US Losing Connection (Motorola in China)

Milwaukee Journal-Sentinel ^ | 12/30/03 | Rick Romell and John Schmid

[ninenot]

U.S. losing its connection

Telecommunications giant Motorola closes Midwest plant, flourishes in China

By RICK ROMELL and JOHN SCHMID
rromell@journalsentinal

Posted: Dec. 29, 2003

Third of a four-part series: Made in China

Nine years ago, Wisconsin and Illinois dueled for an economic development plum: a huge factory, distribution and office center to produce wireless phones for high-flying Motorola Inc. With thousands of jobs at stake, the two states fought hard for it.

Made in China

Photo/Gary Porter

A hundred thousand semitrailer-sized containers, loaded with goods, wait for departure from Yantian International Ltd., the biggest shipping port in Shenzhen, China. The ports of Shenzhen didn't exist 10 years ago. Today, Shenzhen and its adjacent city Hong Kong comprise the world's biggest locus of dockyards. Port officials say their success derives from China's role as the "workshop of the world."

More photos

The New Industrial Revolution

Manufacturing,
one of the staples of Wisconsin's economy, is being reshaped by forces originating halfway around the world. As China races into a leading role in the global economy, the effect on families, companies and communities here is profound.

THE SERIES:

DEC. 28: More and more companies are turning to China to produce their goods as China becomes "the world's factory floor."

DEC. 29: When China Inc. targets a particular segment of business, its combination of cheap labor and entrepreneurial hustle can virtually dominate an industry overnight.

DEC. 30: We used to build factories to last 100 years. What happens when a huge one doesn't last five?

DEC. 31: China is taking big strides to build beyond its manufacturing base. And in some key areas, the United States already lags.

About the logo

Gary Porter's
Photo Essays

Journal Sentinel photojournalist Gary Porter narrates slide shows of photos taken for this project in China and Wisconsin.
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Day 3
Related Coverage

Ports: Fishing villages to world-class port - in 10 years
Competition: China puts firms across state in squeeze
Notes: Fast facts and viewpoints
Graphic: Manufacturing: Bad news in Midwest, growth in China
Graphic: Shipping: World's 10 busiest port cities

Manufacturing

Photo/Gary Porter

Lu Zhi Zhao replaces a spool on a die-cutting machine at a Brady Corp. factory in Beijing. The machine, originally used at Brady's plant in Cedarburg, Wis., makes foam-rubber insulators for cell phone microphones. Brady shut down the Cedarburg plant in June. The company, a supplier to Motorola Inc., began operating in China to be near the telecommunications industry there.

The Motorolas of the world might have gone there to save money and costs. We did not go to China because it's a cheap place to do business.

- Allan Klotsche,
who directs Asian operations for the Wisconsin-based Brady Corp.

Photo/Gary Porter

Cell phones have become essential in China's rapidly changing society. Cities, in particular, have spawned what amounts to a cell phone culture, as can be seen along Wangfujing St., Beijing's equivalent to New York's Fifth Ave. China has recently emerged as the largest and fastest-growing mobile phone market, and several Chinese companies have grown to challenge Motorola as the top supplier to the country's domestic wireless phone market.

Illinois won.

Motorola built the sprawling corporate complex on a 350-acre campus in Harvard, Ill., five miles south of the Wisconsin state line.

Today, that virtually new plant stands empty and idle, and it is under contract to be sold to a local real-estate developer. His proposal: Turn it into a resort and entertainment center featuring the world's largest indoor water park.

In Tianjin, China, it's a different story.

There, Motorola's wireless-phone factory - part of what the corporation calls its "largest production base in the world" - makes more mobile phones than ever before.

Motorola exports nearly half of the sleek digital units it makes in Tianjin, shipping them to the United States, and elsewhere in Asia. It sells the rest in China - the world's largest and fastest growing mobile-phone market.

The soot-and-concrete expanse in the Tianjin Economic Technological Development Area, where Motorola is located, is a world apart - in more ways than just distance - from the groomed landscape at the empty Harvard campus. Approaching the area, rickshaws navigate the shoulders of eight-lane highways choked with cars and trucks that pass rubble heaps, power lines and gleaming glass office towers.

