News & Observer | newsobserver.com | China: Threat and Promise

China: Threat and Promise

Published: Sep 17, 2006 04:57 AM
Modified: Sep 18, 2006 06:39 AM

As China's economy revs up, N.C. businesses see opportunity

Mebane mattresses on Beijing beds; VF Corp. makes waves. But job losses here still hurt.

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MORE INFORMATION ON CHINA

www.state.gov/r/pa/ei/bgn/18902.htm (State Department)

countrystudies.us/china/ (Library of Congress)

www.buyusa.gov/china/en/ (U.S. Commercial Service)

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Instead, VF plotted a different course. It bought premium brands such as Nautica, The North Face and Vans and shifted production outside the United States. As jobs went first to Latin America, plants closed in North Carolina, causing pain in communities such as Windsor and Wilson.

In 1994, VF went to China, setting up a joint venture to manufacture and sell Lee jeans. It lost money for most of the first eight years.

But VF stuck with it. Now it's making money -- and expanding.

Nautica, among VF's most prestigious brands, was introduced in China in this decade. Working with partners, it has established 11 free-standing Nautica stores in the country. It has 128 shop-in-shops, where Nautica employees sell merchandise inside other department stores.

To boost its profile in the Shanghai market last year, VF drained a lake, built a pier for a fashion show, laid out a course and refilled the lake for the first Nautica mechanical sailboat regatta.

VF needs to be known in China. Its growth is becoming more dependent on Chinese consumers.

VF wants to grow 8 percent per year. But because the U.S economy is growing only at about 3.5 percent annually, some of VF's growth would have to come from overseas. With one of the fastest-growing economies in the world and an expanding middle class, China is a top candidate.

"If we're not successful there, this corporation isn't successful," VF President Wiseman said.

Wiseman tracks retail sales performance monthly by brand and country. But he, like many executives, declined to say how much China sales contribute. He also wouldn't detail the company's expectations.

SAS's successes

Most companies aspire to follow in the footsteps of Motorola. The Illinois-based electronics maker is a testament to the possibilities.

Motorola, which set up an operation in Beijing in 1987, has become one of the most successful foreign companies in China. Last year, it had nearly $9 billion in sales in the Asian nation.

SAS of Cary went to China a few years later. The privately owned software company doesn't say exactly how much money it makes in each country, but China is growing in importance.

Sales in the Pacific Rim accounted for 10 percent of the company's $1.7 billion in revenue last year; SAS's revenue in China increased by 30 percent. The company has boosted its work force in China to 170.

The success, though, masks significant challenges. Chief among them is finding and keeping skilled workers.

"The fact is, they can jump to another company and get a promotion," said SAS's Kung, who directed strategy from the 14th floor of a Hong Kong office tower that has sweeping views of Victoria Harbour. She left SAS in July.

SAS -- which has a reputation for lavish worker perks, including generous health care benefits and on-site child care -- has learned that those things mean little in China. Money matters more.

Employee attrition in China is about 10 percent a year -- double what it is in Cary -- and growing, as the demand for technical talent multiplies. Turnover strains the company, which must train and retrain workers.

"It's very materialistic in China," Kung said. "For those people moving to the cities, they have a very strong desire to upgrade their living standards. So we have to pay our staff well."

A new graduate in China can earn about $4,500 a year, she said. With four or five years of experience, the salary can jump to $34,500.

SAS declined to disclose U.S. salary information. But the estimated starting wage for someone who develops software applications in North Carolina is $52,133, according to the state Employment Security Commission. With experience, the annual salary rises to $89,707.


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Staff writer Jonathan B. Cox spent a week in May reporting in Hong Kong and Beijing. He can be reached at 836-4948 or jcox@newsobserver.com.

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