CASTING OFF TO MAKE A PROFIT Boat-maker in China split with partner

THE BALTIMORE SUN

Xiamen, China -- Throw out all those thick tomes on how to do business in China. Don't waste money on expensive consultants.

After more than 11 years trying to build luxury yachts here, Bryce Fuhriman is certain he's found the path to profits in China: "Get rid of your Chinese partner."

Mr. Fuhriman, the American owner of Xiamen Celestial Yacht Ltd., stumbled on his axiom the hard way: by spending his first seven years here in an unprofitable, increasingly acrimonious partnership with a Chinese company.

That painful experience provides the basis for his second rule of thumb for doing business in China: "Success here only comes with a great abundance of patience."

His company -- exporters of 32-foot to 49-foot fiberglass sailboats with hand-rubbed Burmese teak interiors -- has only now begun to make money after taking the unusual step of completely divorcing itself from its Chinese partner in 1987.

That separation would not have been possible, Mr. Fuhriman says, without the help of Chinese friends in positions of power. And that leads to his third and final bit of advice: "It is absolutely necessary to take the time in China to make lots of friends."

Mr. Fuhriman's motive in moving from a joint venture to a wholly owned company was simple. He says he couldn't make quality sailboats -- or a profit -- without complete control over his boatyard.

His Chinese partner's control of Celestial's plant meant continual problems from workers who couldn't be motivated; supervisors appointed because of their political clout rather than their knowledge of building boats; pilferage of imported materials; and the loss of workers he had paid to send overseas for training.

"I had every kind of problem imaginable," the 62-year-old Oregon native said. "It was very difficult to get anyone to do anything when I had no control over hiring and firing.

"Chinese workers are low-cost, smart, easy to train and can be very dedicated, but the 'ganbus' [Chinese organization functionaries] are only interested in themselves. Their real interest was in taking over my company and kicking me out of China."

Mr. Fuhriman's experience here may not be precisely replicable by others, but his is a case study that underscores some of the reasons why there has been a marked increase in recent years in wholly owned foreign ventures here relative to partnerships with Chinese companies.

Joint ventures still account for most of the more than 14,000 foreign-backed enterprises now operating in China. They account for just 3 percent of China's total industrial output -- but more than one-fifth of its overseas trade.

Meanwhile, the number of solely owned foreign ventures has been skyrocketing: from only 18 such firms in operation in 1986 to 1,800 by the end of last year. Another 1,100 were approved by China in the first half of this year, with much of the new foreign capital pledged from Taiwan, Hong Kong and Japan.

Additionally, a growing but unknown percentage of foreign investors involved in established joint ventures here have been increasing their shares of their enterprises.

These two trends have been welcomed by China in recent years because of a national austerity campaign that has dried up local sources of capital for investing in new ventures with foreigners. Reflecting this new interest in solely owned foreign ventures, China at the end of last year published for the first time detailed regulations governing such enterprises.

For foreign investors, the trend away from joint ventures stems from "the growing realization that a wholly owned operation is a better option if control of everything inside your plant is most critical," said John Frisbee, the representative of the U.S.-China Business Council here.

The downside to a solely owned enterprise here is that not having a Chinese partner, in some cases, can limit a foreign company's "access to influence within China's bureaucracy and to Chinese-supplied materials," Mr. Frisbee said.

"If you can find good Chinese partners," he said, "they can help you a lot in accessing the system. That's why most companies still go with joint ventures."

Under the new Chinese regulations governing wholly owned foreign enterprises, companies also must export more than half their production and must balance their foreign exchange by themselves -- that is, their hard currency revenues from exports must at least equal their hard currency expenditures for imports.

Mr. Fuhriman says his company, which has sold virtually all of its yachts overseas, does not have either of these financial problems these days. And he claims that he has made better contacts with the Chinese bureaucracy on his own than through his previous partner, a Xiamen fishing boat company.

Still, his divorce from his partners may have left some hard feelings in Xiamen political circles. Officials at the Chinese company would not comment on Mr. Fuhriman. And when asked about Celestial, a Xiamen deputy mayor, Zhang Zhongxu, replied with studied coldness: "Is he still here?"

An aeronautical engineer who formerly worked for the Sikorsky helicopter company, Mr. Fuhriman had lived in Asia for more than 25 years when he came to Xiamen in 1980. He chose the southeastern China seaport before it became a Special Economic Zone -- with special privileges for foreign firms -- because of its deep-water harbor, warm climate and relatively "unspoiled" work force.

Celestial has made 70 yachts to date for buyers in Japan, Australia, Hong Kong, Thailand, Europe and the United States, Mr. Fuhriman said, and it can turn out three a month. The yachts -- the largest in production right now includes a dishwasher and a deep, Japanese-style tub in its living quarters -- sell for at least $300,000 retail, he said.

The boatyard employs an Australian and five Filipinos as supervisors, accountants and technicians. While it had as many as 160 Chinese workers under its joint venture, Celestial now has about 110, who average about $65 a month with bonuses. Labor union fees add another 10 percent.

The visible contrasts between Celestial's boatyard and the adjacent plant of its former Chinese partner show why Mr. Fuhriman can claim he now produces more with fewer workers.

While Celestial's facilities are far from modern, teams of workers there scurry purposefully over half-finished yachts for eight hours a day, six days a week, with only an hour-and-a-half break for lunch. Outside the main office hangs a clock that punches workers' time cards, a device rarely seen in China.

At the Xiamen fishing boat plant next door, industrial debris clutters the roadways. In midmorning, workers sit around reading newspapers, sipping tea and chatting. Their noontime "xiuxi," or rest period, can stretch to 3 1/2 hours.

Mr. Fuhriman, who daily must pass through his former partner's boatyard to get to his own, calls his neighbor's plant "enemy territory," adding, "Every time I go through there, my stomach churns."

His intestinal discomfort eventually may be relieved. Mr. Fuhriman hopes to move within two years to a new boatyard that he is building along the coast just north of Xiamen, a $500,000 plant complete with workers' apartments, cafeteria and a house for himself. He says that the cost of that facility averaged over 10 years will be a sixth of the rent that he still pays to his former partner.

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