But in some respects, the velocity of change in China as it steps into a leading role in the global economy is perhaps nowhere better mirrored than in the breathtakingly fast reversal of fortune at the Harvard campus, where Motorola announced less than five years after the plant opened that it would cease manufacturing.

The fates of the two factories reflect the turbulent realities of a networked world that connects America's heartland and China's mainland. And linking the two is the wireless telephone, an unofficial cultural symbol in China of its on-the-go digital work force and frontier spirit. Even low-wage migrant workers, always looking for a better factory gig, have begun to carry them.

Domino effect

When a big company leaves, suppliers face crossroads

As Robert Trunzo recalls it, Motorola was already leaning toward building in Illinois when Wisconsin edged into the picture in early 1994. Trunzo was state secretary of development then, and his boss was Wisconsin's No. 1 booster, Gov. Tommy G. Thompson.

Hearing of the big new factory in the making, Thompson asked for an audience with Motorola executives. Both men traveled to the communications firm's headquarters in Schaumburg, Ill., to plead Wisconsin's case. They were pitching a site near Beloit, and argued that it held several advantages.

With the Beloit area then lagging economically, Trunzo recalled, Motorola would be able to tap a deep labor pool. There was easy access to I-90. And there was talk of Wisconsin providing worker training.

Motorola executives were invited to visit the Beloit site. A senior Motorola executive was a University of Wisconsin graduate, so waiting at the site when they arrived by helicopter was a football autographed by coach Barry Alvarez of the Rose Bowl champion Badgers.

Also awaiting the delegation was a Motorola cell phone. It rang, and Thompson was on the line to welcome the guests.

Ultimately, though, Wisconsin couldn't match Illinois' package of financial incentives, Trunzo said.

Harvard won the economic-development trophy, casting a halo of commerce around it. Firms from both states sold parts, electronics and cleaning services to the 1.5 million-square-foot plant.

But the prize quickly lost its luster. The plant started operations in November 1996; the halt to manufacturing was announced in January 2001.

"In 2000, the Harvard manufacturing team lowered production costs and improved quality," Motorola executive Mike Zafirovski said in a statement at the time. "But we cannot competitively manufacture products when there is surplus global capacity at Motorola's lower cost sites."

Motorola continued to use Harvard in part for distribution, but in 2002 announced it would relocate those operations and close the building. The complex shut down completely last spring.

Bill Parke, a spokesman for Motorola, pointed out that the company continues to operate factories in Illinois, New York, Florida, Texas and Arizona. However, 4,200 jobs were lost at the Harvard factory, according to the Harvard Economic Development Corp. Residents in southern Wisconsin held more than 1,000 of those jobs.

And the effects of the closing reached well beyond the payroll at Motorola.

Just as one factory's growth can support other businesses that multiply the prosperity, the same chain reaction can shift into reverse.

Take what happened, for example, at Wisconsin-based Flambeau Inc. A part of the 2,000-employee Nordic Group of Companies Ltd., in Baraboo, Flambeau makes a variety of plastic products, from automotive parts to Duncan yo-yos.

In the mid-'90s, the firm built a factory in Sun Prairie. Originally planning a 35,000-square-foot plant, Flambeau doubled it, in part because of the opportunity to make components for Motorola's Harvard factory.

For a few years, everything clicked. Motorola cranked out the latest phones and became a significant customer of Flambeau. Employment at Flambeau's $8 million Sun Prairie factory climbed to more than 100.

Then Motorola announced it was halting manufacturing at Harvard. Nine months later, Flambeau began moving to shut down its Sun Prairie plant.

"We thought they were going to go and continue for a long time," Nordic Group Chairman W.R. Sauey said.

Nordic, meanwhile, is becoming increasingly involved in China itself. The firm already contracts to have tool cases and industrial parts made in China, and it is planning joint ventures for further production there. That probably would mean future job cuts at Nordic plants in Wisconsin and elsewhere, Sauey said.

"They're very efficient," he said of Chinese workers. "Very capable. . . . It's really tough to compete with them, not just because of the wages but because they work so hard."

