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The right tools for the job in China

China General Interest

NZCTA Trade Awards' 2009 Supreme Winners, Teknatool International take some time out of their busy export schedule to talk to China Now about the tools they employ to navigate the challenges and sieze the opportunities when doing business with China.

About Teknatool

Teknatool International manufactures high end consumer durable and stationary power tool products for the home woodworker/DIY workshop, including machines, electronic controllers, motors and supporting accessory products. Teknatool is also developing a market for its innovative direct drive motors, and anticipates that this side of the business will become the major income stream for it in years to come. In the stationary power tool for consumer/home workshop use, it has been the market innovator and leader since the 1980’s. Currently exporters to over 20 countries, Teknatool are a company with a strong outward focus who identified early on that the challenges of global manufacturing would need to be largely addressed offshore.

The road to China

The company developed a unique direct drive motor technology in the early 00’s and realized there was a huge potential market for this motor in China. This coupled with the understanding that in order to be a truly global company, they needed to have a strong manufacturing base offshore and closer to their end markets, led the company directors to start looking for solutions.

From the outset, China was the focus – both for its huge domestic market for Teknatool’s proprietary new motor drives, but also for the advantages that it could bring to Teknatool’s traditional stationary power tool business. China has ability to make product at good price structures, and has a strong and growing manufacturing infrastructure. These factors, coupled with the knowledge that NZ was negotiating with China on a free trade agreement, gave some certainty that NZ saw great long term potential and future in China.

"China Manufacturing represents opportunities to make product at good price structures. However China must not be viewed from the single perspective of a low cost labour environment. The core of our strategy is to harmonize the best elements of China with a sophisticated manufacturing system. Companies that are setup and evolve to match this ongoing evolution of the China economy will prosper” says Roger Latimer, Director of Teknatool International.

From the outset, the directors of the NZ Company wanted to grow the knowledge and skills in the China facility, so that it could eventually be independent of head office in NZ.

"We wanted to set up a Western based manufacturing facility, with the best of Western business, design and manufacturing practices in China - Teknatool China Manufacturing was planned from the beginning to be a highly efficient and highly organized production system, and longer term to develop the design and market know-how internally in China" comments Roger.

The directors were looking for a partner who had experience in the Chinese market and also were familiar with the end markets that Teknatool International operates in (USA/Europe) Through one of their major US customers, an aligned but not competing supplier was identified as being a suitable fit. This potential partner sourced products for the home workshop in the consumables area – clamps and the like. A complementary and aligned fit for the products that Teknatool manufactures.

From the start, the province of Shandong was short listed as being famous for its manufacturing infrastructure, with many well known manufacturing companies based there, including Haier. This infrastructure was vitally important – not only a strong, well serviced port, but also many of the supporting services and companies that a manufacturing company needs, were already set up in clusters there.

After many visits this was narrowed down further to the city of Qingdao, and Teknatool International and its joint venture partner purchased a newly built manufacturing and office facility in 2005. The company Qingdao Teknatool Fortune Manufacturing Company was formed, with 51/49% shareholding between Teknatool International NZ and Fortune Extendables Inc.

By the end of 2006, it became clear that their Joint Venture partner, Fortune Extenables Inc was pursuing a strategy of quick return on investment and not long term market and system development. They were not really ‘cut out’ for manufacturing which requires a long term commitment for success.

The directors of Teknatool International NZ negotiated to purchase the 49% shareholding from Fortune Extendables. In late 2006, Qingdao Teknatool Manufacturing Company was formed, 100% owned by Teknatool International Ltd NZ.

Success Factors

Cultivate relationships

Teknatool International has used the advantages its various business relationships can bring, looking creatively both ways along the supply chain – from customers to suppliers to find ideas and bring growth.

"It was one of our US customers who suggested our partnership with Fortune" says Roger, "and although our partnership didn’t work out in the long run, it gave us a vital foothold into China manufacturing".

NZ know-how

The manufacturing knowledge that Teknatool International brought from NZ is a key competitive advantage. "Ensuring high tech equipment and manufacturing techniques at our facility in China is a key strategy for long-term competitive advantage" says Roger.

Along with the manufacturing facility, establishing a strong Research and Development organization within China is critically important for future growth. "We have 2 dedicated R&D teams in Qingdao – one based at the manufacturing facility which is production based development and one based in the Qingdao CBD, so that we can focus on rapidly producing highly innovative products with wider market applications" Says Nathan Stantiall, Business Development Manager for Teknatool.

Developing and maintaining independence

Roger comments, "We strive and support our Chinese company to be successful and independent of the NZ Company, of course keeping up a strong communication." Today, of the 70 staff in Qingdao Teknatool International Manufacturing, only 2 are NZ engineers, and these are members of wider manufacturing and design teams, not managers. "From the outset we wanted a Western Style company, with all the benefits and openness of Western Business - but for all that, definitely a Chinese one."

