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Shanghaied in a good way

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Shanghaied in a good way

Shanghai gets a bad rap in the western world. For one, it’s a city in China, a communist country known in 2007 for its product recalls.

In lower-case form, “shanghai” loosely refers to kidnapping or forcing someone to do something against his will. The word comes from the practice of drugging sailors and putting them on ships traveling to eastern Asia -– to ports like Shanghai.

As a retailer, underestimating either Shanghai or China, however, would be a mistake. Shanghai, which means “by the sea” in Chinese, is a modernized city, and one of the most influential trading ports not only in Asia but also in the world.

Tires were included in those product recalls that received and continue to receive disparaging press coverage nationwide. Is the condemnation justified? In some cases. But it does not appear to be an accurate reflection of the way tires are produced in Shanghai.

Double Coin Holdings Ltd., formerly Shanghai Tyre & Rubber Co. Ltd., is based in metropolitan Shanghai. Double Coin is named after one of the eight treasures symbolizing prosperity in Chinese art.

In September, I was invited to Shanghai to tour two tire manufacturing plants on behalf of China Manufacturers Alliance LLC (CMA), the U.S. marketing arm of Double Coin. Here is my diary of the trip.

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Sunday, Sept. 9

Flew to Shanghai through Monrovia, Calif., where CMA is headquartered. President Mike Yang gave me a tour of the office. CMA imports more than just Double Coin radial truck and OTR tires, which is all the parent company produces. “Whatever Double Coin is not able to supply, we get through other sources,” he says.

That includes DynaTrail radial passenger and light truck tires, and DynaCargo radial medium truck tires, which the company has been importing into the U.S. for a little over a year. CMA sells $170 million worth of tires and related products annually.

Larry Williams, CMA’s former CEO and now an advisor to the company, was excited about the new wholly-owned distribution center in Memphis, Tenn. The facility is the first of several, he tells me. “The second will be somewhere on the West Coast.”

We talked a little about the image problems China was having with its exports to the U.S. Yang said engineers make up 30% of the management group within Double Coin.

As for domestic companies trying to get footholds in the Chinese market, Yang says the mentality in China is different. “You need to have a really, really good Chinese partner to assist you.”

Monday, Sept. 10

As I leave Monrovia for Shanghai, the yuan, the official currency in the mainland of the People’s Republic of China, has reached a new high against the U.S. dollar: 7.5252 yuan per dollar. The higher the yuan, the stronger the dollar. As the yuan weakens, exporting tires becomes less attractive to Chinese manufacturers.

The yuan is often referred to in China as RMB (for renminbi, which translates into “people's currency”).

Williams tells me the majority of tires imported by CMA comes through Long Beach, Calif., and are delivered directly to the dealer. “We don’t sell tires to end users.”

CMA has an American settling agent to handle the details in case a dealer has a problem. The company also provides marketing and sales help, has a customer service department, and insures “everything we sell.”

Because of the time difference, Williams and I arrive in Shanghai on Tuesday night.

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Tuesday, Sept. 11

Like most large (17 million people!), modernized cities, Shanghai has been flooded with imported name brands. From the airport to the hotel, billboards advertise products from Korea (Kumho to Kia) and Japan (Yokohama to Komatsu). Kumho Tire is among the largest radial passenger tire producers in China, along with the GITI Tire Group, Hankook Tire, Groupe Michelin, Hangzhou Zhongce, BS Tianjin, Shandong Linglong and Triangle Tire.

Double Coin is one of the largest radial truck tire producers in China. As Shanghai Tyre, it established the Double Coin and Warrior lines in the early 1930s. Shanghai changed its name as part of a company-wide brand awareness strategy that emphasizes Double Coin.

It has worked in the U.S. Double Coin not only owns 1% of the replacement medium truck tire market, but also has an original equipment truck and bus tire contract with International Truck and IC Corp., both Navistar Companies.

Double Coin exports tires to more than 30 countries. The U.S. gets the most units, and “it may be the easiest (country) to export to,” according to Dean Jin, business representative with Double Coin’s International Trade Department.

Wednesday, Sept. 12

The big day. We get to visit Double Coin’s Shanghai plant in the Minhang District. I also will get to talk with Chairman and General Manager Chun Chen Yue (pronounced “Yay”) about product quality.

The Shanghai plant produces 8,000 truck tires a day with four shifts running 24 hours a day. Workers get five days off for the Chinese New Year, which begins in late January or the middle of February based on the lunar calendar. The factory also manufactures a couple hundred OTR tires a day, depending on the order.

But first things first. Kal Tire’s Chris Brothen is on a mission to buy mining tires for his Vernon, British Columbia-based company. With some 200 stores, Kal Tire has outgrown Canada and is looking for an alternate OTR tire supplier for customers in South America, specifically Chile and Argentina. Williams, who helped bring the parties together, says Double Coin is “trying to start a business in giant tires in South America.”

Brothen tells the engineers what sizes are needed. The 36.00R51 is “a decaying size.” The 37.00R57 “is unbelievably needed.” And the 40.00R57 has “unlimited potential.”

Double Coin has some of the sizes, but not necessarily the proper design or tread depth.

The engineers seem very willing to produce what Brothen considers important. Hong Bin Su, vice director of the technology department, says he will have appropriate sizes to be field-tested by the end of the year. It is a good first meeting.

My interview with Yue goes well. “The load and high speed of the tires make safety crucial,” he says. “We spend a lot of money for control of quality.”

When I bring up the U.S. recall of Chinese tires imported from Hangzhou Zhongce, he waves the Chinese flag. “Hangzhou also pays attention to quality.”

Yue estimates Double Coin’s sales will reach 7 billion yuan ($930 million) in 2007, 12.9% higher than in 2006.

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Thursday, Sept. 13

Today we visit the newer of Double Coin’s two plants, located in the Jiangsu Rugao economic development zone. The three-hour drive takes us through rural China. A report in the Shanghai Daily says the income gap between people living in the rural and urban areas of China expanded in 2006, reaching 8,172.5 yuan ($1,086.77). The average income for urban residents was 11,759 yuan; for rural residents it was 3,587 yuan. The average income for farmers was 2,111 yuan.

I am told the Rugao plant will be producing 1.2 million D.O.T.-approved Double Coin and Warrior truck tires and 100,000 OTR tires a year (in 13 sizes) by the end of 2007. Wan You Zhang, vice-general manager, says the plant will be at 85% capacity in 2008 and produce 2.2 million truck tires.

Double Coin has high hopes for the plant, which is ECE (Economic Commission for Europe) and ISO9001:2000 certified. Because of higher labor costs in Shanghai, the company is reducing capacity at its home base and moving it to Rugao.

Epilogue

In November, CMA introduced its first two Double Coin radial OTR tire offerings at the Specialty Equipment Market Association Show. The rock mining tire, in size 24.00R35, and loader lug, in size 35/65R33, are the first of many, according to Vice President Aaron Murphy. The goal is to produce “up through 49- and 57-inch radial OTR tires.”

China exported 4.4 million medium truck tires, 80% of them radial, to the U.S. in 2007. That was a 10.4% drop from the previous year. The substantial reduction in China’s value-added tax refund to exporters at mid-year was one reason for the decline.

China’s new Labor Contract Law went into effect Jan. 1, 2008. The new law, if enforced, will improve the basic rights of workers and may increase the cost of doing business.

And the yuan finished the year at 7.304 per dollar.

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