12 l exchangemagazine.com l MARCH/APRIL 2005

Call for NominationsBETTER BUSINESS BUREAU OF MID-WESTERN ONTARIO

COMPANY NAME: __________________________________

ADDRESS: ____________________________________________

CITY: __________________ POSTAL CODE: ______________

TELEPHONE: ________________ FAX: __________________

PRODUCT OR SERVICE OFFERED: ______________________

______________________________________________________

THIS NOMINATION SUBMITTED BY:

NAME: ______________________________

COMPANY: __________________________

TELEPHONE: ________________________

FAX: ________________________________

Recognizing a business for its commitment to maintaining a culturewhich consistently sets exceptionally high standards of behaviour inbuyer and seller relationships, illuminates the importance of corporateconscience and responsibility in fulfilling a company’s obligation to themarketplace to do what is right and fair, demonstrates to the businesscommunity that adhering to Better Business Bureau ethical standardsis the hallmark of successful, competitive companies.

ELIGIBILITYAll for profit businesses that have been actively in business for not less than fiveyears in the Bureau’s service area of Mid-Western Ontario. Not-for-profit charitable organizations are not eligible for this award. Both member and non-member companies of the Better Business Bureau can be nominated.

AWARD CRITERIAAn independent selection committee from the academic and general com-munity will evaluate candidates for the Better Business Bureau IntegrityAward.• High ethical standards of behaviour toward customers, users, shareholders,

employees and the communities in which they do business.• A history of ethical practices in the marketplace, including acknowledgement

by peers and a commitment to community service.• Marketing, advertising, communications and sales practices that reflect a

true representation of what is being offered in the marketplace.• Communicate and train employees in carrying out ethical principles.• Have been actively in business for the past five years in the Better Business

Bureau of Mid-Western Ontario’s geographic area.• Show no evidence of failure to meet financial obligations.

Completed nomination forms must be received by Thursday March 31, 2005 at:

THE BETTER BUSINESS BUREAU354 Charles St, E.Kitchener, Ontario N2G 4L5

TELEPHONE: 519-579-3084FAX: 519-570-0072 or submit online atwww.bbbmwo.ca

2005 Business IntegrityAWARDS

John Weir

GERRY REMERS

Duncan PatrickP

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John McCarthy

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MMARCH/APRIL 2005 l exchangemagazine.com l 13

FEATURE STORY

Bullish on China?P A R T T H R E E

EXPERIENCED BUSINESS

PEOPLE DISAGREE ABOUT

METHODS, POTENTIAL FOR

DOING BUSINESS WITH THE

EMERGING GIANT

Many area entrepreneurs are understandably interest-ed in the potential for doing business with mainlandChina. The most populous nation on earth offers enor-mous potential for Canadian businesses that can findthe key to success in this relatively unknown country.

But success has been hard to find for some – theculture, customs, and business practices in general

are vastly different in China. How can area businessesmake a successful entrance into China?

This is the third in a series of articles based oninterviews with business and government officials,conducted by Exchange Magazine for BusinessAssociate Editor Paul Knowles in Hong Kong, andhere in Canada.

“So far, every-thing’s workedout. We haven’thad to test any ofthe contracts.”

- JOHN WEIR

“If your competi-tion is going toChina, this is youropportunity NOTto go to China.”

- DUNCAN PATRICK

“It is better totravel there. Itgives you morestatus.”

- JOHN McCARTHY

“It is a young, veryaggressive work-force .... who don’tunderstand ourbusiness practicesat all!”

- GERRY REMERS

BY PAUL KNOWLES

Hong KongConvention andExibition centre

– many experts stillsee the city as thegateway to China

14 l exchangemagazine.com l MARCH/APRIL 2005

How important is China to busi-nesses in Canada; to businessesin Canada’s Technology Triangle?

Well, Prime Minister Paul Martin, inspeaking to the Canada-China BusinessCouncil, stated: “Our connection withChina ... comprises not just economicpursuits but also the global politicalagenda, public health, environmentalissues, human rights, and culture. It is arelationship that has always been com-plex, and a relationship that has neverbeen more important....

“As China becomes an increasinglyimportant power, it is crucial that weunderstand its impact both on us directlyand on other countries in the region....

“No longer can China be consideredsimply an emerging market; it has estab-lished itself as a world power....

“Given our population, given the smallsize of our domestic market, given ourhistory as an exporting nation, when welook out at the shifting global landscape,all we should see is opportunity. So longas we continue to be among the world’sbest-educated populations, so long as westrive to improve productivity and capital-ize on our ingenuity, there is remarkablepotential for us as new markets open up,as new nations rise, as new peopleacquire the means by which to participatemore fully in the global economy.

