ChinaBizSuccess Interview: PSD (Precision Steel Detailing) 4/08
www.psdetailing.com

I'm sitting here today with Pat Gelpi and his wife Melody. Pat is a part owner and Vice-president of Precision Steel Detailing, Inc. out of Baton Rouge, Louisiana. Pat is serving now as the Manager of PSD's outsourcing office located in Chengdu, China. As outsourcing is one of the newest trends in business, we wanted to get some first-hand information from Pat about his experiences managing an office here in China, but we also wanted some input from his wife, Melody, about the challenges an expat family faces while the husband is working.

First of all, Pat, could you tell our readers what type of work your company does?

PSD's services range from steel design and detailing to multi-discipline engineering and from material procurement to erection consulting. The China office mainly deals with professional CAD connection design.

Outsourcing tech jobs overseas has become a big- albeit controversial- trend in the last twenty years. How did your company reach the decision to outsource some of its labor to China?

We saw that our competition was moving east, mainly to India, so we knew that in order to be able to compete in the market, we had to do the same. Otherwise, the cheaper labor would allow our competitors to lower their prices and push us out of the market.

So, is it fair to say that the cheaper labor is the main reason that you are outsourcing to China?

Yes, for the most part.

Even though there is a significant difference in wages, some companies have still reported that in the long run, they've found that they've lost money in outsourcing jobs overseas once all the math done. Has that been true for you?

No, it's a win-win situation for us. We are mainly a labor-oriented business, so the numbers are easy to figure out. The equipment that we use is comparable to the States price wise. Most Americans think that because most of what they buy in the States comes from here, it must be cheaper here. For the most part, it will be just as expensive and sometimes even more expensive for such items as laptops and cell phones. The travel expenses for us are costly, but the day to day operating expenses here balance that out. Even in the area of quality control, we find we are succeeding. What we do in the China office is only one step of the job process. More experienced people in the States check the final product once we've done our part. The state-side staff finds that our China staff does a better job than their western counterparts. The main problem we have to deal with from the China side is communication. My China staff has to ask a lot of questions to the engineers back in the States. These questions have to be translated from Chinese into English and then back again. This actually leads to more problems than design workmanship.

Are there any areas where your company has incurred more expenses than expected?

The main expense that we weren't expecting to have to pay relates to our employee's salaries. The tax structure in China requires us, as the employer, to pay much more than what we were originally told or thought.

Also, our personal housing is much more expensive than what we originally thought. Before we came to China, everyone told us, “Oh, you're going to be rich in China because of the advantage of the exchange rate.” But what they didn't know was that if you want decent housing and you want to put your kids in a decent school situation ($7000.00 to $17,000.00/year/child), you'll be paying as much or more than you pay in the States.

What is your type of company here in China called?

We are registered as a Representative Office under the name of our Chinese manager.

How difficult was it to complete the paperwork necessary to get your office registered?

Very difficult, but I didn't have to deal with most of the paper work. Our Chinese manager took care of the vast majority of the procedures.

Approximately how long did the process take from beginning to completion?

About a month or so.

What kind of preparation should a company make for moving a branch office here to China?

A company should research what is available or not available in the area you're going to live. It's very different depending on your area of operation. Making sure the medical aspects are taken care of. Check on the health insurance needs for living overseas as an expat family. Make sure of what a family's medical requirements will be for processing into China. Shipping prices and whether or not it is better to purchase items from the States to ship to China or to repurchase housing items in China. Information on prices, bus routes, local western restaurants, a city map, etc.- all of those things would be helpful. Also, there should be some language and cultural preparations made. For example, a person should be taught what to do and say when they meet a Chinese person, what to do when you visit a Chinese person's home or what is expected if they pay a visit to your home. A person also needs to be prepared for the things they will see in China that may be a shock to themselves or their children. A family also needs someone to take care of their property and financial responsibilities back in the States. We can take care of a lot through online banking but not everything.

How valuable was having a Chinese partner at the set-up stage of your office?