'Good corporate citizen'

Motorola deepens roots as largest foreign investor

Like Tommy Thompson in his Madison days and his counterparts in Illinois, the economic gurus in Beijing are practiced at luring corporate investors. Last year, $52.7 billion from abroad flowed into factories and offices on the mainland, pulling China ahead of the U.S. and the world in direct foreign investment for the first time.

Motorola knows better than most how China Inc. works. The telecommunications giant opened its first office in Beijing in 1987. That was when the mainland generated its first waves of excitement as China could show it finally had shaken off decades of political instability and economic chaos. China was open for business.

Motorola began in Tianjin in March 1992, back when it was only thinking about building a plant in Harvard.

Today, Motorola says it employs 10,000 in Tianjin alone and another 2,000 in nine joint ventures and 24 subsidiaries across the mainland. Motorola heralds itself as the largest foreign company in China, ranked by sales, and the "largest foreign investor in China's electronic industry."

At this point, there is no slowing down. Motorola has hired more than 1,300 Chinese engineers to staff its 16 China-based research-and-development centers. It went on to found a Motorola University, offering 130 courses in Chinese and employing more than 200 instructors. Its logo adorns billboards across the vast country.

China generates a fifth of the company's worldwide sales and $3.6 billion in yearly exports. And Motorola's investments on the mainland, which stood at $3.4 billion by the end of 2002, are expected to reach $10 billion by 2006.

Motorola, according to its Web site, is "a good corporate citizen of China," one that Fortune magazine honored in its Chinese edition for its long-term commitment to the country and its adaptability to the local market. The magazine labeled Motorola the "best employer in China."

'The new frontier'

Milwaukee's Brady in China for long haul

In clean, bright work halls of a factory on the fringes of Beijing, workers put a die-cutting machine through its paces on a typical workday: three shifts daily, seven days a week. It cuts foam-rubber parts that Motorola workers in Tianjin will install inside their digital handsets.

Earlier this year, the same press stood in a factory in Cedarburg, Wis., where it once supplied similar parts for the Motorola plant in Harvard.

The owner of both factories is Milwaukee-based Brady Corp. It shut down the 8-year-old Cedarburg operation in June, offering other jobs to those working there. Worldwide, Brady in May trimmed 300 jobs, with about 60% of the cuts coming in the U.S.

Brady has continued to grow in China, however, and Motorola helped pull it there.

"We had served Motorola as one of their top suppliers for many years," said Allan Klotsche, who directs Asian operations for the $550-million-a-year Wisconsin manufacturing supplier.

"The Motorolas of the world might have gone there to save money and costs," Klotsche said. Brady's reasons were different. "We did not go to China because it's a cheap place to do business."

Brady, which makes six to 12 tiny internal parts for most brand-name mobile phones, stood to lose heavily as telecom firms took their business to China, which makes 38% of the world's wireless phones.

Brady's precision-cut parts aren't glamorous, but they keep the orders rolling into its factories: dust covers for mouthpiece microphones, rubber shock pads that hold parts snugly inside the casing, and tamper-proof bar-code labels that identify genuine phones from counterfeits.

On a less monumental scale, Brady's trajectory starts to resemble Motorola's. Now that it's in China on the coattails of the telecommunications industry, Brady cannot afford to slow down. Brady opened its first production site in an industrial park in the inland city of Wuxi. By 2000, however, Brady realized that a single plant separated by hundreds of miles from many of its customers wasn't enough.

The firm now has three manufacturing sites scattered across China as well as sales offices and a distribution center.

"China is the new frontier," Klotsche said.

Brady's fastest growing plant is in Beijing - the one nearest to Tianjin and to the plants for Nokia and Ericsson. Started only 12 months ago, it has doubled its capacity, said Steven Li, who runs the Beijing operations.

"Sales growth is 50 percent a month," Li said. Cedarburg had the same staffing that Brady-Beijing does now: 30 production workers, not including sales and marketing staff. But Brady-Beijing will add more machinery and 20 workers in the next few months.

