U.S. service centers continue to increase their presence in China, encouraged by multinational manufacturers seeking Western-style products and services for their Chinese affiliates.

“There are tremendous opportunities in China, and everyone will be trying to capitalize on that sooner rather than later,” says Brian Napier, manager of international sales for TW Metals Inc., Exton, Pa.

TW Metals has been doing business in China in one way or another for the past 15 years, though it does not currently have a facility there. For the past two years, TW has been working through a sales representative based full-time in China, and plans to add a second representative soon to help build its Chinese sales. TW also is considering construction of a new distribution facility in association with its U.K.-based Philip Cornes Group subsidiary. “It hasn’t been determined where and when,” says Napier, “but it’s definitely on the horizon for TW Metals.”

Notable among the handful of American metals distributors currently doing business there, Reliance Steel & Aluminum Co. and Ryerson Inc. have established a physical presence in China through joint ventures with Asian partners.

In early March, Los Angeles-based Reliance acquired Everest Metals (Suzhou) Co. Ltd., located about an hour and a half northeast of Shanghai. Reliance will incorporate Everest into Reliance Pan Pacific Pte. Ltd., a 70-30 joint venture with Singapore-based Manufacturing Network Pte. Ltd., an affiliate of New Wave Technologies Ltd.

The joint venture is a relatively small, one-facility operation primarily focused on selling aluminum plate and bar to the semiconductor and electronics markets. But it gives the service center chain a footprint in the Chinese market, and the option to expand its presence in the future, according to company officials.

On Nov. 1, Chicago-based Ryerson launched VSC Ryerson, a Shanghai joint venture with Hong Kong steel trader Van Shung Chong Holdings Ltd. (VSC). Initially, Ryerson will take a 40 percent interest in the joint venture, but could increase its stake up to 80 percent within the next three years. The venture currently processes more than 400,000 metric tons of carbon steel coils each year at facilities in Gunangzhou, Dondgguan and Tianjin. Construction is under way for a fourth facility in Kunshan in northeastern China.

Ryerson officials say they see even further potential for growth in China, in terms of products and services as well as geography. They plan to add stainless steel, aluminum and long products to the venture’s product line, and to install plate fabrication equipment similar to the company’s Ryerson de Mexico Mexican joint venture with Grupo Collado.

Ryerson and Reliance, the two largest service center chains in North America, are the most visible American pioneers on the Chinese metals frontier, at least so far. “A lot of service centers have been talking about opening a facility in China, but I don’t know how many have actually done it,” says Bill Sales, Reliance senior vice president of nonferrous operations.

Many, like Reliance, are attempting to respond to customer requests, he adds. “There was a fairly large customer base in the Bay Area [for aluminum plate and bar] that had moved to that area of China. They said they needed more consistency of supply.”

Frank Munoz, vice president of Ryerson International and president of Ryerson Asia, says his company had similar motivation.

“The service center market as we know it in the United States still doesn’t exist in China. Many of our customers who do business there asked us to invest in China to duplicate the business model and the support structure that we built for them in North America,” Munoz explains.

China has many metals warehouses, some of which will eventually become “true service centers,” but they are not there yet, Munoz says. “They have the processing capabilities, but they are still developing the service quality that many customers require, including just-in-time delivery, inventory management and fabrication services.”

Many customers in China have made it their practice to buy one to two years of supply to ensure they will have material when they need it. They are looking for sources that offer ready availability and high quality, Sales says. “A lot of companies have found that they have to do business with a U.S. company to get the quality they need. Being there locally, promoting the kinds of things that service centers do, is a great opportunity for us.”

Ryerson had been looking for the right entree to the Chinese market for some time. “We conducted a market study that showed the entry barriers were low enough and the opportunity high enough that we really needed to be there,” says Munoz. The company moved forward with its plans when it learned VSC was looking for a partner.

Likewise, Reliance originally planned to build a greenfield facility in China, but was fortunate to find a partner with the right customer base and a similar-sized facility already in place, says Sales. “It got us into China faster than it would have taken with a greenfield facility, with an existing management team already in place.”

North American companies looking to invest in China often seek out a Chinese joint venture partner who is familiar with the market, the culture, the language and the regulatory issues. “Having a partner that is experienced in doing business in the country is key, at least for the first three years or so,” says Munoz. “During that time, we focus on getting to know the market and developing local leadership to run the business on a long-term basis. After that point, the business should be self-sustaining in all aspects, and ownership takes a less important role in the relationship.”

Just having a sales representative who lives full time in China has been a boon, says TW Metals’ Napier. “Overcoming the language and cultural barriers alone gives us a tremendous advantage. Having someone in the same time zone helps both Chinese customers, and ourselves, get through some of the learning curves.”

Business is just done differently in China, he explains. “Relationships are extremely important, and it takes time to develop those relationships—a lot of face-to-face meetings. Also, a lot of details tend to be taken for granted. It’s difficult to communicate the need for detail in contracts and specifications. A customer just sends us a purchase order and says ship it to me. It isn’t quite that simple.”

It can even be a challenge acquainting the Chinese joint venture management team with the Western way of doing business, says Sales. “We find our team intelligent and hard working, but they are less focused on productivity and more focused on job creation. Some of our processes were not received as well in China,” he adds, though the situation has improved over time.

“The Chinese culture is different from the American culture. That isn’t to say that one is better than the other, but those differences can get in the way,” Munoz agrees.

Ryerson is fortunate that VSC’s leadership— Andrew Yao Cho Fai, its executive chairman and chief executive officer, and his staff—have a more Western management style, Munoz adds. “So we have had an immediate affinity as it relates to how business is done.”

Grooming the next group of leaders is an ongoing challenge, Munoz admits. “As we are looking to grow our participation in China beyond the current locations, products and processes, we are struggling to find experienced people ready to take on leadership roles in strategy ownership and implementation. Our industry is less known there than others.”

As the world’s largest steel producing and steel consuming market, and an area of the world attracting huge investment by multinational manufacturers, China clearly presents growth opportunities for service centers. And not necessarily at the expense of the manufacturing base back home, Munoz notes.

While many manufacturers have outsourced production to China to take advantage of the low-cost labor, he acknowledges, “many of our major customers have made investments in China to service the growing Chinese market, not necessarily to produce product and ship it to other countries.”

The real attraction of China is the sheer potential of the market as it’s redefined by the evolution of the middle class consumer, Napier says. “It’s a huge market with well over a billion people. As the standard of living goes up, disposable income will go up. They are going to want the same things the Western world has, and that will result in great opportunities.”

Most experts believe North American service centers will continue to explore ventures in China, lured by double-digit growth rates that are hard to come by in traditional markets. “We’re all looking for the same thing,” Munoz says. “I would expect that U.S. service centers will continue their current acquisitions strategies. Many are also trying to grow internally. But they are not going to be able to achieve organic growth that’s [comparable] in the United States.”