Local fan manufacturer breezes along in China

Since this meeting took place right after the presidential election, before he began his presentation, Tan wanted to make sure everyone knew that Sen. Barak Obama had won the election.  He even had a photo of the president elect in his presentation.

As he began his presentation, Tan provided an outline of the topics that he would be speaking on which included: a product profile; company introduction and history of Twin City Fan; the strategy for entering China; sourcing from China; challenges; and looking forward.

Fans can be broken down into three categories: residential, commercial and industrial. Although TCF is a leader in commercial and industrial fans, it is not a recognized household brand in the United States because it does not manufacture residential fans.

The company was founded in 1973 and has been growing ever since.  It began its international expansion in 1994 when it formed a joint venture in Singapore followed by a joint venture in 2004 in India.  It then created a wholly owned foreign enterprise (WOFE) in Shanghaiin 2006.  In 2008, a sales office was established in Europe followed by a manufacturing plant the following year also in Europe.

The types of fans manufactured by TCF fulfill the needs of commercial and industrial companies and range from small to medium pressure fans to a variety of simple roof ventilators to 10,000 HP fans for power plants.

Ironically, TCF does not manufacture any fans in the Twin Cities area.  It moved its manufacturing out to South Dakotain 1984 but it does maintain its corporate headquarters and research laboratory here.  The U.S. manufacturing facilities are in eight different locations, total over 860,000 sq. ft., and employ over 1,000 people.

The global manufacturing facilities for TCF have been established in Singapore, India and China, along with a manufacturing agreement in the Czech Republic.

According to Tan, TCF had certain requirements that needed to be met in locating their manufacturing facilities and he listed them as follows:  needed to be close to ports and highways as well as being close to customers and suppliers.  The facility must have high ceilings to accommodate cranes and metal fabrication, able to service most domestic sales and an abundant labor force and skilled workers.

Since the compelling reason to expand into the Chinese market was to follow its domestic U.S. customers, such as GM and 3M, that already were expanding their own international businesses, TCF recognized that they should also expand into the Chinese market but proceed while being mindful of the following points:

Strength:  TCF possessed great brand names, superior technology and quality.

Weakness:  brand recognition, cost and flexibility.

Opportunity:  exporting, sourcing, JV or acquisition

Threat:  IP protection,local firms gaining experience and quality.

Despite the best laid plans to expand into China, Tan commented that there are always challenges—some positive and others negative.  Although TCF determined that it was prudent to follow its U.S. customers into the China market, its own U.S. customers have not followed it into China.  Tan also stated that while their China office represents them in the sale of U.S.-made fans, at some point there might be conflict of interests.

On the bright side, the decision to source components in China has takenoff and proven very successful.

Tan continued to offer other examples of challenges that one faces when entering the China market.  He cautions that invested capital is committed capital and obligations must be fulfilled even if the cash is not needed.  A capital account is different than the payment account. Although WOFE and JV may be structured with some competitive tax advantages,these may not necessarily be applied in the manner they were intended.  Also, China GAAP is a lot different than U.S. GAAP.

As for looking ahead, during this presentation, Tan stated that he expects the global economy to be slow and that it will be a tough 2009 for the United States and China.  This pessimism was tempered a bit during a recent telephone update with Tan after China announced its US$586 billion dollar stimulus program.

At the conclusion of his presentation Tan answered questions from the group.

For additional information on TCF visit www.twincityfan.com.

The next UCBC breakfast meeting will be held on December 3 from 7:30 a.m. to 9 a.m. The topic will be, Selling Shoes in China, presented by Wes Tang, Business Development Director, Pacific Rim, Red Wing Shoes. To make a reservation , e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call Jim Smith at 612-865-6543  The cost is US$20 perperson (UCBC members and college students FREE).