Those employees - like others in China's technology sectors - will be well paid by Chinese standards. Brady production workers average $250 a month, enough to afford an apartment and aspire to the middle class. The company offers a medical plan that covers families, and it gives employees access to a fitness center.

Charles Ho, who heads Brady's offices in Shanghai, said Brady's 250 Chinese workers often get raises. "Last year, we had 15 percent turnover," Ho said. "It takes a lot just to keep our good people."

The managers earn more, but they sleep with their cell phones turned on; not wanting to lose customers to rivals, they are on call around the clock.

"Doing business in China is different than doing business in the States," Li said. "That's why everyone carries a mobile phone."

Expansion such as Brady's is common in China, where investment begets investment. China rose from No. 4 to No. 1 in machine-tool spending last year, according to a survey by Gardner Publications.

In the U.S., meanwhile, capital spending has fallen. Since 2000, according to the National Tooling and Machining Association, about 30% of U.S. tooling companies have gone out of business.

"It's a structural change in the market," said association president Matthew B. Coffey. "American multinationals or trans-nationals have decided to quit manufacturing in the U.S., and so they have moved the work offshore, most of it in Asia. And the result of that is there aren't things to quote (bid) on any more. And if you don't have things to quote on, you don't have a business."

On a recent day at Brady-Beijing, crews rolled up to a garage-sized opening in the shop room, and the long arm of a crane lowered a pallet with a $100,000 industrial printing machine from Taiwan.

"Eighty percent of what we have is brand-new, state-of-the-art equipment," Klotsche said.

The importance of guanxi

How business gets done in China

Some suppliers say they have no choice but to go to China.

And no one, they say, is successful in China unless he or she lives there. The culture relies on interpersonal bonds known as guanxi - a sense of loyalty between two people who look each other in the eye and believe what they're saying. Guanxi fills the vacuum in a time of turbulent change in an ancient culture that lacks a track record in its legal institutions.

No guanxi means fewer orders.

"We've worked hard, and been successful, in developing a local management team," Klotsche said. Brady's Chinese operations have become a "local Chinese company."

"A lot of western companies fail in China because they parachute a team in once every quarter," Klotsche said.

China itself, however, relies on far more than guanxi to drive its manic growth. The government of Beijing adheres to a two-pronged industrial policy.

It works like this: for makers of running shoes, toys, textiles and consumer electronics, the government cultivates a hands-off, deregulated environment with cheap land and low taxes. The cowboys of capitalism set up shop along the eastern seaboard, hire migrant labor and get to work.

But for targeted technologies such as semiconductors, telecommunications and automobiles, Beijing has a history of insisting that big foreign-owned corporations meet strict limits on how many parts they buy from indigenous Chinese suppliers.

Policy-makers are building "silicon valleys" in Beijing, Shanghai and Shenzhen.

China has more than 250 million cell-phone users - a wireless market approaching the total population of the United States. Mobile-phone users actually have overtaken the number of conventional fixed-network land-line users. George Huang, vice president of Nortel Networks (China) Ltd., a unit of the Nortel Networks telecommunications group, is among those who predict that the number of mobile-phone users will double to 500 million by 2007, adding 4 million to 5 million new users each month.

Further, "it's probably inevitable" that China will become a significant exporter of automobiles, said Scott Summerville, president of Rockwell Automation Asia Pacific Ltd., a Hong Kong division of the Milwaukee parent.

The guidelines on such industries are meant to help home-grown Chinese technology enterprises take root in the shadow of the dominant foreign-owned players - and make China an even more potent force in the global economy.

"The Chinese want to grow their own industries," said Brady's Charles Ho.

Motorola and its foreign-owned rivals spent years meeting government quotas on the volume of parts they buy from suppliers based in China. That means the only way for Brady to retain Motorola's business was to become a Chinese company, Brady's Li said.

China's membership in the World Trade Organization, the 146-nation body that sets the rules on global trade, is forcing China to scale back its "local content" limits. But Li thinks it no longer matters if the government formally dictates the rules: A critical mass of technology companies already has taken root. Big manufacturers force suppliers to join them by insisting on quick deliveries in an industry that launches new cell-phone models every three months.

