Caterpillar to expand excavator capacity in China

PEORIA, Ill., Wed Mar 21, 2012 — Caterpillar Inc. said it will increase hydraulic excavator production by 80 percent in China with a new facility due to be completed in 2016.

Caterpillar said in a statement it will begin production of wheeled excavators at Caterpillar Xuzhou Ltd. beginning in early 2014.

It did not provide any figures.

CXL is the company’s manufacturing flagship in China, Caterpillar said. The company has 17 facilities in China and nine more under construction.

“We are expanding our production capabilities as this market continues to grow,” Gary Stampanato, Caterpillar vice president with responsibility for excavators, said.

Caterpillar produces wheeled excavators in Grenoble, France. It said production there will continue.

Wal-Mart to take majority stake in China e-commerce firm

BENTONVILLE, Ark. — Wal-Mart Stores Inc said on Monday it is taking a controlling stake in Chinese e-commerce firm Yihaodian, as the world’s largest retailer seeks new revenue sources to fend off rising competition in the world’s fastest-growing major economy.

The move comes two weeks after Wal-Mart announced the appointment of industry veteran Greg Foran as head of its China operations, capping a series of leadership changes at the unit, which has been tainted by food scandals, including a pork mislabelling issue last year that forced it to temporarily shut a dozen stores in central China.

Wal-Mart said in a statement that the fresh investment into Yihaodian will take its stake to around 51 percent and will be subject to government regulatory approval. Wal-Mart did not provide any financial details of the deal and it was not immediately clear how much stake it has now in the China firm.

“E-commerce has been booming for years in China and in many other sectors, and it has only been very recently that it is for supermarket type of goods,” said James Roy, senior analyst from Shanghai-based China Market Research Group. “It is a good investment for Wal-Mart as it has a lot of potential.”

Wal-Mart announced in May last year it planned to buy a minority stake in Yihaodian, a Chinese website selling consumer items and groceries.

“People who order from Yihaodian tend to be more premium customers and that is a decent direction for the company,” Roy said. “It is an interesting move, showing that they are trying something new.”

Yihaodian, with 5,400 staff, operates a logistics network in Shanghai, Beijing, Guangzhou, Wuhan and Chengdu. It serves a growing customer base with same-day and next-day delivery of essential daily items at competitive prices.

‘Kung Fu Panda’ maker Dreamworks may be going to China

LOS ANGELES – “Kung Fu Panda” creator Dreamworks Animation may soon set up a production studio in China through a deal that could be announced Friday during a U.S. visit by Chinese Vice President Xi Jinping.

The studio is likely to unveil a joint venture with China-based investors during Xi’s visit to Los Angeles on Thursday and Friday, a person familiar with the matter told Reuters earlier this week.

Joint ventures might get Hollywood closer to China’s huge audiences. By producing in China, Dreamworks can bypass the restrictions on foreign content. Only 20 foreign films a year can be screened nationally at cinemas in China, and the films must be shown through a designated state-owned intermediary.

The new venture would produce Chinese short films and features for the Chinese market, which it could export to the rest of the world, a person familiar with the matter said. It also would have the potential to make English language films that would be exported from China and escape current import restrictions.

The partnership will see investments of up to $2 billion in the next five years, according to Caijing magazine, more than half likely to come from Chinese partners including China Media Capital and China Development Bank. Dreamworks should get low-cost local talent and wider exposure.

How John Swisher is growing JBS United into an international player through joint ventures


John B. Swisher, Chairman and CEO, JBS United Inc.

A few years ago, John B. Swisher and his team at JBS United Inc. were putting together his first joint venture with a Chinese company and language and culture differences were creating significant obstacles for both sides.

Swisher, founder, chairman and CEO, was used to establishing lasting relationships built on communication and trust. One relationship with a feed and grain company has continued ever since he founded his now $480 million animal nutrition company 55 years ago.

But the Chinese joint venture was suffering from miscommunications. Swisher, meanwhile, was very concerned about his exploration into the burgeoning swine, poultry and livestock feed markets in the Asian giant.

“What they wanted was our research, our experience, and they want us to train that sales force to be a capital partner there,” Swisher says. “That market is just growing so rapidly.”

