Tony Wixo's View of China

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EDITOR'S NOTE: Joe Delmont spent nearly four weeks late last year traveling to China and Taiwan to visit manufacturers and talk with business and government executives. This is one of a series of reports he is producing for Dealernews.

SHANGHAI, China — TONY WIXO'S OFFICE isn't anything special, but it does have a great view. From his office in the Guangdong Development Bank Tower he can see the bustling downtown of this international business and financial center.

But Wixo can see more than just day-to-day Shanghai activities from here. He also can see the future — changes in China that are affecting the world, as well as the powersports industry in North America.

Wixo, who's been working in China for two years, is the director of Asia Pacific sourcing for Polaris Industries. He's been with Polaris since 2000, mostly in purchasing and product management, and has been focusing on Asian sourcing since 2004.

UP FOR THE CHALLENGE

Shanghai is China's largest city, with a metro population of more than 20 million. It's a long way from Minneapolis (in more than just air miles), especially for a farm boy from North Dakota like Wixo (the entire state of Minnesota has a population of only 5 million).

Wixo's challenge here is to develop component suppliers that can deliver products on time and maintain Polaris' quality while cutting its manufacturing costs.

Shortly after Polaris opened its Shanghai office in January 2007, Polaris CEO Tom Tiller told me that they have explored China for a number of years, in a variety of ways, for supply relationships.

"We've also looked at partnership opportunities. It's fair to say we'll continue to explore those and see what may make sense as we go forward," he said.

Tiller wanted to set up the Shanghai office to improve the company's supply base and connect some of its U.S. suppliers with Asian manufacturers. If, for example, Polaris could help one of its assembly suppliers source components in Asia, it could help everyone involved.

LOW-COST MANUFACTURING

In Shanghai, there are four people, including Wixo, working in the 1,300 sq. ft. office. Part of Wixo's Asian sourcing plan is to move production to low-cost manufacturing countries (dubbed LCCs), largely from Japan and Europe to places like Korea, China and Vietnam.

Approximately 10 percent of Polaris parts are sourced in Asia. About two-thirds of those come from China, and that number is growing. Polaris still sources nearly 70 percent of its parts in the U.S., where it operates assembly plants in Roseau, Minn., Spirit Lake, Iowa, and Osceola, Wis.

Wixo has a unique vantage point from which to watch changes in Asian manufacturing and business conditions as they might affect the powersports market in North America. Here are excerpts from my conversations with him:

Relationships. "We need to build stronger relationships with our suppliers and aid in supplier development in Asia. That is the main reason we are here today. It was getting to a point that visiting once a year wasn't cutting it. Now, we might visit a supplier several times a quarter."

Development. "Whether it is infrastructure, apartments and housing, or foreign and local investment in manufacturing facilities, there is a lot of development taking place here. This place does not stand still. The world's tallest building was built in less than two years. Shanghai will hold the World Expo in 2010. ... The grounds are just being built and each day I drive by ... something else has been built. It is amazing.

"All of this development has really kicked off the industrial revolution in China in the past decade and a half, and it has opened up a significant amount of capacity that is being used to fuel the export engine. But now with the global economic downturn, they are turning to domestic consumption, specifically in the Chinese auto market. We have also witnessed an automotive supply base that wants to diversify into powersports, and capacity has opened up."

Competitiveness. "China is not as competitive as it used to be, in large part because of the appreciation of the Chinese RMB. Since January 2007, it has appreciated more than 15 percent against the dollar. This is by far the biggest difference. New labor laws also have increased the cost of doing business for China businesses."

Consolidation. "I think we are just starting to see this, but consolidation is starting to take place. There is now too much ncapacity in just about every industry here today and something has to give."

Quality. "The recent focus of the Chinese government on quality has not really impacted our sourcing efforts."

Price Buyers. "Those that just buy on price or are looking for a container of ATVs will see some impact from the new CPSC measures, as typically they are cutting corners. The easy place to cut corners is in lower-grade materials or less stringent quality and performance standards."

Investment. "It's been unprecedented. All of the large automotive companies and suppliers are here, mainly to address this booming market. To play here, you have to be here, physically; there is no getting around it."

Technology. "I'm starting to see much more technology. If you walk into many of the plants we do business with, you cannot tell by the machinery and equipment if the plant is in China, Germany or Wisconsin.

"Most of our manufacturers have facilities and equipment that are less than 10 years old. Their floors are epoxy and painted, the quality labs are stocked with the latest equipment, and their operations can be benchmarked against the best in the world."

Low Cost. "There will always be the next low-cost source whether it is India, Vietnam, Africa, who knows. Global competitiveness and low cost evolves as nations develop."

Differentiation. "Manufacturers in China will have to establish themselves and create an identity. Japan used to be low-cost; now it is considered high-quality but not low-cost. The U.S. is considered lean and productive, creative, high-tech. What will be China's identity from a manufacturing standpoint? I think you will see China turn some of its focus inward to domestic consumption and demand. Also, I feel we'll be able to buy technically advanced components from China in two to three years."

Joe Delmont can be reached at jdelmont@dealernews.com or 952-893-6876.