Dutch systems supplier AMS Group engineers and manufactures complex modules and turnkey projects in China, all coordinated from its headquarters in Amsterdam. CHINA ECONOMIC REVIEW spoke to Simon Masters, one the company’s founders, about controlling quality, recruiting middle management, and the outlook for business-to-business manufacturing exports in the next year.
Q : Last year all of AMS’s China activities became fully certified by the International Organization for Standardization (ISO). How significant is this?
A: It was important more from an internal perspective rather than from a sales perspective. If it was just for the certification we could have probably just bought an ISO certificate, as I’ve heard some local companies do, and saved the money. What we were trying to do was clean up the company in general and become more process-oriented and controlled.
Q: Doesn’t that sort of certification fraud dilute the value of the certificate?
A: It’s like everything in China – you can buy it off the street. This includes certifications, apparently. To a certain extent you could argue that it does water down the certification, but if you are going to do business with any company, you have to do a full audit to see if they’re compliant or not. To keep an ISO certification you have to prove that you have a qualified supplier base. When managing direct exports from the suppliers, we don’t let the suppliers do the bulk of the quality control themselves – we do it to ensure the quality is up to par. In other cases, we have components shipped to our own factory where they are assembled. This work is carried out by the quality control staff inside our factory.
Q: AMS promotes itself as a Europe-managed, China-based company. You’ve been in China a long time. Why do you still depend on a European management team?
A: According to an article I read recently, six out of 10 companies in China have trouble recruiting local middle management. Of course you want to develop local talent, but only if you have the resources to do it. For smaller companies like us, it’s difficult.
Q: And you will pay a premium for people who can do this…
A: One thing we’ve found working against hiring local middle management is that the salary difference between local hires and expats is shrinking. In the US and Europe, there are more and more people willing to come to China and work for local-level salaries. The local middle manager applicants we were seeing last year asked for US$3,000-4,400 per month, especially for supply chain or project management roles. That’s not cheap. Expat managers, on the other hand, have more experience in general. Maybe their language is lacking, but experience is more important.
Q: How has your firm’s performance been recently?
A: Last year was very good, the best year we’ve had. This year we haven’t seen much of a contraction. We think we might break even or take a loss in the first quarter, but we expect to do as well this year as we did last year. However, we have put a freeze on new hires, unless directly related to a project at the factory.
Q: How have you been affected by the recent decline in exports?
A: First of all, clients whose business is driven by exports to the US felt the downturn last year because the US got hit first. Now, we’re in a better situation. Our customers who invest in R&D and product development have been placing new orders. Clients in the EU are feeling a bit of pressure now, but we’re isolated to some extent as we don’t do consumer products, we do business-to-business. Those businesses are still getting a lot of incentives from governments.