Already producing six times more hogs than the United States, the swine industry in China showed unparalleled growth.

“An American name means a big thing over there, so we were trying to capitalize on our name and the skills we have,” Swisher says.

He just wasn’t going to give up, and he set out to find a solution, even if it meant asking everyone who would listen. And soon, the right person was listening.

“I was at a 4-H Foundation committee meeting, and I was sitting next to this young lady,” he says. “She was an attorney with a law firm, and we were just talking about the difficulties in China ― and she said, ‘Do you know that we have attorneys in China? And that they’re Chinese?’”

Taken aback, Swisher said, no, but he sure would like to talk to one. And he did. What evolved was a solution built after dogged determination ― and that chance meeting.

“Within a month we had that thing completed,” Swisher says. “The attorney understood the language, he understood the people, and he had a law degree from China and the University of Indiana. He was just able to put that together so quickly once he could understand both sides. We are still using him. To be able to understand the language, I think, is crucial.”

International joint ventures can be lucrative undertakings. Teaming up with another company distributes the rewards ― as well as the risks, but the pairing may be the major factor in a successful endeavor, which might have not been a success by either of the companies alone. Both sides have opportunities for growth and a return stream for years.

“With the joint ventures, you have a strategy to grow and primarily to attract that skill that you do not have in-house and for all practical reasons could not afford to have in-house,” Swisher says.

For JBS United, its first Chinese joint venture was the United-Liuhe Co. Ltd., which manufactured and marketed nutritional products to poultry and livestock producers in China.

JBS United recently sold its interest in United-Liuhe for an excellent return ― nearly tripling its initial investment. It is now undertaking a second venture with the principal investor in that first partnership.

Here’s how Swisher helped blaze the trail for joint ventures on an international scale.

Find a good partner

In any joint business venture, it’s important to find a partner who is not just knowledgeable and has deep pockets. But what are some other key factors in a partnership?

“It’s people that you can work with, that are honest and reasonable, because no matter what contract you write, there are going to be exceptions and there are going to be other things that happen,” Swisher says. “Out of 13 domestic and international joint ventures, we’ve been really successful with 11. We had two absolute failures. I think we misjudged the partners in those two failures.”

The partner-judging process is not unlike that used in seeking a new employee. Proposals have to be examined, research has to be conducted into past history and risks have to be weighed to minimize possible mistakes.

“No matter how good that résumé looks, and how good the interviews go, you’re going to miss something,” Swisher says. “You cannot spend enough effort to avoid making some mistakes.

“I’ve read stories on American businesses going to China, and all they did was send money over to lose,” he says. “It’s like anything else. Ultimately, it boils down to the person that you are partnering with and the skills and character of those people.”

While you may find a different language and culture may make reference checking and other research a little challenging, it is an important part of the decision-making process.

“It is critical that you know the people who you are doing business with, that you trust them, they are aboveboard and they are doing things right.”

Once Swisher and his team realized that networking efforts might be fruitful, their search began to bear fruit.

“The partners here had gone to graduate school with a Chinese national, and he came to us and said this was a really good company; these are really good people,” Swisher says. You will find, however, that a good reference just opens the door, and you will need a comprehensive vetting process and face time. Likewise, a Chinese business has to approve of your company.

“We met with them and our conclusion was the same,” Swisher says. “We’ve really had a great relationship for 10 years. We have been really pleased with the outcomes.”

“You have to become trusted and be brought in ― sort of as a brother,” says Don Orr, JBS United president, who spent four years to find the right partner for the company. “Somebody’s got to vouch for you in China. Then you’ve got to spend the time over there to gain their trust, and then it will work. You can get through these differences or rough edges that you need to smooth out.”

Once JBS United made its decision, Swisher made it a point to keep the two-way communication alive through final negotiations and continuing on through the business enterprise.

“You’ve got to do your part,” he says. “You’ve got to hold up your end. They’ve got to be sure of you, too. I think it’s like any other relationship. You work with somebody for a period of time and you get to know what they do, what they can do and if what they tell you is right, and so forth.”