"Four years ago, it was a process that was central-government-driven," Li said. "Now it's market-driven."

Said Klotsche: "Motorola is approaching 100 percent localization."

China often instructs foreign investors in key industries to link up with indigenous Chinese joint-venture partners. Chinese managers then learn about western products, technology and methods.

Measured by the number of Chinese start-up enterprises, the formula works. Chinese makers of mobile-phone handsets have quickly eroded the market share of giants Motorola and Nokia.

And although still the leading firm, Motorola no longer dominates the domestic wireless phone market as it once did. China's high-tech success stories now command half of the market.

The Ningbo Bird Co., which issues stylish new phones just as quickly as Motorola, is now the largest Chinese-owned handset maker and closing in on Motorola in the domestic Chinese market. Its stock trades on the Shanghai Stock Exchange. Meanwhile, state-owned TCL Corp., which has begun an aggressive export campaign of its phones into Asia and eventually the U.S., just became a dominant partner in television manufacturing ventures in France and Germany. That gives those two European nations new access to Chinese producers.

Brady's sales continue to rise, with half its Chinese customers now Chinese companies. A few years ago, only foreign-owned multinational manufacturers, such as Motorola and Nokia, bought Brady parts.

The growth of Chinese-bred firms such as Bird and TCL isn't likely to stop. It won't be long, Klotsche predicts, before phones made by Chinese companies are being used in downtown Milwaukee.

"They work just as well," he said.

From the Dec. 30, 2003 editions of the Milwaukee Journal Sentinel

[ninenot]

Please use your ping lists. Third in series of four articles. As usual, I left the sidebars in.

[Happy2BMe]

Bought a personal computer lately? How about just a peripheral for one?

How about a microwave, television, digital camera, vcr, dvd player, or just about anything else that plugs into a wall outlet or runs on batteries.

Check the label.

MADE IN CHINA

I'll give China another ten years and they'll be outsourcing to us. Except then, we'll be the third world nation and they will be the (economic) super power.

[Texas_Dawg]

I'll give China another ten years and they'll be outsourcing to us. Except then, we'll be the third world nation and they will be the (economic) super power.

First it was Japan, then Mexico, then India, now China... round and round we go. I guess it never gets old being entirely wrong.

[Texas_Dawg]

We're all doomed.

[RiflemanSharpe]

My wife and I bought a Sharpe microwave at lowes this year. It was made in the USA. You can buy American if you look hard enough and openly demand it. I do.

[BureaucratusMaximus]

Its getting to the point that the only jobs that will be left in 20 years will be cashiers, sales reps, lawyers, and local/state/fed government jobs. At least we may still making movies, rap music, and Sponge Bob stuff. The world can't live without all that.

[RiflemanSharpe]

I demand American made. This summer I was a part of a customer survey for dewalt power tools. They asked about my perception of the quality of made in Mexico or made in China. I told them in no uncertain terms I look for made in the USA. If they move their production, I will stop buying their product.

[RiflemanSharpe]

We must do everything in our power to maintain a viable and broad manufactoring base. It is a matter of national as well as economic security.

[BureaucratusMaximus]

If they move their production, I will stop buying their product.

You may as well stop now. Competition from cheap Chinese products and high corporate taxes/environmental BS regulations/unions here in the U.S. will eventually force them to offshore like everyone else. Our politicians don't get that or they simply don't care. Staying in power is their only goal.

[RiflemanSharpe]

If they move their production, I will stop buying their product.
You may as well stop now. Competition from cheap Chinese products and high corporate taxes/environmental BS regulations/unions here in the U.S. will eventually force them to offshore like everyone else. Our politicians don't get that or they simply don't care. Staying in power is their only goal.


Then we need to impress upon them that jobs is the issue that will remove them from power. Let them start to fear for their jobs like we little people in fly over country have been.

[bornINravenswood]

I believe that under the patriot act II, Motorola's top executives can lose their citizenship and be forced to leave the United States as they will be developing high tech electronics in a totalitarian country. I am sure that the chinese will want to know about everything developed and they will probably prohibit high tech companies from sharing technologies beyond the chinese border.

