GRACE LEONG - Daily Herald | Posted: Wednesday, May 24, 2006 11:00 pm
Ray Crosby of Provo-based Champion Safe wants to know how China's rapidly growing economy will affect his safe-making business and how he can compete with lower-cost manufacturers overseas.
He was among more than 800 business owners, academics and government officials at Zions Bank's fifth annual International Trade and Business conference Wednesday in Salt Lake City learning about opportunities and resources available in Utah for setting up overseas business operations.
Illegal immigration and the need for reform, encouraging international trade and investment and the feasibility of a World Trade Center in Utah were among issues addressed Wednesday by Steve Forbes, Gov. Jon Huntsman Jr. and Jack Sunderlage, president and CEO of ContentWatch.
Mexico's Impact
"Twenty-eight percent of Mexico's work force is in the United States because the economy there isn't as vibrant as it should be," Forbes said at the trade conference.
"Why does Mexico have a dysfunctional economy that's growing only at 3 percent annually, even though it is part of NAFTAfi" he asked. Under NAFTA, or the North American Free Trade Agreement, most barriers to trade and investment among the United States, Canada and Mexico are removed.
Forbes cited the presence of government monopolies in Mexico, the difficulty entrepreneurs have setting up legal businesses there, and a lack of mineral property rights to encourage the mining of the country's natural resources.
"The solution is for Mexico to make aggressive changes to the way business is done there, and roll out the welcome mat for their entrepreneurs," he said.
Other issues including potential trade barriers and business customs in China and Mexico, resources available for tapping the global market and encouraging foreign investment in America, and the pitfalls and benefits of operating overseas were addressed by Andrew Rudman, director of the office of NAFTA with the U.S. Department of Commerce, and Steven R. Hendryx, a consultant with A.T. Kearney on Wednesday.
Also significant was the impact of Mexican President Vicente Fox's visit to Salt Lake City on Tuesday and Wednesday, especially since Mexico, as identified by Huntsman, is one of Utah's four most important target markets over the next three to five years. The others are Canada, India and China.
"The markets to watch for are Mexico, by virtue of its trade and human flow. The way Mexican politics is shaping up in light of Mexico's presidential elections in July will tell us whether it is looking south ... or continue to look north to the U.S. and Canada for open markets," Huntsman said.
That's of interest to Crosby, who has a 100-worker plant in Nogales, Mexico, which accounts for about 40 percent of Champion Safe's production, and a 120-worker plant in Provo. He is now considering whether to expand his Mexican operations or start another plant in Tennessee, where he says he was offered incentives such as relocation expenses and discounted utility rates.
Finding sufficient qualified labor to help the company meet its production goal remains the biggest challenge for Champion Safe. "How do you make products for export when you can't get qualified labor to do itfi"
"We went to Mexico in May 2004 to get access to a larger employee pool and to build a product that can compete with China," Crosby said. "Five years ago, Provo was the 'safe' capital of the world. Now, it's Shanghai because of the lower wage and steel costs there. We can't compete with China in Provo, but at Nogales, we can."
Another factor prompting the company's overseas expansion was a raid conducted two years ago by the Bureau of Immigration and Customs Enforcement, which found the company had harbored illegal immigrants.
But the company is now compliant with immigration laws, terminating about 200 of the 469 workers it hired since January 2005 because they were undocumented.
"We've retained only 73 of the 469 workers we hired in Provo. The remainder were cut loose because they weren't legal immigrants, had no work ethic, abandoned their jobs or had drug issues," he said. The company also hired a human resources officer in March to help with its recruitment.
World Trade Center
To help improve international trade relations, the state government is now mulling the establishment of a World Trade Center in Utah -- one that would serve as a one-stop shop for businesses seeking information about international trade and financing resources, language and cultural services.
"The World Trade Center is about networking, reciprocity, getting Utah on the map," Sunderlage said. "Our vision is to build a 400,000-square-foot to 700,000-square-foot center in Salt Lake City, which would have conference rooms, restaurants, a library, and a private club. ... We're now in the final stages of our search for a president."
Steve Densley, president of the Provo-Chamber of Commerce, sees mentoring opportunities for Utah County businesses that have established overseas markets.
"We have lots of international companies here, including Neways, Novell and Nu Skin. These companies can mentor those interested in going overseas, or provide networking contacts to them," he said. "That will go a long way to overcoming fears about investing overseas."
Utah County also offers an important linguistic resource for the proposed World Trade Center, with 78 percent of Brigham Young University graduates speaking a second language, Sunderlage said. There are 287 active world trade centers worldwide, of which 58 are in the United States.
Doing Business in China
Such trade resources will help local businesses that want to know how to sell to Mexican manufacturers; what the business culture is in Mexico, China, and India; what the pitfalls are in doing business overseas; how to identify potential partners; and how to hedge bad debt risks in the global marketplace.
These resources can help Americans overcome misconceptions and cultural stereotypes about doing business in China, Hendryx said.
"Americans have a tendency to look at China through a soda straw. The popular stereotypes are: Aren't they all Communistsfi Aren't they all poorfi Don't they just run sweatshop factoriesfi" he said. "The reality, however, is that China has moved from a feudal agrarian society to a modern industrialized one. Adam Smith and Confucius are more relevant there today than Marx and Lenin."
While problems such as the enforcement of intellectual property rights persist, the emergence of a middle and upper class in China and increasing urbanization means a bigger market for U.S.-made products, especially luxury goods, Hendryx said.
"If you're not large enough, or have enough capital to go to China, think about what you can do when Chinese companies come to the United States," he said.
This story appeared in The Daily Herald on page B6.