After his experience in the first venture opened his eyes a bit, Swisher put to work some of the lessons he learned for his second venture.

“No. 1 is you want to be a financial part of the company,” he says. “Although we had money over there in the first venture, what we had was just a small part of it and separate from the company. This time we are going to have ownership in the company.”

Another point applies to clearly defined roles for each party. Each should assess how they will go about completing their purpose and deciding with whom they need to interact.

“I think this time, there is an understanding with them and an understanding with us far more on what our roles are,” Swisher says.

Get the right people

It’s almost a given that your management for a joint venture overseas should include qualified, native-born talent. There is no shortcut to finding a suitable person; it takes determination and patience.

Swisher felt so strongly that the company needed this type of individual to deal with the Chinese partners that it took years of searching.

“We hired a Chinese man, born, raised and educated in China, who came to the United States and got master’s and doctorate degrees,” he says. “Our president, Don Orr, went searching and found him up in Canada. He is now literally the one responsible for the Chinese venture. Of course, he can read and write the language and is trained and educated in nutrition. No question, he has been unbelievably valuable.”

Some of the keys to a successful search?

“You really have to be agile and rally your resources and start communicating,” Orr says. “Use all your resources here, everyone you know here in the United States and the universities. Go to those people who are allied in your industry and say, ‘What’s your connection to those institutions or industries in Canada, the U.S. and China?’”

Once Orr learned that Chinese culture favors conversation between the top officers ― not vice presidents ― of both companies, it cemented his goal to find a native manager. Another advantage of such an employee is that he or she, once on board, is probably more likely to test the waters of business expansion than your employee who doesn’t have any local background.

“Don’t think too narrowly when you consider what is this person going to do because he or she may open up many, many doors for you, which you didn’t know you would be going through,” he says.

You may be talking and interacting with companies that you didn’t even know existed, and it may help to pave the way for future business relationships.

Also of value is the fact that once you have located and hired one highly skilled individual, he or she may lead you to another. The contacts that they developed during their school years or early employment years can be invaluable.

“They can pick up the telephone, call the schools and say, ‘Do you have any students up there that are going to graduate?’” Swisher says. “All these guys know each other and the good news is they can help advise the student.”

In effect, you will have an in-house recruiter ― and a marketing agent. Word-of-mouth is one of the most convincing tools, as most companies know.

“They will know your company and they will sort of know who’s going to fit, who’s not going to fit, and why,” Swisher says. “They can describe your company and your activities to the students. So it helps both sides.”

“If you have a good reputation with those people, you’ll likely get some recommendations.”

Deal with the lows

Sometimes the best-laid plans can go awry, as the poet Robert Burns once said. You’ve lined up someone to do business with, he or she is bilingual and everything looks like it will work. Then something happens and the project never gets off the ground.

While not technically a joint venture, Swisher’s company attempted to set up a distributorship in Ukraine, working with a local businessman who spoke English and Russian ― and it died on the vine.

“It blew up,” Swisher says. “There was no question part of the problem was language and part was culture. We offended them somehow, obviously not intentional, but all of a sudden it became an issue we couldn’t overcome.”

What Swisher took away from that experience was that American business practices may differ from those in Ukraine.

“There was another company in Ukraine that contacted us and basically in that conversation we agreed to meet with them,” Swisher says. “This really offended our prospective distributor. We thought we were being up front, and he basically said if you go around my back once, you’re going to do it again. We could not get over that hurdle.”

In a case like that, it is best for you to dissolve the relationship. Chalk it up to the differences in culture and as a learning experience.

“Do not violate the original opportunity, even if you think a third party is only remotely connected,” Orr says. “Inform your partner first.”

When it comes to going your separate ways, make a concerted effort to have an amiable parting.

“We left as friends; that’s the best way, with mutual respect, realizing that the arrangement just wasn’t the best fit at the time,” he says. “That’s why you never burn any bridges behind you ― you may do business with them down the road.”

Luckily, losses were minimized on the Ukraine project. But two joint ventures JBS United had in the United States with Indiana companies went sour also, and while not causing heavy losses, they were failures attributable to incorrect conclusions. As with the international joint ventures, you need to evaluate the domestic joint ventures with the same scrutiny.

