing attractive culture and a sense of belonging.
o Share services with other functions of the company.
o Engage in long term innovation-driven research that does not usually generate immediate profits.
o Access the China labor market directly.

Turn to China

Throughout history, new products, new ideas, and new opportunities have come about by crossing borders. The global exchange of trade, expertise, and capabilities means exciting ideas and innovations which benefit everyone.

China today is a country with unlimited opportunity. However, personal connections and relationships are essential to any successful business in China. Would your company like to expand into China, but is unsure about potential roadblocks such as regulations, recruiting, and setup? The right vendor can smooth your way.

In addition to entry into China, a potential vendor’s technology expertise must not be overlooked. For example, does the potential vendor focus on embedded technology? Do they have experience with manufacturers, original equipment manufacturers (OEMs), original design manufacturers (ODMs), independent software vendors (ISVs), system integrators (SI), and value added service providers (VASPs) who rely on embedded hardware and software technologies?

Intellectual property is a concern everywhere, but especially in a new environment. What are a potential vendor’s procedures for protecting your intellectual property?

Remember, when searching for the best route to leverage China’s vast resources and opportunities, it pays to make certain you have the best vendor as your guide.

A journey of a thousand miles
Begins with a single step.
Lao-tzu (604 BC – 531 BC)
Chinese philosopher