A contact here for the startup was invaluable, but communication again was a big hindrance. Pushing employees to keep me informed is a huge task. It's not that they are trying to hide something from me, they just feel that keeping us informed of the process is useless and a waste of time. They don't understand that, even though we're not doing the paper work, we want to know the process from A to Z. They have all this information in their heads and to divulge it to me is useless because I'm not going to do anything with it. In retrospect, I wish we would have used a company that had experience in starting these kinds of companies instead of just using a person that we had available within the company that had no experience, but could just speak the language.

Even after the company is setup, day-to-day operations still requires that someone that can speak Chinese and English be on hand to handle employee communication and repetitive tasks. It doesn't necessarily have to be the person that helped with the startup, but there will have to be somebody.

Was it difficult for your family to make the decision to relocate to China to head up the branch office?

Yes, pretty difficult, but we just jumped in with both feet. We were looking at going to South America as a company, but it didn't work out because of political reasons. China just seemed like the only logical choice.

What was the most difficult part of your relocation?

Being away from friends and family…..language…...and weather

While an “expat” salary package might seem costly to a home office with no experience in working overseas, a happy, comfortable employee will be more successful at accomplishing his task. What are some things that a company could do for their expatriated families to make their overseas stint more comfortable?

Pay for schooling for children, travel expenses, a vehicle (and possibly a driver), visa and processing fees, personal translator, and a housing allowance for overpriced western appliances

Another main concern for companies looking to outsource to China is whether or not they will find qualified personnel. How difficult has it been for you to find the personnel to staff your office?

It was fairly easy with the local job fair. We set up a table to display information about our company and what we were looking for from out employees. There are also different agencies that congregate in certain areas to help promote different professions. State side it is more word of mouth- somebody knows somebody. But here you have a lot more avenues to find qualified people. The Chinese learn very quickly, but it took me about three months to get the initial crew up to speed on what we were looking for and what we expected. Now, the current employees train the new employees. We have had very little turnover due to the fact that we pay our people a good salary in hopes of keeping them with us. In the past two years, we've only had one person quit.

How important do you think your physical presence has been to the management and quality control of the office here?

My presence is very important. I do receive a lot of respect, but I know that it is key for me to be present on a daily basis.

Work ethic is a thing that varies from person to person within any large group of people, but on the whole, can you outline strong points and weaknesses of your employees' work ethic?

The Chinese really try to learn the job, and they spend a lot of time in research. Their memories are excellent. The key to keeping the company running smoothly is providing them with proper time off during their Chinese holidays and having their lunch provided for them at work.

The main problem is with the internet. I've seen employees using the internet on company time.

Have there been any cultural barriers between yourself as an American manager and your employees who are all Chinese?

The largest problem I've had to deal with in this area is in regards to overtime. It was frustrating because when it came to overtime, they wanted to pay everyone the same. It didn't matter if you were a new employee or had been working with the company for the past two years, you were to get the same pay.

China is still a developing country, and there are still some complaints related to its infrastructure- power outages, slow internet connections, etc. Have you experienced any problems in your work related to poor infrastructure?

The internet doesn't work as well as we would like. Our business requires that we send large CAD files to the States on a daily basis. We're constantly having files cut off in midstream and taking a long time to upload if they do make it. We want to be able to do more, like video conferencing, but the line can't handle advance video conferencing between multiple users. Also, because China is developing to the magnitude that it is, we're always having to deal with construction and all that comes with that. Luckily, we haven't had to deal with a lot of power outages.

That's a lot of good information for companies at home considering a move to China. Do you have any parting words of advice that you could give to companies considering opening a branch office in China?

If you're going to have a company here, you're going to have to have someone from the company present to oversee the day to day operations. While we were back in the States for a few months, the company maintained, but it didn't grow or develop like we would like for it to have.

Also, if a company sends families over here, the family really needs to make sure that they want to be part of another culture.

Take your time. Don't get in a hurry. Research, research, research.

A big thank you to Pat and Melody for taking the time to share their experiences with us. I'm sure it will be a big help to any of our readers who are considering getting a piece of the outsourcing pie. We wish continued success to PSD both in Baton Rouge and here in China!