“First of all, we misjudged their talent,” Swisher says. “They were not as skilled as we thought they were, and they were not as reasonable as we anticipated. Those two things just killed those partnerships.”

But if you take a philosophical outlook, it will help put it in perspective.

“But, you know, to some degree, if you say two out of 15 is not bad, it’s sort of like hiring people,” Swisher says. “If you could hire 13 really great people out of 15 hires, you’re damn good.”

The Swisher file

John B. Swisher
Chairman and CEO
JBS United Inc.

Born: Danville, Ill.

Education: University of Illinois, bachelor of science in animal science. Honorary doctorate from Purdue University in agriculture. That was a real treat for me to get an honorary from a university. Well, I did attend Purdue for one graduate course, but never got a diploma from Purdue. They felt that what I had done for them for agriculture was worthy. It sure as hell wasn’t the money that I had given them.

What was your first job?

Sacking a pancake mix in 5-pound bags. I was 14 years old. I was even driving trucks at 14. You have to understand, in the World War II years, manpower was hard to come by.

What was the best advice you ever received?

Whatever you promise, be sure that you fulfill it, no matter how hard, how badly it hurts you. You’ve got to be good for your word. That’s from a guy named Paul Kefauver. It was early in his business. He was a customer, a really large farm in Indiana named Fuller Farms. Mr. Fuller had a lumber business down south, a big lumber business. He owned a farm, I guess his wife inherited the farm, and it was like 1,000 acres; it had all kinds of cattle and pigs. Paul was a professional farm manager and was just sort of one of those wise old men that you are lucky enough to come in contact with.

Whom do you admire in business?

John Stadler has to be at the top of that list. His family had a packing business in Columbus, Ind. His adopted father hired him to save that company, and he did. Then he built a packing plant for an integrator down in Missouri. Then he had a series of things, which includes starting one of the largest hog farms in the United States, plus a packing plant, plus a sausage plant. He has a knack of taking desperate situations and turning them around. He does it so easily that it makes me envious. To do something that is so difficult and to do it with such ease is my definition of a pro.

What’s your definition of business success?

To be able to manage a company through the bad times successfully. There’s an old adage about anybody can be a captain in a calm sea. Not many people can be a captain, a good captain, in a rough sea. In these last three years, so many people in business have had it unbelievably tough. I think you’ve got to be able to manage through the changes and adapt successfully to change. I think that as much as anything else I see is a hallmark.

Swisher on what a joint venture means: What the joint ventures have done is for is to be able to take a medium-size company and expand particularly the technical intelligence, and in our joint ventures we have microbiologists, for example ― it would’ve been really difficult for us to be able to attract and employ that type of intelligence and experience. So with the joint ventures, we have a strategy in effect to grow and primarily to attract that skill that we do not have in-house and for all practical reasons, could not afford to have in-house.

How to reach: JBS United Inc., (317) 758-4495 or www.jbsunited.com

GE profit up 18 percent, driven by foreign markets’ growth

FAIRFIELD, Conn. ― General Electric Co. reported an 18 percent profit rise that met Wall Street’s expectations, helped by strong revenue growth in key foreign markets including Brazil, Russia and China.

The largest U.S. conglomerate said on Friday it expects earnings to rise at a double-digit percentage rate next year, following peer United Technologies Corp in trying to assuage investors’ fears about Europe’s brewing debt crisis.

“We continue to successfully navigate a volatile global economy,” Chief Executive Jeff Immelt said in a statement.

Investors took heart in the company’s 16 percent growth in industrial equipment orders — an important indicator of future revenue, and in the 25 percent rise in international sales. GE has been counting on strong demand in rapidly developing economies to offset weak U.S. and European demand.

“The revenue number was strong and the organic growth rate in industrial was strong,” said Jack De Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire. “Those are telling and they give us a little bit of a look into next quarter and beyond.”

But GE shares declined 1.4 percent to $16.40 in premarket trading as some raised concerns that its profit margins were weaker than expected in the quarter, with a low tax rate helping the company to meet expectations.

