Md. company finds success in China 2 women lead Chindex on the path to profit

Entrepreneurship

June 30, 1996|By Ian Johnson | Ian Johnson,SUN FOREIGN STAFF

BEIJING -- While most foreign ventures in China find office space in five-star hotels and hire costly expatriates for a short jaunt, a small Maryland trading company has taken a radically different approach.

Tucked away in one of Beijing's narrow alleys, U.S.-China Industrial Exchange Inc. eschews the prodigal habits of its compatriots. Instead, it has built up a small but potent trading business by doing the opposite: It keeps non-Chinese workers to a minimum, makes sure the foreigners that it does hire remain for a long time and concentrates on selling products in just two fields, medicine and construction.

Chindex, as it is known for short, now has $13 million in sales, recently secured $8.4 million in credits from the Export-Import Bank and has a network of 11 offices across China.

While the Bethesda-based company has expanded rapidly in its 15 years of existence, its growth also reflects the uncertainties of doing business in a country that is caught somewhere between a planned and market economy. Sales, for example, are affected by China's central planners and the government's efforts to control inflation.

A reflection of this is the price of the company's stock, which continues to trade around its 1994 initial public offering price of $5.

But founders Roberta Lipson and Elyse Beth Silverberg had few illusions of quick success when they founded the company.

Lipson's previous employer, Sobin Chemical Co., pulled out of China in 1981 when it realized that a sudden boom was unlikely. Along with Silverberg, who had worked part time for Sobin, Lipson remained convinced that a market existed in China for top-quality U.S. products.

The two women sat down and tried to figure out what products were made better in America than in Japan, its chief rival in China at that time.

They hit upon medical and construction equipment.

They also found that the market existed, although sales were limited to an annual trade fair in the southern city of Guangzhou near Hong Kong.

Thousands of traders flocked to the fair, where Chinese officials posted lists of equipment needed by hospitals and companies around China. At night, the foreign traders telexed details back to manufacturers and then the next morning made bids. They then spent the rest of the day typing up contracts.

"In the early '80s it was great. You just showed up and signed millions and millions in contracts. You were selling to people sight unseen," Lipson said.

"You were just limited by how many machines [typewriters and telexes] you could get your hands on."

Fifteen years later, business is much different but the principle is the same.

The two still work closely together -- Lipson is chief executive officer, while Silverberg is vice president -- pitching a variety of products, mostly in the field of medical equipment but still in construction equipment as well.

Some well-known companies

They are the sole representatives in China for Polaroid Medical Imaging Systems, Acuson Corp., which makes ultrasound equipment, and Johnson & Johnson's clinical chemical analyzers.

Over the years, they also have taken on non-American companies, especially in the construction field, such as Volvo Construction Machinery Corp. and Euclid-Hitachi Heavy Equipment Inc.

The idea, Lipson said, is to sell products from leading companies, but ones that would find it too costly to open offices in China.

"We felt that their help would be better than our going in," Polaroid spokeswoman Nancy Chiles said.

"We sell retail products in China, but it's quite a different business to sell big capital items."

For that, Lipson said, a long relationship with hospital and health ministry officials is essential.

Because she, Silverberg and the 12 other expatriates among the staff of 125 have stayed in China for years, they have a web of personal contacts -- guanxi in Chinese -- throughout the medical establishment. This is especially critical because equipment purchases in Chinese hospitals have to go through a maze of decision-makers, including doctors, department directors, the hospital director and even the hospital Communist Party secretary.

"Sales here require a huge investment in guanxi. If you just have one product, it's not worth it," Lipson said.

Sales are also cyclical, Lipson said, paralleling China's five-year plans, a holdover from the days of Communist central planning. Even though sales have continued to climb, they still reflect the five-year plans, with less money available at the end of the term.

China's efforts to fight inflation also have hurt. A credit crunch has left hospitals unable to afford new equipment, forcing Chindex to finance sales.

Typically, the equipment is sold and then paid back through users' fees. Although the company is not allowed to lend money, it builds interest costs into the price.

Chinese investment companies also have financed purchases because of their quick repayment time.

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