“We all need to understand andengage with this new reality - a newChina linked in new ways to an evolvingworld. You, as members of the businesscommunity, are at the forefront of thiseffort. Canadian businesses, large andsmall should be doing as you have done– developing and implementing strate-gies for China.”

Divergent opinionsChina is the most populous nation on

earth, and geographically one of thelargest. That may be just as well – a fairamount of space may be needed simplyto hold all the divergent opinions andtheories about doing business with thisenormous, emerging nation.

By and large, Canadian business andgovernment officials agree on one thing– the potential for doing business inChina is tremendous. In many cases,though, agreement stops right there.

For example, a fair number of expertssuggest the best way to access the main-land China market is to use west-friendlyHong Kong as a stepping stone. HongKong officials are promoting that con-cept vociferously, and other experts,such as Canadian Consul Patrice

Cousineau, agree. He told Exchange,“Hong Kong is very important. It hasinternational appeal as a place with alevel playing field for companies.”

Canadian Consul and Senior TradeCommissioner David McNamara adds,“In China, you need to invest in relation-ship, to develop trust with your inter-locutors.” Both of these experts from theConsulate General of Canada in HongKong are big fans of that city and itsinfluence. But not everyone agrees thatthis is a necessary approach.

Not necessaryFor example, John Weir, corporate

and commercial lawyer with the Kitch-ener-Waterloo firm Weir and Fedy, says“I don’t see any necessity for Hong Kong.Overall, I don’t think you need to dothat.” He says that China is hoping tomake Shanghai, not Hong Kong, the cor-porate centre of the country.

Cousineau and McNamara counterthat this is equivalent to arguing that theU.S. doesn’t need Los Angeles because ithas New York. But Weir – who has visitedChina six times in recent years, where hehas helped negotiate contracts and hastoured various businesses – believescompanies can be successful goingstraight into China.

The Consuls, and other China experts,warn that a significant problem withdoing business with China is that con-tracts are often ignored and unenforced.Says McNamara, “One of the big chal-lenges in China is getting paid.” Weir isaware of the challenge, but reflecting onthe contracts in which he has beeninvolved, he says, “So far, everything’sworked out. We haven’t had to test anyof the contracts.”

He agrees that the key in negotiatingcontracts is to be as sure as possible that

Prime Minister Paul Martin has emphasizedthe increasing importance of China

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FEATURE STORYeveryone is on the same page. Althoughthere is an enthusiasm factor that mayleave truth as a casualty – “They’re soeager to do business, they’ll do anythingto get it done.”

Weir told Exchange that some Chi-nese lawyers have told him that con-tracts are now being enforced in Chinesecourts, but that he has no independentproof this is true.

Weir says China’s impact “is onlygoing to get bigger and bigger and big-ger,” and that it is therefore worth theinherent risk for Canadian businesses. Hedoes agree with McNamara about theneed for trust with Chinese businesscounterparts. “If you don’t have reputablepeople you’re dealing with, you’re goingto get ripped off.” He notes that in hiscontacts with China, it has worked wellwhen “some of the contacts have beenChinese people who have lived abroad,speak English, and are experienced inthe western ways of business; theyunderstand what you’re looking for.”

Prime Minister Martin agrees with thisapproach; he stated, “We have a not-so-secret weapon, a real asset, in this con-test for the pocketbooks and wallets ofbooming Asia – our multi-ethnic popula-tion. Canadians of Chinese origin num-ber more than one million...

“Those who choose careers in com-merce provide companies in Canadawith a tremendous advantage in sellingtheir products in China and in managingjoint ventures. And the magnitude of theadvantage is just beginning to be felt.”

Advantage in staying in CanadaThere are also those who think the cur-

rent emphasis on seeking to do businesswith China is vastly overblown. DuncanPatrick, Senior Vice President of ContraintsManagement Systems Inc., suggests thatmanufacturers seeking to do business withChina may often be on the wrong path.This Cambridge-based “growth strategyconsulting firm” suggests that manufactur-ers may in fact find a strategic advantagein not sourcing from China.

Patrick is keenly aware of the almostobsessive interest in China, especially asa source of suppliers for Canadian com-panies. But he argues that there willmost often be an advantage for Canadi-an companies who do the manufactur-ing job right, right here in Canada.

He points to one client which wassourcing a large product from China; thecompany had to import 500 items in anyone colour, at a time – that was threemonths’ supply. There was also a very

long lead time on orders placed inChina. These factors led, says Patrick, toobsolescences and eventual discounting.

