HONG KONG — An Ohio man born and raised, Doug Smith, 54, never expected to end up doing business in China. Throughout his 20s and 30s he worked for a variety of Midwestern manufacturers, overseeing the production of car parts and industrial tools. By the early 2000s, he had his own machine shop.
But then in 2002 a downturn came, and he, like thousands of American manufacturers over the last decade, had to shut it down.
It was a twist of fate that brought him to China. Shortly after his factory closed, a former client that made water pumps asked him to help them set up a plant in the Middle Kingdom. Without hesitating, he said yes.
“Before I came to China, I knew nothing about it and didn’t think about it,” he said. “I was just like any manufacturer and was fat, dumb and happy.”
Fast forward more than a decade, and he has gone from victim of America’s industrial decline to expert in helping US manufacturers use globalization to their benefit.
His company, SmithCNC-USA, describes itself as a “virtual” manufacturer that connects US companies with reliable suppliers in China or Mexico to cut costs and stay competitive.
Put simply, Smith serves as a liaison between American Rust Belt firms and Chinese factories that can produce industrial components cheaply, reliably, and on time.
This is not as simple as it may sound: many companies that come to China expecting cheap, easy business get burned. China’s hectic, sometimes punishing capitalist landscape is full of opportunities, as well as dangers.
Smith knows some of China's pitfalls from personal experience. In his first year in China, he found that paying good salaries is not always enough to engender loyalty: He discovered staff members doing their own rival projects on the side.
“I would go into my office and see drawings that weren’t my drawings,” he remembers. “[Chinese workers] have a lot of entrepreneurial spirit, but not a lot of business ethics.”
Foreigners are typically surprised to find how quickly partners and colleagues can turn into competitors in China, he says.
“That’s usually the point when [foreign companies] give up and say, ‘We’re out of here.’”
But instead of pulling up stakes when he ran into difficulty, Smith adapted: He changed the pay structure to a low base salary, with bonuses and incentives for projects completed. To avoid giving any one employee too much control, he separated the engineering and management departments. And he learned the importance of personal relationships in doing business in China.
“In the US, you like a company’s part, you just make a phone call, and then they send it to you. Here, you have to invest the time and effort to get to know them. And it can be two to three years before an order is placed. If you aren’t willing to do that, [the Chinese companies] just bail.”
Once the relationships are in place, however, business in China can become remarkably smooth. When Smith first came to China, his translator turned out to be a close friend of the governor of Jining, a large industrial city in China’s eastern province of Shandong. This friendship allowed him to expedite the application for a business license by months. He remembers having a conversation with the governor before he was approved:
“I talked to him and said, ‘It takes months and has all these fees,’ and he said ‘No problem, it will be done Monday.’ That was Sunday. On Monday we had a dinner with maybe 15 people, including the governor, and lo and behold the paperwork was all done.”
Since then, Smith’s business makes $10 million in annual revenue.
Headquartered in North Lawrence, Ohio, SmithCNC has operations across China, from Beijing in the north to Shenzhen 1,300 miles to the south. It employs about a dozen people in Xian, Ningbo, Hangzhou, Jining, and other cities. (“They’re scattered all over by design,” he says.) He visits China every month or so to tour worksites and ensure that products are being made to specification.
While much of his business takes place in China, Smith remains a booster for American manufacturing. As China’s costs have gone up, he says, the US has become a more attractive place to do some business — and China’s burgeoning middle-class presents new opportunities to companies that can reach them.
“I see the outlook as, we’ve taken a hit for the better. It’s kind of a level playing field now,” he says.
“There’s going to be a transformation on the US economy — people are going to have to relearn that they can do good and compete. China wants US products, they love US products.”