Socializing Vital : Amenities Key to Trade With China

J. Kirk Matthews never experienced negotiations as unsettling as those in the Peking offices of China National Aero Technology over a price for his company’s computerized welding controls.

“They asked me to come down in price, and I just couldn’t,” recalled Matthews, president of Chatsworth-based Pertron Controls. “Then we just sat and stared at each other for 15 minutes, literally, in total silence.”

Matthews said he broke the ice by offering the Chinese a price concession on spare parts. All breathed a sigh of relief, Matthews said, and the deal was closed.

“It allowed them to save face,” Matthews said. “But it’s a pretty tough way to negotiate.”

Matthews is one of the small but growing number of local executives struggling to learn new business techniques to try to tap the enticing markets of the People’s Republic of China. Ever since President Nixon’s ground-breaking trip to China in February, 1972, U.S. companies have been investigating business prospects in the Asian nation.

3 Local Firms in China

The list of companies already conducting business with the Chinese includes at least three based in the San Fernando Valley.

These Valley companies--Pertron, Dataproducts of Woodland Hills and Northridge-based Hanson Research--intend to assemble and sell their products in China. They hope local plants will give them the edge in cornering the Chinese market, as well as provide them with relatively cheap labor.

But the challenges go beyond learning new negotiating techniques. For starters, the contracts haven’t been very big by American standards. In addition, the Chinese don’t have much hard currency for purchases, so deals often involve bartering. American companies are also forced to find Chinese partners.

“It’s difficult to get a foot in the door in China,” said John Callebaut, director of development for the National Council for U.S.-China Trade in Washington, which has 430 businesses as members. “Companies will do anything they can to get recognized.”

Other Obstacles Involved

There are other obstacles. The U.S. Commerce Department only recently eased restrictions on the export of technologies considered vital to national defense, including several lines of personal computers. The department says it is being pushed by the Reagan Administration to ease foreign trade barriers.

The Chinese have long been cautious of foreigners. “They’re afraid of getting ripped off because it’s happened to them before,” said Royal Hanson, manager of Northridge-based U.S.-China Trade Services, a consulting group.

For the Valley’s large defense and aerospace companies, export licenses would be difficult to get, according to Sherwin Chen, a trade specialist for the Commerce Department in Los Angeles. Chen said the Chinese probably would not be interested in buying American arms anyway.

“They complain so much about sales to Taiwan, it would be very difficult,” he said.

Few small to medium-sized businesses in the Valley are pursuing business in China, Chen said.

Products Easily Licensed

Chen said the products of most small computer companies in the Valley could be licensed easily. Those companies, however, are likely to concentrate first on getting back on their financial feet in the United States, said Sonja S. Marchand, director of the Bureau of Business Services and Research at California State University, Northridge.

“An ideal candidate for going to China is a big company, like a Lockheed, that’s familiar with the problems of doing business abroad,” she said.

Indeed, Lockheed Air Terminal of Burbank, which manages airports around the world, and Pasadena-based Parsons Corp., which participated in the recent renovation of Los Angeles International Airport, in July received a $800,000 contract for a feasibility study for an airport in southern China.

Pertron, a 10 year-old, privately held firm, first applied for an export license for its control devices from the Commerce Department in 1982. The license was granted soon afterward. “We were perfectly willing to just send over an order, but the Chinese insisted someone come over to negotiate,” Matthews said.

Matthews went to China in February with a professional acquaintance, K. C. Wu, a Northrop engineer and native of China who had recommended Pertron to his Peking contacts.

Friends Were a Help

“It was really his friends in China that helped us close the deal,” Matthews said. Closing the $130,000 contract for seven welding-control systems took “a full week of a lot of talking,” he said.

The Chinese had thrown a banquet in Matthews’ honor during the negotiations, and the American reciprocated when the deal was completed. “I always let them take the lead. That’s how I learned how to do business there,” he said.

Matthews said he would like to begin manufacturing the equipment in China because, “We want to get a lead on our competitors. Seven devices aren’t going to fill the needs of China. There’s going to be more business coming. It’s really simple to make the units and the Chinese use welding more than Americans do.”

Whereas the Chinese use welding processes extensively in aircraft manufacturing, Matthews said, American manufacturers use the process more for making engine parts.

In fact, the units Pertron sold the Chinese were from a 10-year-old design. Matthews said that newer designs, with more sophisticated controls and high-tech cabinet designs, would not have been suitable for the Chinese.

Older Equipment Satisfactory

“The Chinese say they want the latest technology,” CSUN’s Marchand said. “The reality is that they’re ill-equipped for the latest technology. Some of our oldest equipment is perfectly satisfactory for the Chinese.”

For Dataproducts, the problem is that the Chinese do not have the computers to use the printers the company makes. So the company has two separate contracts, worth several million dollars each, to sell the Chinese desk-top computers and television parts.

Relations with the Chinese are of more than casual interest for Dataproducts, which had over $471 million in sales during its last fiscal year. At stake is the company’s Hong Kong plant established in 1970.

With China scheduled to take control of Hong Kong in 1997, Dataproducts fears it may lose its Hong Kong plant in the event that an unfriendly government nationalizes industries there.

Sale ‘Mostly Symbolic’

“The computers’ sale is mostly symbolic,” said Frank J. McQuaid, senior vice president for Dataproducts. “With computers, eventually, come printers.”

As for the television parts, McQuaid said simply of his Chinese buyers, “We’re looking to be friends.”

Fortunately for the company, the Chinese seem to want to follow the lead of Hong Kong: Last year, China opened 14 cities along its east coast to foreign investment, including Shanghai, Canton, Tianjin and Dalian.cq

“We’d like to look at those zones, if we can’t stay right where we are,” McQuaid said. “Making the printers over there keeps us in a good position for when the market opens up. The market is embryonic right now. But, if we wait, someone else will be there.”

McQuaid said the most frustrating aspect of negotiations is figuring out who needs to be convinced of what.

“First you’ll be talking to a half dozen people, then there are 20 in the room, and no one tells you who is who, but everyone’s firing questions at you,” he said. “The cast of characters will change every meeting.”

Class De-Emphasized

Matthews said he encountered a similar problem. “If it takes two to three hours here, it takes as many days there,” he said. “Everyone is almost required to get involved, to ask a question. It’s their way of de-emphasizing class or stature.”

McQuaid said the Chinese and the Americans were expected to throw lavish banquets before, during and after negotiations. “They’d keep pouring this liquor, a sort of white lightning,” he said. “You had to be careful, because to seem the slightest bit drunk would be considered very rude.”

Hanson of U.S.-China Trade Services describes the banquets and other events as “little dances we do.” He said the director of a foreign trade department had arranged their first meeting to be a fishing trip.

Pleasantries Emphasized

“In America, we sit down for business and put our cards on the table,” Hanson said. “In China, the pleasantries are more important.”

Hanson has represented his father’s company, Hanson Research, in China. In fact, U.S.-China Trade Services is based in a back room at Hanson Research. Hanson Research, manufacturers of test equipment for pharmaceuticals, landed its first contract in China in 1982, signed shortly after the son opened for business.

Hanson Research sells its units for about $15,000 each. The Hansons have sold eight in China altogether--relatively small transactions for the $2-million-a-year company.

The research company has contracts to continue selling the equipment, which can perform tests to determine qualities such as how quickly a tablet would dissolve in a person’s stomach. Eventually, Hanson said, the company wants to make the equipment in China.