Constraints Management Systems rec-ommended that the company build theproduct in Canada, to allow greater flexi-bility and to eliminate those problems.The cost might be somewhat higher, butby avoiding discounting and obsoles-cence, the bottom line was actually better.

Bottom line? “Where possible,” saysPatrick, “if your competition is going toChina, this is your opportunity NOT to goto China.” While he admits this is not

always the solution, he insists that inmost situations, keeping the manufac-turing process in Canada will reducelead time, allow more choice, andreduce obsolescence. It increases flexi-bility and improves reliability of supply,he says. “Working with Ontario manu-facturers is significantly better for you.”Patrick notes that some Canadian manu-facturers are actually providing a mone-tary guarantee of supply.

He takes issue with a current beliefthat issues like obsolescence and dis-counting can be solved by improving

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forecasts. “This is barking up the wrongtree,” he says. “The real goal is to reducelead time.” That goal will not be met,according to Duncan Patrick, by sourc-ing in China.

“Very satisfactory”Of course, there are many who do not

share that conviction. For example, JohnMcCarthy, President of Ontario GloveCompany of Waterloo, says his companyhas been doing business in China forfour decades; he has been personallyinvolved for ten years.

Ontario Glove imports “quite a num-ber of different products, including gloveproducts. We also import raw materials.”The company is continually seeking newproducts that fall within its product base,such as a new, pop-up pylon, and itemsthat they make or distribute to market-ing companies.

Doing business with China, saysMcCarthy, “works out well for us.”

He admits it is not always seamless –“Things seem to go in spurts. You can goyears without any problems, and thenexcuses will crop up,” as the supplier sud-denly seems beset by floods, power sup-ply issues and the like. “Maybe they’retrue – who knows?” says McCarthy. Butoverall, his relationship with Chinese sup-pliers is “very satisfactory.”

Asked about the need for a gatewayto reach China – such as Hong Kong –McCarthy says that direct contact isincreasingly effective. “They come here,”he says, “and we meet with Chinese dis-tributors all the time, here.” That haslessened the need for a Canadian busi-ness to travel to China – “You don’t haveto travel there any more” – but McCarthysays there are still advantages to thepersonal touch. “It is better to travelthere. It gives you more status.”

Ontario Glove attempts to deal directlywith the factories in China, as opposed toagents, although McCarthy admits thatsometimes that distinction is difficult tomake. “You never really know unless yougo there if you’re really dealing with thefactory.” One way to be sure, he says, isto visit the giant trade fairs in Chinesecities such as Guangzhou, once knownas Canton. “Then you really are dealingwith the factories,” he says.

Educated, aggressive and confusedOntario Glove deals with China strict-

ly as a source of suppliers. AnotherWaterloo Region company, Christie Digi-tal, has a more complex relationshipwith the China market.

Gerry Remers, President and COO ofChristie Digital in Kitchener, has identifiedseveral steps companies typically take inestablishing business connections withChina. Christie, a manufacturer of high-tech products, is well down that road,having now opened two offices in China.

Christie, which began exporting glob-ally 20 years ago, followed a very tradi-tional route to reach the Chinese market– the company worked with a HongKong distributor who was an audio-visual dealer. That man had family con-

nections in Beijing; “We did well,” saysRemers, but Christie decided to kick thecontact up a notch. “In 2000, I put a VicePresident in charge in Hong Kong,” andbegan to concentrate on a strategy todevelop the Chinese market.

At that point, Christie moved beyondusing a Hong Kong based distributor,and began to seek “dealer channels” inmainland China. Remers points to 2001as a pivotal year, as the World TradeOrganization assisted in liberalizingimportant laws. Things have movedquickly for Christie Digital from thatpoint. In 2002, Christie established anoffice in Beijing; in 2003, a second officein Shanghai.

Today, says Remers, Christie Digitalhas 22 employees in China, who areresponsible for $20Cdn in sales. There aretwo Canadian salespeople in Asia, one inChina, another in South Korea. That keyrepresentative in China is a Canadian,born in Canada of Asian descent, whohas a Canadian eduction but speaks Chi-nese, and understands both cultures. Hehas recruited the Chinese staff members.Remers says the quality of the China-

based employees is phenomenal; theyhave office staff who hold CPA degrees;sales representatives with engineeringand MBA degrees. Salaries are high froma Chinese perspective, but low from aNorth American model: “We’re payingthem $15,000 to $20,000 US,” he says.

Remers points to the benefits andchallenges: “It is a young, very aggres-sive workforce .... who don’t understandour business practices at all!”