Retaining key staff

Key staff retention can be an important issue. However the team at Teknatool says that this is successfully addressed firstly by simply being a ‘Western Company’ which is desirable from an employee point of view in China. "We also provide free training of staff to up skill, with free English lessons, driving lessons and other skills training made available to all staff, this is seen as a desirable feature of our company" says Nathan.

Know who you are & play to your strengths

"We are a committed NZ business with western style business standards at every level – from the general ‘openness’, to accounting practices, to R&D, to quality systems. We have significant resources and skill sets to offer as a Western company, including intimate knowledge of the end markets and wide trusted relationships with market players. In China we have skilled engineers and procurers -mostly graduates and a number that have worked in the industry for a long-time so have an intimate knowledge and relationships. We are a one stop shop: design, development, manufacturing, sourcing, even down to small but important details such as Western manuals and Videos" says Roger.

In practical terms this has meant the customers Teknatool are working with have been able to introduce more products and more innovative products because Teknatool understands more and can take care of the detail. Over a period this can be a telling competitive advantage.

Play strategically and for the long haul

Teknatool International are committed to their markets and their facilities and have been determined about approaching their business model as a long run strategy. "A successful China strategy is not a short term thing" says Roger, "You have to be committed for the long haul - slogging it out where necessary, and holding your nerve" They have found many competitors in China have been spooked by the recent economic crisis "Where we source product for a client we often make or source separately vital parts, this helps to maintain the exclusive nature of a product. This is especially important at present as we are seeing many companies with thin order books who are breaking exclusive supply arrangements, and selling to anyone that comes along. So it’s tending to be a very good time for a company like ourselves - equally at home in China and the USA, with a mature perspective on both" comments Roger

Communication

When your head office is in Auckland and your manufacturing facility is in Qingdao, constant and ongoing communication is critical. Teknatool uses tools like Skype for instant messaging and video conferencing over the internet, which are used by all team members on a daily, hourly and sometimes even on a minute by minute basis! FTP servers are vital to exchange large amounts of data. Teknatool has also installed large TV’s and cameras in the main boardrooms and meeting spaces in both locations, so that meetings can be held face to face. They have 3 formal meetings per week in both locations, with production, R&D and sales meeting, and have other informal meetings and chats as needed.

Staff from NZ are frequent visitors to the Qingdao facility, with trips almost on a monthly basis at times.

Also vital are dual language speakers in both locations - at their Auckland office, Teknatool has fluent English and Mandarin speakers in each of the critical functions – R&D, Accounting and Marketing/Sales, and has NZ staff based in Qingdao. In addition, staff in both locations are enrolled in Mandarin or English classes.

Understanding cultural quirks

Culturally, Kiwi businesses are typically used to working with colleagues and suppliers who will listen to your idea, and then suggest alternatives if they know of a better way of doing things. A lesson Teknatool had to learn was that the staff in Qingdao Teknatool were interested in making the head office happy - and so would agree to anything that they suggested. Qingdao staff would not speak up if they knew an HO idea wouldn’t fly or if it would cause problems down the track (like increased costs, for instance) Teknatool HO have learnt now to specifically ask for feedback and to ask them to repeat back their understanding of the situation and the objectives.

“On a day to day basis, we still find cultural differences and challenges to overcome but we are very open in our communication and encourage discussion and openness. With this culture of openness we are always confident that any misunderstandings or differences can be overcome and worked through” says Nathan.

Roger comments, "We invest strongly in our people – we have developed an open, learning style of business where our staff are encouraged to think creatively and with initiative – something that is not always apparent in Chinese-owned manufacturing facilities - although of course this is changing!"

Integrating systems and processes

While some processes and systems will be localized, "Try to integrate main systems and processes as much as possible" advises Nathan Stantiall, Business Development Manager for Teknatool International. Teknatool NZ and Qingdao Teknatool operate the same project management structure, using web based software, where files can be shared and viewed by all in the team. In 2008, Qingdao achieved ISO 9001, bringing it into line with the NZ facility, so a common ‘quality’ language is used across both facilities.

Open door policy

Today, Qingdao Teknatool is a thriving company that is rapidly aligning itself to its opportunities. Qingdao Teknatool will be having an independent booth at the Canton Fair this October and cordially invites any NZ companies visiting China at that time to visit their booth, their manufacturing facility or their R&D facilities in Qingdao. In addition, Roger Latimer has an open door policy for any NZ companies wanting advice on how best to approach China, so is always happy to chat.

You can visit the Teknatool website at www.teknatool.com