In essence, Motorola is saying that they don't want to pay stupid people a lot of money.

How do you define treason?

[fakecanuck]

MOT is reaping huge and huge profits by making and selling cellphone handsets in China. But don't let the article mislead you, Nokia and Siemens are way ahead of the game when it comes to cellphones in Asia. MOT has always trailed behind because of its unattractive cellphones. For your information, many new cellphones sell for 500USD each in China. And the average worker there makes less than 100USD a month! Don't blame the Chinese for stealing the jobs, blame it on the greedy corporate executives.

Speaking of cellphone technologies, the US is not lreading. it's actually couple of generations behind when compared with European and Aisan technologies. They are all being developed in Europe and Asia now. And they are not being developed by American firms either, mostly European and Asian firms. The Americans are only given second rated cellphones.

[maui_hawaii]

Some of your post is right and some of it wrong. Motorola's handset operations don't hardly make anything in China. They might even lose money.

The real money is supplying the network, meaning every time they add a new cel phone tower its money in the bank. Big transmitters and all the related gadgets to run that is where most of the money comes from. When I started going to China you could barely get a cel signal in downtown Beijing. Later on, I went back and people were in the countryside talking off the top of the great wall.

The infrastructure is where its at.

As for the Europeans, etc... they are way ahead of Motorola in general. Motorola had something good going then sat on their butts. They lost marketshare and never got it back. They are still struggling. Last time I heard they were 3rd or 4th in the market, but who knows where they are now.

As for Motorola in China itself, I remember rather recently they began consolidating almost all parts of the system into China. They were closing things up in Hong Kong and elsewhere and consolidating.

China was the only ones out of the bunch adding capacity and infrastructure. Most of Asia and the US too is way ahead of China as in the maturity of the market. We have already gone up one end of the capacity ladder and went down the other. Eventually we will go up again as we need to upgrade. China is still in the initial phases, even after 10 years.

Thats how the Chinese work. They drag it out for as long as possible and iron out the ups and downs in the market.

Wireless is the same as fixed line. Once the infrastructure is there its there. It just depends on ROI.

Motoroloa though isn't supply the subscription to a cel phone, just the hardware. If you want to know how and what really runs things, look at who offers telephone service. There are I think two maybe three choices. I will have to look it up though bcause one either merged or split...

They are all government dominated.

Many have said, and I think so too, over the next 10 years or so China's market will decline steadily. Then the industry will have to look for a new playground to develop. Many eye India. We will see how it plays out. Beijing might not like losing out on some of those factories. India sure as hell won't importall the stuff, especially from China...

[ninenot]

What's REALLY frustrating is that it's almost IMPOSSIBLE to buy one of those products which IS made in the USA--or at least in Mexico.

And, BTW, the "quality" isn't all that much better, nor is the "quality" of the furniture they supply.

[ninenot]

Still waiting for your list of "Christian-owned" Chinese enterprises, Dawg.

After you take out the garbage and make up your room real nice, you should provide documentation.

[ninenot]

I define treason as X42--who, as you recall, enabled Motorola, Boeing, and a few other firms to send high-tech smarts to the Chinese.

And our help was just the ticket: now China will be able to use MIRV technology because X42, MOT, and others helped with the guidance systems.

Isn't that nice??

[Texas_Dawg]

You obviously don't know very much about China.

Over 70 million Christians in China and growing (at all levels)

[ninenot]

No, Doggie.

I am well aware of Christianity's EXISTENCE in China. But still waiting for you to provide NAMES of Christian-owned/operated Chinese sweatshops.

We Catholics, as you undoubtedly know, were the first Christians on the scene over there--and we have plenty of martyrs to show for it. The PRC's annihilation of RC stalwarts over there continues, unabated, to this day--as it most likely does with other Christian denominations who in any way, shape, or form dare raise their heads.

[Starwind]

But for targeted technologies such as semiconductors, telecommunications and automobiles, Beijing has a history of insisting that big foreign-owned corporations meet strict limits on how many parts they buy from indigenous Chinese suppliers.

WTO compliance and Free Trade, Chinese style.