“Margins missed our forecast and were down year on year in the four big industrial businesses,” said Jeffrey Sprague, managing partner at Vertical Research Partners. “There is little or no operating leverage in GE’s portfolio due to low priced equipment in backlog and R&D headwinds.”

The report comes amid a wave of generally strong earnings reports from big U.S. manufacturers. Also on Friday, Honeywell International Inc reported a 45 percent profit rise. Fellow blue chips Caterpillar Inc and 3M Co will report next week.

Still, investors remain concerned whether Europe’s crisis could drag down global demand by shaking the financial system.

“Possible concerns going forward are going to be related to Europe and what impact that may have, not just there but on global growth in general,” said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group in Traverse City, Michigan. “There’s elevated uncertainty.”

The world’s biggest maker of jet engines and electric turbines reported third-quarter earnings attributable to common shareholders of $2.34 billion, or 22 cents per share, compared with $1.98 billion, or 18 cents per share, a year earlier.

The results included an 8-cent-per-share charge to buy back the preferred shares the company had sold to Warren Buffett’s Berkshire Hathaway Inc during the financial crisis.

Buying back the Buffett stake, which carried a preferred dividend, will boost GE’s annual earnings by 3 cents per share in the coming years.

Factoring out one-time items, profit came to 31 cents per share, meeting analysts’ average forecast, according to Thomson Reuters I/B/E/S.

Revenue was little changed at $35.37 billion, above the $34.94 analysts had forecast.

GE’s weak point on profit remained its big energy infrastructure division, where earnings slipped 9 percent despite a 30 percent rise in revenue, reflecting pricing pressure on wind turbines. The company has said that business will resume profit growth next year.

“That’s bottoming out. It will start to turn up probably in the next quarter but definitely in 2012,” said Harbor’s De Gan. “It’s a margin issue. Margins have contracted because wind is just so terrible.”

Before today, GE shares had fallen about 9 percent so far this year, while the Dow Jones industrial average has declined less than 1 percent.

Treasury Secretary Geithner slams China’s intellectual property policies

WASHINGTON ― Treasury Secretary Timothy Geithner said on Thursday that China is holding to its decades-old strategy to steal American intellectual property, in a pointed statement reflecting U.S. officials’ growing impatience with Beijing.

“They have made possible systematic stealing of intellectual property of American companies and have not been very aggressive to put in place the basic protections for property rights that every serious economy needs over time,” Geithner told a forum in Washington.

“We’re seeing China continue to be very, very aggressive in a strategy they started several decades ago, which goes like this: you want to sell to our country, we want you to come produce here … if you want to come produce here, you need to transfer your technology to us,” Geithner said.

Although unusually direct, Geithner’s comments echo a common refrain from U.S. officials and executives. The new U.S. Ambassador to China, Gary Locke, who has assailed China in the past for its trade practices, has put the defense of U.S. intellectual property among his chief priorities.

China has said it would drop some of its “indigenous innovation” rules that have riled foreign companies who say access to government equipment and technology orders hinge on their transferring patents and other intellectual property.

But business associations in China argue that enforcement of Beijing’s promises has been spotty, particularly at the local government level, hampering foreign companies’ access to a market estimated to be worth as much as $1 trillion a year.

In an offshoot of Washington’s dissatisfaction with Beijing’s trade policies, leaders in Washington have long argued that China’s yuan currency is undervalued, giving Chinese companies a price advantage that costs U.S. jobs.

But the foreign business community in China — concerned about what they see as China becoming more closed toward foreign investors in recent years — has argued that the emphasis on yuan revaluation distracts from the most serious issues threatening U.S. business interests.

A coalition of 51 U.S. business groups sent a letter dated Wednesday to senators considering a currency bill, urging them to focus more on China’s inadequate protection of intellectual property and restrictions on market access.

“… unilateral legislation on this issue [yuan reform] would be counterproductive not only to the goals related to China’s exchange rate that we all share, but also to our nation’s broader objectives of addressing the many and growing challenges that we face in China,” the groups said.

Piracy and counterfeiting of U.S. software and a wide range of other intellectual property in China cost U.S. businesses alone an estimated $48 billion and 2.1 million jobs in 2009, the U.S. International Trade Commission has said.

