Dodging Rules, Customs Agents, and Costs

Workers are planting trees and grass in front of Arima Group's new factory in China, a humpbacked, 755,000-square-foot building in Wujiang, a small city about an hour east of Shanghai. Inside, cavernous rooms await manufacturing equipment. A few hundred yards away, an identical building is under construction. An on-site dormitory is almost finished. Plans for the site show a campus with seven factories in all, plus a dock for ships to bring equipment in on the adjacent Jinhang Canal.

For Arima, a Taipei-based maker of laptops, mobile phones, servers, and Internet appliances, as for many Taiwanese companies, moving operations to China is not a choice but an imperative. Customers like NEC Corp. (NIPNY ) and Compaq Computer Corp. (CPQ ) already have plants in China and want their suppliers there. "The most important question [our customers ask us] is, `Do you have a plant in China?"' says Wayne Chao, vice-president in charge of new facilities at Arima, which last year reported revenues of $1.8 billion. The Wujiang site started turning out laptops in June and aims to assemble 400,000 by the end of the year--20% of the company's total laptop output. Most will be exported, says Chao. Arima has invested $30 million in the Wujiang site and expects to eventually spend about $100 million.

"Assemble" is a key word in the Arima lexicon. Taiwan companies are barred from producing high-tech products in China. So, Arima imports parts from Taiwan, puts most of the guts in the computer, but lets the customer install the central processing unit. "We're just assembling," not making a finished product, says Chao.

ENGINEER ALLEY. More than just customer demand is pushing Arima to the mainland. Facing a shortage of skilled engineers in Taiwan, David Tseng, assistant vice-president of Arima Communication Corp.'s engineering department, was eager to hire mainland engineers who are willing to work for a third of the salary. Which explains the research and development center Arima opened in March in nearby Nanjing. Temporarily housed in a dingy yellow building on a back street, there are already 50 software engineers at the center, and plans call for 200 by mid-2002.

Still, doing business on the mainland has its share of headaches. Arima's own suppliers, for instance, remain in Taiwan. "The biggest problem is that the basic component supply chain is still developing here," Tseng says. And local governments in China can be irritatingly officious. Getting components through customs, for instance, can be difficult--if you make even a small mistake on a form, says Tseng, "you have to pay a fine." Taiwanese companies sometimes have it a little better than other foreign outfits, though, because there is no language barrier. "It's easier for us to make friends with the authorities," Tseng says. If Arima is to survive, making friends on the mainland is a must.

By Alysha Webb in Wujiang

    Before it's here, it's on the Bloomberg Terminal.