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An Interview of
Wire Jounal International
Magazine
with
Chris Runckel
President of Runckel &
Associates
(www.Business-in-Asia.com)
- July, 2005
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Profile: Runckel &
Associates
The business of doing
business in Asia
requires a sound business plan. One company that offers such services
is Runckel &
Associates, a consulting firm
based in Portland, Oregon, USA. It assists companies interested in
investing, manufacturing or opening an office or factories in Asia,
specializing in guiding small, medium, and family-owned businesses. Its
clientele has included wire and cable companies. The company notes that
it is uniquely qualified as its staff has lived and worked in Asia, speaks most of the languages and
understands
the law, culture and challenges of living and working throughout the
region.
WJI recently interviewed company President Christopher
Runckel who in 1994 was assigned to Hanoi
as the first permanently assigned U.S.
diplomat since the Vietnam War. In 1997,
he was awarded the U.S. Distinguished Honor Award, the highest U.S.
Award for
diplomatic service. He has served in foreign assignments in Hong
Kong. Fiji.
Thailand
(two tours), London and in
China
and he continues to advise federal, state and local government on a
wide range
of issues.
WJI:
Obviously,
all consultants are not created equal, Can you tell us a little about
your
company and your background?
Runckel:
Runckel & Associates is a small U.S.
based company with on extensive reach. We have associates in five
locations in China,
Hanoi and Ho
Chi Minh City (Saigon) in
Vietnam,
Phnom Penh. Cambodia,
Bangkok, Rayong and Chang
Mai in Thailand,
Laos,
Singapore
and Korea.
Our website, www.business-in-asia.com, is
one of
the largest websites focused on business with Asia.
The
site gets over a million hits a month and involves no advertisement or
sponsorship but is dedicated to the principle that understanding more
about
business in Asia benefits all, inducing our
company. My wife and I, who own the
company, each have
more than 30 years of experience in Asia. We
speak Thai,
Vietnamese and Chinese, and we have lived and worked in all of these
countries.
Our background allows us to look at opportunities across Asia,
not just China,
and to guide clients through the obvious and not-so-obvious challenges
that
come with locating a business in Asia.
WJl: How can a company determine whether it
would benefit by either manufacturing or entering a joint venture in Asia? Are there some genera "qualifying"
rules that apply to any business?
Runckel:
Whether as a point for sourcing of product, manufacture, OEM
production, sales
and/or in some cases design end engineering, Asia
offers
a host of opportunities and challenges for companies in the U.S.
and other countries. That said, we recommend going offshore only when
there are
no other options or as part of a long term strategy for expanding a
business. I
am not a big proponent of defensive business. If your focus on Asia
is strictly on reducing costs, you ore missing out on part of the
advantages of
being there. The benefits of on Asian strategy apply to small and
medium sized companies
as much as to bigger corporations. Companies with $2 million to $5
million in sales
have worked with us on projects in Asia, so the
range of
companies that can benefit in examining opportunities and challenges in
Asia
is considerable.
WJl: Where could a company most easily go
wrong
trying to pursue "an Asian strategy"?
Runckel: The
easiest mistake to make is not to spend enough time exploring options
in terms
of countries and regions within countries. For example, Shanghai
and Guangzhou in China
were both great places to site a project but both have become
relatively
expensive in terms of labor, rents and other costs. Today you need to
look
farther afield in China, say to the Zhejiang Province, which is about
on hour's
drive from Shanghai, or to the North to cities like Weihai and Yantai
in Shandong
Province, or even to Vietnam or to an old standby like Thailand, which
can look
more expensive at first but is actually quite competitive when all cost
factors
ore examined and compared.
WJl:
Does the
fact that China attracts so many multinational OEMs mean that it should be
the place to
go?
Runckel:
One should put aside any pre-conceived notions like China is always the
cheapest or best location because that can easily be wrong, depending
on what
one wants to do. Look at all the costs and look at them in detail. Pay
attention to taxes, fees and expenses as they can either limit your
profitability
or doom your operation. Focus on shipping, and not just the cost of
shipping a
40-ft container but all the incidental fees, times in clearance, etc.
These
matters are not as clear as they may seem to be but they have to be
factored
into any business plan.
