Avon started looking at China as a market seven years ago, and now has a joint venture in Guangzhou that manufactures a range of cosmetics and skin care products. China Economic Review talked to John Novosad, the company's manager of Chinese operations, about his experience of working in China.
How do you market yourselves in China?
We sell in the traditional Avon fashion ? we are a direct selling company, we don't sell through retail, we sell through independent representatives.
Do you get a different response in China to elsewhere in the world?
Not all that different from those countries that were classed as developing countries when we first went into them. The response in China is substantially better than we had anticipated. We had anticipated a slow growth because China's inflation rate and economic rate were so low, and they had never heard of a company like Avon.
Would you put this down to the economic boom of the last few years, and the increase in consumer spending?
I think that is part of it. There are three things: one there is a boom, two the desire to get western goods, three the per capita income in Guangdong province and the Pearl River Delta is much higher than other parts of China and I think that we probably underestimated the economic strength of China.
Are you worried about the economy overheating?
We are not worried about that at all. The Chinese economy has overheated before and the government seems to have ways of cooling it down and I certainly don't anticipate China having runaway inflation.
You are concentrating on Guangdong at present. What are your future plans?
We will continue to focus on Guangdong, because this province has a population of 60m people ? that is bigger than most other countries. We will have to upgrade our capacity to cover it. After that we will look outside Guangdong. There are many parts of China that have huge populations and rapid economic growth and large potential for expansion.
What are the products that you are manufacturing?
They are mostly skin care products i.e. moisturisers, cleansers etc. That is the most popular area. Actually through the whole of Asia, skin care is very popular. The second category is makeup, the most popular item there being lipstick. And thirdly, there are some daily need products, such as deodorants and a few fragrance items.
China is supposed to be very difficult to work in.
Are there any particular obstacles that you have come across?
Obviously China is difficult and the rules of the game get changed very frequently. China is in the process of setting up legal structures, tax structures. Those are very important to get straight before they go forward. The education system is not geared towards development. Finding appropriate technical people and managerial people is a major challenge in China. However, once you get training here, I personally have found that their ability to absorb, grasp, learn and participate is among the finest I have ever come across anywhere. For people with basically no experience, they are extremely bright, very willing and very competent.
What sort of support do you get from the US government.
The US, through their local consulates, are very supportive in the event of any problems – they also help in introducing people. But our relationship with our joint venture partner and the relevant officials has been outstanding, so we have never really had to apply for their help.
What sort of difference is the Clinton administration going to make to you?
At this stage of the game I would hesitate to guess whether they would make any difference whatsoever. I think Clinton has, as with any change in administration, some new answers as regards policies towards parts of the world that may be a little different. But I think it is premature at this stage to have any idea. I suspect the government itself is in the process of formulating its policy as we speak.
Is there any thing that you particularly fear?
I personally don't have any fears whatsoever. I think that the Chinese government has far more interest in Continuing to open the door. It is really interested in increasing economic growth for people in China. I certainly get the impression that east and west are very conscious of improving business relationships, and I think any improvement would be beneficial to both sides. China represents a huge market for any business from America, Europe or anywhere. The US is China's biggest export market, and the two have mutual reasons for working together.
How important is the Chinese market to American businesses at present?
Well, I can only tell from train rides I take into China, and it is loaded with American business men!
Mr. Dan Kletter, president of Ingersoll-Rand, the US construction company, recently joined five other senior American executives in a delegation to China, organised by the former US secretary of commerce, Barbara Franklin. It was the highest level American delegation to visit the PRC in four years. In the light of this visit, China Economic Review asked him about his views on trade with China.
How successful do you feel American companies will be with respect to future trade with the PRC?
On the whole, I believe our commercial links with China will grow stronger. America is still the most technologically advanced country in the world, offering products and services that are leaders in their fields. The Chinese do like our products and like to do business with American companies. Take Ingersoll-Rand as an example. We've had strong links with the PRC for many years via direct sale and the establishment of joint venture companies with Chinese partners. We will continue to build on that solid foundation.
And we're not unique. A lot of American businesses do well in China and other parts of Asia. You just don't hear about them because they are not in the so-called glamour big ticket item industries such as aircraft production where a single contract can often exceed several hundred million US dollars and hence go a long way towards redressing trade imbalances.
Why did you choose to take part in Secretary Franklin's official trade delegation to China?
I took special pride when accepting the invitation to join Secretary Franklin's official trade delegation because Ingersoll-Rand represents the infrastructure building industries of America's heart-land.
I even mentioned this fact to Premier Li Peng. Ultimately, it's the infrastructure building industries that are going to contribute most to the future development of countries like China.
Are comments like that appreciated?
Definitely, because they have their basis in fact. In our discussions with Premier Li, I noted that in China's Eighth Five Year Plan priority was being given to infrastructural projects ? roads, dams, ports and the like that American speciality manufacturers like Ingersoll-Rand are ideally geared for…the more so now because we have a motivated work-force that can compete with any nation in the world.
China is already a major market for many American producers, including Ingersoll-Rand. We've sold quite a bit of our equipment there…drills, compressors and road machinery for infrastructural projects, rotating equipment for the petroleum sector, and pumps and industrial compressors for China's growing manufacturing base. Through our joint ventures, we've also invested a considerable amount of technology in China.
Should China be asked to assume responsibility for trade deficits with the United States?
Not if it adheres to the philosophy that all suppliers of products and services compete on a level playing field. Most American companies can compete on an international basis provided the rules of fair play are applied. Given a level playing field, companies like ours, which have both manufacturing or service operations in all the major Asian countries, are successful due to a high level of service we provide to our customers. We've made the most of these opportunities and, as a result, we hold our own against both the European and Japanese suppliers. Given similar opportunities, American manufacturers are prepared to produce top quality products for the Chinese market.
York Air Conditioning and Refrigeration Inc, a subsidiary of York International Corp started doing business in China in 1982, supplying air conditioning, refrigeration and food processing equipment and systems. We talked to Mr. Edward Tsui, manager of its Chinese operations.
What systems do you sell in China?
Back in the 1980s, China started to find imported air conditioning equipment in order to suit the economic development at that time. In fact, customers were mainly the hotels during that period. As soon as we started, we realised that there was a great potential for further development.
What are the main problems or difficulties that you have encountered while working in China?
It is difficult to get import licences and there's a very heavy duty on the imported air conditioning equipment.
How successful are you proving to be at the moment?
We can't say we are very successful in China but at least people in China are aware of our products. So far, we have more than 1500 sets of central air conditioning equipment operating in China.
In which areas of the country are your air conditioning systems most popular at the moment?
We are much more popular in the developed cities. The main factor is they have got hard currency to import equipment.
How have the varying moods of the US government towards trading with China affected your business?
Not at all except in the event of some big political issue. For example, after the events of June 4th 1989, or when the US sold military equipment to Taiwan.
Clinton has said recently that he intends to step up pressure against China in order to bring about political change. How do you think this will affect American companies both already established in China, and those intending to invest there?
Obviously, there will be some bad effects in doing business. The central government will put some pressure on individual decision makers, especially on big scale government-related projects.
What is the biggest challenge facing your company in the next ten years?
Intense competition between different companies from different countries, including China's domestic manufacturers.