From SCDigest's On-Target E-Magazine
Feb. 23, 2012
Supply Chain News: China Comes to Rescue of Rust Best Manufacturers it had Previously Clobbered
With Few Options and Need for Capital to Compete, Welcome Sign Now Out for Chinese Investments
SCDigest Editorial Staff
If you were to survey US manufacturers, especially those in the Midwest and "rust belt" areas of the country, it seems likely that most would say that offshoring to China has been the top factor in the troubles US factories have faced over the past decade.
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The brighter outlook for Nexteer and other rust belt companies in which Chinese companies and government arms have made investments has not gone unnoticed by state governments.
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What Do You Say?
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That may well be an accurate perception, but in recent times, strangely enough, Chinese financial might is coming to the rescue of many of these same types of firms, as its interests in gaining more access to direct US markets coincides with the need of manufacturers for more investment to stay competitive.
Consider this example: Nexteer Automotive is an auto parts supplier, primarily for steering systems and drive shafts. Like most others in the sector. it had been struggling financially for years, coming close to closing its doors in 2009 as the recession took hold and its parent company at the time, General Motors, was living through its own near-death experience.
And the failure of Nexteer would have been very bad news indeed for the once thriving industrial town of Saginaw, MI, where Nexteer is the now struggling city's largest remaining industrial employer, with some 3000 white and blue collar workers still in the area.
That desperate situation turned into a dramatic turnaround in 2010, when Chinese investment came knocking. Pacific Century Motors, a unit of Aviation Industry Corp. of China, and Beijing E-town International Investment Co., an investment arm of the city of Beijing, acquired Nexteer for $450 million.
According to a recent story in the Wall Street Journal, just two years later, "Inside a 59-year-old factory at Nexteer's sprawling complex, contractors are ripping out antiquated machine lines and installing new equipment to produce an electronic steering system for the next generation of GM's large pickup trucks and SUVs. The company hired more than 100 engineers in Saginaw last year and is looking for 80 more this year."
Nexteer employees, and local resident and government officials, were at first dubious about Chinese interests taking control of the company, especially its rich patent portfolio.
Now, the Wall Street Journal notes, "Few people in town are wringing their hands about the Chinese."
With its trillions of dollars in foreign currency reserves resulting from its huge trade surpluses for more than a decade (though the government reported number has been slowing of late), China has lots of investment capital - and lately, more and more of that has been flowing to US manufacturing.
Why?
"Besides giving Chinese buyers a foot in new markets, the deals are giving them access to American technology and management techniques—know-how that, in some cases, they can use in Chinese markets," the WSJ says.
(Manufacturing article continued below)
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At Nexteer, it was known that GM was likely to sell the company, or shut it down absent a buyer.