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UPDATED: November-17-2009 Web Exclusive
Mr. Shen Means Business
How a man in Nanjing runs his own business

It takes about one hour from the business district of Nanjing to Jiangning, an industrial area. These days, farmers here dwell in residential subdivisions, and it is said that they are pleased with all the comfort they have recently gained. Here, where the commuter train ends, are the outskirts of Nanjing—so far.

All over the world, improved transport connections have resulted in rising real estate prices, and the case is no different here. Now, with the landless farmers placed in their condominium suites, the hour strikes for investors and scalpers: Members of the urban middle class are acquiring second and third residences as long as prices run high—they believe the government will surely prevent the bubble from bursting.

But before the Third Estate succeeds in transforming the region into a suburban conglomerate of high-class villas, the era of industrialization has to pass through, and this era lacks factories. These are built on land that was previously for agricultural use.

The company

Mr. Shen owns one of these factories, called Nanjing Circle Precision Machine Manufacturing Co. Ltd. The production facility is a quite elegant piece of industrial architecture, with gray, four-story buildings and flat roofs. Their façade is mixed up by a five-meter-long porch which at two points faces every building over all four levels.

These buildings, with their countless tiny windows and pigeon-blue coating, symbolize the work that is accomplished in this place: assembling different components to form a new functional device. Therefore, work pieces of iron, copper and aluminum are being processed and mounted.

A proprietary precision casting house is DIN-certified. Shen manufactures a virtually unlimited range of products – ball screws for use in French helicopters, for example, or components for solar plants, or precision work pieces for use in the construction industry. The vast bulk of production parts he purchases separately from several foundries. In his company, the pieces are processed, heat- and surface-treated and installed, then they're shipped to Europe.

The word "precision" is in the company's name for a reason. Precision is crucial at all points in Shen's enterprise. Costly test equipment is kept in a central branch of the company to ensure and guarantee the high quality of every single work piece that leaves the factory. Complying with promised delivery dates requires precision as well. These measurements of quality assurance are considerably staff-intensive: In addition to a production manager, Shen's company established the position of quality manager, someone who is not supervised by the production manager but directly by corporate management.

Among the joint partners, there is one solely in charge of quality issues. One male and five female employees are responsible for quality control, and two workers are accountable for in-process inspection. They check delivered unfinished castings for quality defects.

"If we have a delivery date, we have to adhere to it. If we encounter quality problems, we have to solve them. We have to deliver new work pieces immediately," Shen said. "Production-to-stock is inevitable. I'd rather do stock-keeping, it serves as collateral security. Better to be safe than sorry."

Employment law and manpower

"To be frank, Germans tend to be very sniffy, but still they are accurate and very serious. They work diligently and precisely and are particular about financial issues. That impresses me," Shen said.

"You know, the most important thing for a tradesman is winding up affairs correctly. Thus, I prefer to do business with Europeans. I'm uninterested in cutting deals in China," he continued.

Precision and rigidity even manifest themselves in personnel policy. "Our quality criteria are intensively strong," Shen said. "Young employees who accumulate cases of malpractice are laid off."

But the renewed work contracts law has made life more difficult for entrepreneurs like Shen. The company introduced industrial safety measures in 2004 and insures its workers voluntarily.

"It has always been in our interest to bind our workers to our company with particular benefits," he said. 

The new work contract law, in Shen's eyes, is too one-sided. If a worker is not content with his work, he can leave the company instantly. On the other side, the company can't put anyone out on the street that easily anymore.

"Lawyers have discovered this as a lucrative opportunity," Shen said. "They tell the workers to take the enterprise to court, then a lawsuit is filed against us, or they leave with a golden handshake. These huge expenses have caused difficulties for many companies just as the global economy is declining."

But no one can complain about social security in Shen's company. An extremely well managed staff canteen entertains workers for free when they've worked overtime due to an urgent job that had to be finished.

Nevertheless, there have been strikes in the factory. "Workers weren't satisfied with their wages anymore," Shen recalled. "The factory management was at a loss with the situation—so we, the owners, arrived and negotiated new conditions with the workers."

Like other companies in the area, Shen's company cooperates with a local technical school for engineering and metalworking. The students have been educated for two years in the school, and some of them become interns in the company for one year with the possibility of being hired afterward.

The youngsters come from far away places like the villages of Anhui Province. Now they live on the premises in triple bedrooms. If they stay with the company after completing their internship, the technical school receives a bonus. But times have changed.

Shen said the students were highly qualified and motivated 10 years ago, but their only goal today is making money. In former times, there was little industry around the area and even fewer job alternatives. Nowadays, young people do business in the night markets or scratch out a living by hustling small jobs. Now only a third of students know how to operate a lathe.

But that's not why Shen's business is shrinking.

The crisis and how life used to be

Orders declined by 50 percent starting in December 2008, and the slump has grown even deeper since March 2009 due to the global financial crisis.

Entrepreneurs whose sectors are suitable and who can afford it have resorted to high technology. But producing cast parts is not hi-tech, and it's never going to be. That has led to substantial layoffs in Shen's company, where 50 percent of all jobs have been shed.

"We used to employ 200 people. Now, only half remain," Shen said. "Our partners in Germany are encountering difficulties, too. Customers are demanding price cuts in the recession. We are in a mess—some of our competitors have already gone bankrupt."

What's his remedy to overcome the crisis?

"Don't increase your number of hands. Be satisfied with a smaller margin. Move forward slowly, don't hurry. Attempt to enlarge your clientele," he suggested. "I am currently serving 23 clients, and I want to take part in more fairs in Germany. If I'm lucky, I can build up long-lasting business connections with more than 40 clients."

Shen is very conversant in the German language and culture. Qualified in chemical engineering, he worked for five years in a state-run company that had strong bonds with German chemical fiber manufacturer Zimmer, now part of Lurgi Corporation.

In 1978, Shen participated in a German course in Shanghai for six months. For the next eight years, he served in the foreign economics department of a state-run company that produced ball screws. When the corporation began a joint venture with Neff Gewindetriebe from Baden-Württemberg, Germany, and Shen's wife started teaching in a middle school in Nanjing, Shen quit his job and started up a business for himself, with a partner having a degree in material sciences.

Beginning with a seed fund of $700, Shen built up the company into what is known today as Nanjing Circle Precision Machine Manufacturing Co. Ltd. "It all began with an office of 16 square meters," Shen recalled.

But soon they had to deal with the fact that a simple trading company had no future. They later rented a 200-square-meter room from a middle school and built up a workforce of 20 employees, and then moved to proper factory premises covering more than 3,000 square meters.

With a new highway being built at their workplace, the company had to move out again. Five years ago, Shen obtained a factory site that covers 26,000 square meters, of which the workshop takes up 17,000 square meters.

"We craft work pieces tailored to the client's design. Business was good, so we had to expand. It is two years now that we're in this place, and investments have been considerable," Shen said.

Shen reserved a narrow strip of land next to the factory site on which to grow grapes. "Table grapes," he noted, as the wine is not what he intends to gain. The thick-peeled grapes from Nanjing taste delicious. Even in an industrial area consumed with serving the world economy, traces of agriculture remain.

The author is a German living in Beijing


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