That education process is a challenge,he says. “To them, the golden rule is

‘Make it happen, today!’”Christie Digital is involved in high tech

products, and Remers admits that pro-tection of Intellectual Property is anissue. China experts – including those atthe Canadian Consulate General in HongKong – warn that there is insufficientprotection of IP in mainland China.

“It is an issue, no doubt,” agreesRemers. “The marketplace is very com-petitive.” Christie has developed a num-ber of strategies to overcome the chal-lenge, including “setting up manufactur-ing in China,” but only making the sim-pler products there, while keeping thehigher-tech manufacturing in Canada.“We will retain the high tech and IP-intensive” processes in Canada.

Christie has moved to what Remerscalls the third stage of growth develop-ment in China, established a “WOFE”(pronounced “Woofie”) – a WhollyOwned Foreign Enterprise, which allowsimport and distribution. The final step,he says, would be to set up a companyin China, from the ground up. Remerssays that “we’re certainly investigatingthat,” on a small scale.

FEATURE STORY

Ontario Glove’s President John McCarthy, right, and CEO Randy More meet with Chinesemanufacturer/owner Winnie Tao (far left) and chaperon in Hong Kong.

18 l exchangemagazine.com l MARCH/APRIL 2005

FEATURE STORYChristie went into China seeking

opportunity to sell its Canadian-madeproducts in China, and has met withconsiderable success. Today, Remerscan see the process taking place in bothdirections – the company could establishmanufacturing in China, and sell thoseproducts in North America.

“Critical and negative impact”The comments of the local business

people quoted in this article make itclear that there is no consensus onChina, other than a general agreementthat the booming Chinese economy ismaking its mark on Canada and the restof the world. Some businesses havefound significant success in China; somesee the Chinese economy as more of athreat than an opportunity.

The economic threats embodied inChina have recently been the substanceof letters sent to James Peterson, Cana-da’s Minister for International Trade, byboth the Greater K-W Chamber of Com-merce, signed by President Todd Letts,and Canada’s Technology Triangle,signed by CTT Chair Jamieson Martinand CEO John D. Tennant.

Issues raised in one or both of the let-ters include the need to protect Canadi-an jobs; incentives available in China;and currency issues, especially the factthat the Chinese currency is pegged tothe US dollar.

A successful K-W businessperson isquoted at length in the CTT letter. He toldExchange that while he would prefer notto be identified, he allowed the com-ments to be used in the CTT letter to theMinister “to make the Canadian Govern-

ment aware of the reasons why success-ful Canadian manufacturers have to con-sider moving their operations to China.”

Here are some of the key issues raisedby this businessperson, which he agreedto allow Exchange to publish:• “The RMB is pegged to the $US. This is

single biggest competitive disadvan-tage that we are facing ... This meansthat the Chinese goods have droppedin price by over 20% in the past year.We were already having difficulty withlow priced product out of China. It is

going to be a blood bath this year.”• “Income tax rates for exporters are

very favourable. If 70% of a manufac-turer’s product is exported from Chinait would be obligated to pay tax on itsincome as follows: the first two yearsafter achieving profitability – 0 tax; thenext three years – 50% of the applica-ble tax; if 70% of the company’s prod-uct is exported, the tax remains at50% of the application rate.”

• “Income tax rates vary by location. Theapplicable tax rate in four locationsexamined would be between 7 1/2%

and 12% compared to 36% in Canada.”• “In addition to the favourable income

tax rates, things like employee hous-ing and perks such as automobiles,club memberships, meals and enter-tainment appear to be tax deductible.”

• “Property tax is significantly lower. It isbased on the value of the propertyand since land values and construc-tion costs are quite low, so too arethe taxes.”

• “Employment tax is also very low. Thisis levied on the basis of payroll. Sincethe minimum wage is set between450-550 RMB per month ($60US),which is less than 50 cents CDN perhour, these taxes are a fraction ofwhat they would be in Canada.”

• “Equipment prices and tooling costsare a fraction of what they are inNorth America.”

• “Land and building costs are half ofwhat they are in North America.”

• “There seems to be ... no effective wayof dealing with non-performing loansand non-paying customers.”

• “There is no respect for Intellectual Prop-erty. They are desperate for businessand offer to build any product. ‘Justsend us a sample and we will copy it.’”All observers, from the most positive

to the most skeptical, acknowledge thatChina is a factor to be reckoned with asa dominant, emerging ppwe. But someexperts are worried that the currentstate of the Chinese economy does notleave Canadian businesses on a levelplaying field, and warn of the potentialfor harm to otherwise competitiveCanadian manufacturers.

“We were already

having difficulty with low

priced product out of

China. It is going to be a

blood bath this year.”

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