The United States’ trade deficit with China hit a record $273 billion in 2010 and could top that this year.

In May, China was listed for the seventh year by the U.S. Trade Representative’s office as a country with one of the worst records for preventing copyright theft.

China approves Caterpillar acquisition of Bucyrus mining equipment firm

PEORIA, Ill. ― Caterpillar Inc , the world’s largest maker of heavy equipment, said China’s regulator had approved its acquisition of U.S. mining equipment firm Bucyrus International, paving the way for the company to complete a deal announced in November.

Caterpillar said on Friday the Ministry of Commerce approval followed the U.S. Justice department’s recent clearance of the transaction.

Caterpillar’s exposure to commodities including metals and coal will only increase when it closes on its acquisition of Bucyrus.

In November, Caterpillar sealed its position as the world’s No. 1 maker of mining equipment with its purchase of Bucyrus International for $7.6 billion, the biggest acquisition in its 85-year history.

Ford sees 50 percent sales growth by mid-decade; global sales to rise

DETROIT ― Ford Motor Co. said Tuesday that it will grow by about 50 percent in global auto sales to about 8 million per year by the middle of the decade.

Much of that growth will be in China and India, Ford said.

By 2014, more than 140 percent of Ford’s global product portfolio will be either new or significantly refreshed from its 2009 lineup, a Ford spokesman said in an e-mail. The figure is more than 100 percent because some of the models will have been turned over at least twice in that five-year period, the spokesman said.

Ford last week announced that it would introduce the smallest engine in its history, a three-cylinder, within the next two years.

On Tuesday, Ford said that by 2020, about 55 percent of its total vehicle sales should be of small cars. Also, Ford said its Asia-Pacific and Africa sales regions should make up nearly a third of its 2020 sales.

Ford executives are in New York to meet with Wall Street analysts about long-term growth strategies and efforts to continue strengthening the balance sheet. That session will be held on Tuesday afternoon.

Ford Chief Executive Alan Mulally separately told CNBC in an interview Tuesday morning that the company has exited the “survival mode” and is poised for major growth around the world.

Mulally took over as Ford CEO in 2006 and has turned the company around so that it has shown a profit for each of its last seven quarters. From 2006 to 2008, Ford lost $30 billion.

Ford shares on Tuesday morning were up 1.2 percent at $14.08 per share.

Deere & Co. to build engine factory for equipment manufactured in China

MOLINE, Ill. ― Deere & Co. said today it will build a factory to manufacture engines for John Deere equipment that is built in China. The factory represents an investment of approximately $60 million and will be located in the Tianjin Economic and Development Area, in which Deere already has other facilities.

“John Deere aspires to deliver great products to our customers around the world,” said Samuel R. Allen, chairman and chief executive officer of Deere & Co. “This engine factory will allow John Deere to deliver increased technology for China customers while leveraging enterprise investments and engineering resources in China.”

This is the company’s sixth engine factory worldwide, all which are strategically located to support facilities that manufacture John Deere’s agricultural, construction and forestry equipment.

Deere has engine factories in Argentina, France, India, Mexico and the United States. Deere estimates the factory in China could start production in late 2013.

Jean Gilles, senior vice president, John Deere Power Systems, said, “We believe the integration of John Deere engines into the equipment we manufacture provides Deere with a competitive advantage because our customers have a highly integrated machine and they experience improved performance for fuel economy, emissions and noise reduction.”

Robert Lawrence Kuhn explores the new silk road

Dr. Robert Lawrence Kuhn, founder and CEO, The Kuhn Foundation

Dr. Robert Lawrence Kuhn, founder and CEO, The Kuhn Foundation

Doing business in China is complex. It requires more than simply a global understanding of business and a need. Rather, it’s a combination of numerous factors — economic, cultural, geographic and political. So it should come as little surprise that those who understand it best are, themselves, complex.

Dr. Robert Lawrence Kuhn is one of those complex individuals. He’s authored or edited more than 30 books, including the first biography of a living Chinese leader published on the Chinese mainland. He’s been an investment banker and led a top M&A firm. He’s provided consulting services to Fortune 100 CEOs and entrepreneurs. And he’s also a well-known television producer who created and serves as host of the popular PBS “Closer To Truth” series.