Again, keep an open mind. In China, this may mean looking
post locations you have heard of in favor of locations like Taizhou, if
you
have a project that involves plastics, plastic molds or automotive
parts, or a
place like Yantai or Weihai, if your project involves crankcases,
tires,
automotive spare ports or electronics, or to Hanning or again Weihai or
even to
Ho Chi Minh City if your project involves furniture. For wire and cable
companies there ore several locations you might want to consider, such
as Zhejiang
province in China
and Royong, Thailand.
For any sector, however, there are comparative advantages that cause
like industries to co-locate there. It is a rare company that can
choose a location and arrange for all the logistics on their own, so it
is essential to go there with someone who is experienced in the country
thorough in their research and able to understand you and your
company.
WJI: Regarding your wire and cable
customers, what
were you able to do for them?
Runckel: I
was able to help them develop a logical and well researched Asia
strategy that proved that there were considerable opportunities. Two of
them
were looking to manufacture and the research showed that both would be
smarter
to initially start with sourcing and some OEM manufacture with owning
their own
plants as a later stage in the plan. In one of the cases, we have
narrowed the
location to one particular area in Asia and we
are
discussing various land options with developers. One of the others is
still
deciding between two potential locations.
WJI: A
company considering establishing a presence
in Asia
understands that this is not a simple
matter. Can you give us an example of a few of the types of logistical
problems
that can happen that might be outside of the realm of what one might
expect?
Runckel:
The changes in oil and other commodity prices have been a worldwide
phenomenon.
Plastic is derived from oil and the prices for plastic resins have
often moved rapidly. These oil related
cost increases have had
affects across the spectrum of projects this past year. Although all
companies
in Asia have born the brunt of these cost
increases, some have been less willing to pass along all of the costs
of the increase and this has affected selection or best sourcing and
OEM partners. Shipping costs both inland freight and sea freight have
also been affected by this but again the effect has not been evenly
spread across all countries. Some have been affected more than others
and this has affected selection of the best company and country for a
project.
WJI: What
factors might make other Asian
countries a better location?
Runckel: China
is a very good choice for some projects, but it is not the best
solution for
everyone. China
is low cost in many areas but not so low in others. The lack of a
convertible
currency is a hindrance but can be dealt with. The risk of currency
appreciation
moving forward is increasing although I believe still a ways off. The
weak rule
of law and lack of predictability of commercial dispute resolution is
more of a
worry. China Is a particularly bad choice if the project involves
substantial
intellectual property (IP) as the reality In China is that China's
continued performance in this area is very unsatisfactory.
In terms of other countries, Vietnam
is fast coming up as o low cost place for many projects such as
computer software,
furniture and some metal projects. Thailand
is a great location for projects where a wide range of well trained and
experienced
suppliers are critical. Malaysia
can also be a good choice although it is gradually becoming a
relatively higher
cost location and there often has to be more substantial value added in
the project
to justify being there. Indonesia
is a low cost country but a country where we do not recommend many
projects as
the political and security situation there has become less predictable.
India
can also be a good choice for some projects although it remains a very
bureaucratic
country where much more revision of procedures and laws is still most
needed. A
company needs to compare various Asian locations (say China,
Thailand,
Vietnam
and India
or some other combination) in terms of what business costs, incentives
for location there and long term growth prospects they offered.
WJI: Is China on an unstoppable momentum roll for
world
manufacturing?
Runckel: I
am not as willing as some to count American
business out of the competition. China
has strengths, but it also has lots of weaknesses. I believe the news
stories ore generally only seeing pert of the picture. Yes, costs are
low. The reality, however, is that most of the manufacturing base in
China was built on cheap credit, is running at less than 50 percent of
capacity and that thousands of factory buildings and even whole
factories have been built on "spec" without a reasonable business plan
and without the sales and customers that would drive an investment
decision in the west. I believe many Chinese factories are not
economically viable for the long term; that Chinese manufacturers have
no sufficiently valued the importance of knowing their customers and
developing a sales network. Many U.S. companies undervalue their own
knowledge of customers and what will sell and what won't and ultimately
there will be a shakeout on both sides and American business will find
opportunities to adapt and profit by being closer to the customer, more
attuned to where the market is moving and ultimately more agile than
the competitors.
Runckel & Associates
can be contacted through its website, www.business-in-asia.com, or by
e-mail at
crunckel@business-in-asia.net or by calling tel. 001-503-244-4551
WIRE JOURNAL INTERNATIONAL
