Committing in China and USA

What do the members of Hub North do to become a part of the international market and the areas with most growth? A recent meeting in the network focused on that subject.

In 1830 China was the world’s largest economy. Then there was the Opium War, later the Civil War and finally two World Wars. Now, 50 years later the balloon is finally finding its real shape as the world’s largest economy.

That was the central message from Peter Nørgaard Rasmussen, CEO in Asia Base A/S. He compares the Chinese economy with a balloon that has contained more or less air during the years. He was one of the speakers in the conference held by the business network Hub North which took place the 14th of March at Siemens Wind Power en Aalborg.

CEO Peter Nørgaard Rasmussen has lived and worked in China the past 20 years and has assisted 170 companies in establishing themselves in the old market in the Far East. During his stay he has achieved an MBA in Chinese, both written and orally.

“Is our European industry becoming superfluous?” was the uneasy headline of the speech given by the Asia Base-CEO to the attended Hub North- members. Using curves and the latest data he documented, that during the last five years , an increasing number of Europeans have considered China a competitor, not only when it comes to production but in quality and innovation as well.

-The decision-making –process in China is very fast. The growth in China is driven by the need in the market and therefore the process has to be fast, says Peter Nørgaard Rasmussen.

The cost of materials and labor does not make the big difference. The warning signals are turned on when it comes to fixed prices.

-It won’t last when the comfort level reaches Danish standards. In China, the companies are controlled from the top. It’s the CEO who’s in charge and there is no heat in the production facilities. That’s it!

The Asia Base CEO points out that a Danish manufacturer of windmills has to think thoroughly before choosing a location. For example Shanghai is out of date, it’s far too expensive. The house prices are too high and as a result it can be difficult attracting the needed labor. The reason is, that the Chinese prefers to own their houses.

The remote markets

Another contributor, Michael Viberg Pedersen, Senior Consultant in DIBD International Business Development, focused on the remote markets in the network meeting.

-In the next 40 years we will see most growth in markets like Vietnam, India, Nigeria, China, Indonesia, Turkey and Bangladesh. But 70-80 % of the Danish export goes to countries in the EU. We have to do something about that in Denmark. The Danish export to African countries is almost non-existing, but it’s there and there is growth, says Michael Viberg Pedersen.

When it comes to the Russian market he urges the foreign actors to define the limits and demands that they have.

-The Russians comes rushing with a 100 miles an hour and can give the impression that everything is based on threats and bluff. And therefore you have to be prepared. On the other hand, in the United States you have to be prepared for a lot of legal work and don’t be surprised if you are presented to a 30-page contract, says Michael Viberg Pedersen.

And in India the European actor has to be careful not to be judgmental. Research and development has a high level in India. According to Michael Viberg Pedersen, many foreign business people have had to admit, that they came to India because of the low cost but that they now are staying because of the high level of quality. And they invest because of the innovation.

America

John Hartvig Larsen from KR Wind in Nørresundby has deliberately chosen not to focus on the Far East as a business area.

-We have chosen to stay out of China and India. We have had one project in China and we got kicked out for focusing too much on safety. In that part of the world you have to accept that someone gets killed during the process of installing giant projects like wind turbines – and we don’t accept that. The biggest risk in our company is safety, and we won’t compromise, says John Hartvig Larsen.

KR Wind has specialized in logistics. The core competence is hoisting, installation and service during the installation of wind turbines. Vestas and Siemens are the two biggest costumers. The market is all of Northern Europe, Australia, and Canada and in particular USA and the company have a total of 25 cranes worth 25 million Danish kroner. The annual trade is 750 million Danish kroner.

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-Siemens dragged KR Wind to the USA, says John Hartvig Larsen.

-USA is a gigantic market with a huge economy and if you‘re established there, it is easy to get to South America and Canada. The mentality is much like ours. And we have to remember, that we Danes are skilled, well educated and popular in the USA. The first thing we have to remember doing business in USA is getting a good accountant, a good lawyer and a local insurance broker. American insurance companies a very straightforward and will throw you out of the company for minor incidents. And they will sue you with a blink of an eye. You have to be aware of those things in advance, says John Hartvig Larsen.

He asks companies to have a network, to contact industry associations and to seek council at the embassy. And according to John Hartvig Larsen it is important to station a Danish management in order to control the culture in the company. It’s also a good idea to investigate the possibilities for offering a turnkey solution to the Americans.

-For example, we have been pushed by the Americans to construct the roads and foundations ourselves. They really like turnkey solutions.

About the American employees he says:

  • The educational level is lower than we are used to
  • Take away half of the applicants’ qualifications when you negotiate salary
  • They are not as independent as the Danes and therefore they don’t think outside the box as much
  • Americans are best at selling Americans
  • “Fast forward”. Americans are used to make more promises than they can keep
  • Don’t use to much of the European softness in the personnel policy
  • You have to be more hard and consequent than we are used to in Denmark
  • They are good at celebrating, give credit and saying ‘thank you’

The close markets

Be prepared. The day the Chinese also wants a higher salary and more vacation, we still need to be good at producing.

The request to feed the competences in Denmark is given to the wind mill actors in northern Denmark by Birger T Madsen from BTM Consulting ApS. In the network meeting he went through the latest data for the development of established wind mills and the economy within it. You can see the slides her on our home page.

In 2009 worldwide, there have been a total growth of 36 % in installing new wind turbines and 2010 are expected to have even higher growth. In total, all wind turbines in the world have a total capacity of app. 40.000 MW. 6-7 years ago half of the wind turbines were raised in Europe. Today the vast majority is raised in China. Since 2005 the curve has been almost vertical, says Birger T. Madsen.

The Chinese is also gaining on the market for producers, but Denmark is still in the top. Almost 20 % of the installed wind turbines come from the home country of the wind energy, Denmark. But when it comes to the on the home market it is another story, says Birger T. Madsen. In 2009 the curve improved a bit with a total installation of 330 MV, especially thank to Horns Rev.

20 % of the world market means that during the next five years we will have orders worth a total of app. 140 billion Danish kroner.

According to Birger T. Madsen, both the perspectives and the challenges are easy to see:

  • The Asians are moving fast forward
  • Denmark and the rest of Europe are expanding in China
  • The large subcontractors are consolidating and leaving Europe too
  • We are waiting a new strategy for energy from the Government – “It’s looking okay at the moment”
  • We focus a lot on research, development and education in Denmark

And then we have to remember, that Denmark has a leading position in off-shore wind power.

-We have great potential very close to us, especially in Germany, Sweden and Great Britain. There are also a number of emerging markets in the North Sea and Baltic Sea. We have strong local pioneers like Aalborg University, Vestas and Siemens and in general, we’ve been expanding in the wind power area for many years in the region of Northern Jutland.

-That is worth mentioning, but we have to think more in niches than we have done before. It has to be niches with a high level of knowledge. Furthermore, we have to ensure that we have test facilities and a high share of wind electricity in our system, says Birger T Madsen.

He warned not to allow the wind industry to end as the shipbuilding industry. Both industries have had the same challenges with the price on raw materials, high salaries and the logistic problems dealing with giant structures. Furthermore, both industries have employed nearly 23.000 workers and been an area of great political influence.

The shipbuilding industry was the crown jewel in Danish metal industry during 60-70 years and then it got phased out in only 20 years. We can’t let that happen to the wind industry, says Birger T. Madsen.