Their Western clients with China-based operations have pushed the North American industrial manufacturer to establish manufacturing capacity in China in order to reduce the product lead time, provide more responsive service, and cut costs. This industrial company had a sales office in China but no personnel with knowledge of how to establish and manage a manufacturing and distribution site.

The company had significant Intellectual Property (IP) concerns about entering China and having their IP taken by a China-based competitor. Their primary IP was a unique manufacturing know-how process as well as the names of the China-based customers and pricing lists. If a competitor in China learned of their manufacturing IP, the competitor would be able to replicate the process in their facility. The manufacturing equipment was relatively standard among the industry, so there was a low barrier to entry for competitors.

Challenge:

1. Determine the most cost-effective solution to establish China-based manufacturing capabilities. The available options were:
• Establishing own manufacturing plant in China
• Subcontracting with a Chinese manufacturer
• Acquiring a Chinese operation
• Hiring East West to manage their China business

2. Gather the financial and operational costs as well as the Return on Investment (RoI) figures for each of the 4 options.

3. Execute the chosen strategy in China for the client

Solution:
East West and the client developed the financial and operational Proformas for each of the 4 scenarios as well as the ROI figures. Additionally, we then evaluated these scenarios based on their effectiveness of protecting IP and made a determination of which strategy best fit the company's long-term strategy.

Based on the financial and operational Proformas, the client chose not to establish own manufacturing operation because they did not feel the sales volume warranted this financial investment. The company did not have the knowledge or resources to manage this plant after East West built it and they did not want to have a significant fixed asset on their books.

The client chose not to subcontract with a Chinese manufacturer because they were fearful of creating a Chinese competitor who had knowledge of the Western company's manufacturing processes, pricing lists and names of China-based customers. The Western company had real concerns regarding IP and was fearful of losing this information to a Chinese firm.

The company chose not to acquire a China-based competitor because the financial due diligence revealed discrepancies in their P&L statements and the East West operational due diligence uncovered the Sales and Marketing team did not execute the sales volume as initially stated by the owner.

The industrial company chose to establish a China Business License and have East West:

• Purchase their manufacturing equipment from China and import some 'retired' equipment to the East West selected site
• East West hire the manufacturing personnel for the company who will run the equipment and the company will send their technical and quality personnel to China to train these employees
• East West manage this manufacturing operation with experienced China personnel, including raw material procurement, production, quality control, distribution with a focus on protecting the Intellectual Property and fragmentation of information.