For more than 20 years, Kuhn has worked with China’s senior leaders, advising them on economic policy, technology and science, culture and media, Sino-U.S. relations, and international communications. Simply put, he’s one of the world’s foremost authorities on doing business with China.

“Every company has a China strategy whether they know it or not because of China’s impact on the world,” says Kuhn, whose past business expertise includes time as co-owner and president of The Geneva Cos., an M&A firm that represented privately owned, middle-market companies and between 1991 and 2001 initiated and closed more than 1,200 transactions and conducted thousands of corporate evaluations. In 2000, Kuhn sold The Geneva Cos. to Citigroup and subsequently became senior adviser to Citigroup Global Investment Banking.

In 2005, Kuhn wrote “The Man Who Changed China: The Life and Legacy of Jiang Zemin,” which was China’s best-selling book that year. In 2009, he penned “How China’s Leaders Think: The Inside Story of China’s Reform and What It Means for the Future,” which featured Kuhn’s discussions with more than 100 Chinese leaders and officials.

Kuhn, also founder and CEO of The Kuhn Foundation, was a keynote speaker at Ernst & Young’s Strategic Growth Forum in November 2010. After his presentation, Smart Business sat down with him to discuss what executives should know if they want to better engage with the fastest-growing economic power in the world.

Dr. Kuhn, what should American business leaders be thinking about with regard to China?

It’s the second-largest economy, approximately 30 percent of the size of the U.S. But on purchasing power parity, it’s more than half the size of the U.S. Within 20 years, China will be the largest economy in the world.

There are a lot of issues in China in terms of imbalances and needs, and that’s causing a great industrial transformation. But there are a lot of opportunities. Senior leaders tell me — the leaders of the country — that there are some things that have changed in China, reform-related, some things that have not changed, and some things that will never change. What will never change is the need for economic growth and the need to serve the people.

As you look at the issues that China has, and the imbalances, you look at certain industries that will have huge opportunities — social services, health care and education, as well as energy. For smaller companies, particularly for entrepreneurs, there are great growth opportunities in China.

China is a market that has its own characteristics, its own cultural characteristics, its own way of doing business, and the fallacy is that this is only good for big business. China is actually trying to compete more with the big businesses and people over there are looking for more entrepreneurial businesses to partner with. So for American entrepreneurs to associate with Chinese entrepreneurs as they mutually fight the big companies in both countries, that is something that’s supported by Chinese leadership. So the opportunity is definitely there.

How should CEOs and entrepreneurs begin to identify those opportunities?

This is complex. The first rule I have is that you have to like doing business in China. If it’s something that you don’t like and don’t want to do, you really shouldn’t do it. The investment is more in time and your commitment than in financial resources. You have to meet people. You have to see a diverse number of people in your area.

One way to think about it is in terms of your industrial area. Another way is geographically, if you have certain geographic areas that you explore. You will need to have introductions with leaders and potential business partners in several different cities. Then you will see diversity. You will see diversity geographically, you will see it in your industry, whatever industry you are in, and you will begin to get familiar with talking to and getting to know the right people.

Obviously, you should have good advisers — people who know the ground. There are a dozen or so major accounting firms. Of course, (Ernst & Young LLP) is my favorite. I work with them. But all the big accounting firms and consulting companies have different facilities that can be utilized. There are many different ways to go about it, but you shouldn’t be blind.

Another principle is that you should be important. Whatever you do, whoever you are going to work with, you should be important to that individual. If you are an entrepreneur, you get somebody who is going to introduce you to the mayor of a big city. Suppose you get the meeting and you say, ‘Wow, that’s terrific.’ Really, it’s not, because you are not important to that mayor if you are only a small company. They may do it as favor to whomever introduced you to them. I could get you lots of meetings with a lot of people at high levels because they’ll do me a favor. But it’s really of no benefit because where does it go from there if you’re not important? So you always try to be important to whoever you are going to meet. If it’s another company, if it’s an official, you want to be able to bring something that’s important so that they really pay attention to you on a long-term basis.