The Blog

Photo of Rogers Weed, Director, Department of Commerce Rogers Weed, Director, Department of Commerce

09/29/10

Overall, things went very well for our delegation in China and Vietnam. The Governor did a terrific job representing our state and country. It’s hard to convey the value of being able to go to countries like China and Vietnam and talk about how Washington State was the first state to have a Governor visit Vietnam after relations were normalized in 1995. Or to be in Beijing, meeting with their equivalent of the Vice President, and have him talk about how other governors visited the Expo and didn’t come to Beijing, but Washington’s Governor is there. These visits lay very important groundwork for our future trading relationships with these rapidly growing economies.

Asia and its expanding middle class is important to Washington’s future prosperity. The Governor has renewed our investment in that future with this trip and set a foundation for a lot of business in the coming months and years.

While China and Vietnam are both valuable trading partners for us, they are in very different stages of development. This provided an interesting contrast and helped me understand better how a partnership evolves over time as a country develops. Others may have a different view, but I see the following distinct stages:

  1. Government relations: A crucial component from the beginning, especially in Asia where most things happen at the direction of the central government. Renewing these state relationships periodically is necessary to ensure progress and protect against being nudged out by a more attentive competitor.

  2. Educational-Cultural Exchange: Sister relationships at every level (provincial government, schools, ports, and so on) offer the chance to begin building context and history between institutions in each country. Student and faculty exchanges are a key activity here.

  3. Agriculture and commodities trade/Infrastructure Investment: Early in a partner’s development, the main opportunities for trade are in agriculture and commodities (for example, wood, ore, or metals). Growing countries also often need help building out their infrastructure. SSA Marine, a Washington company, is building two big shipping terminals in Vietnam right now in a joint venture with the government, as an example.

  4. Broaden to other consumer goods and services: Next, as the country’s economy develops and a strong middle class emerges, we have the opportunity to sell them branded, premium US-made products. Starbucks has coffee stores all over Beijing and we had lunch at a Hard Rock Café in Ho Chi Minh City where the manager told us their clientele has gone from barely any Vietnamese when they opened about 18 months ago to around 60% Vietnamese today.

  5. Intellectual Property(IP)/Research collaboration: Another stage happens as the partner starts to invest in higher margin industries where intellectual property plays a key role. Pacific Northwest National Labs (PNNL) has done some very good thinking about how to engage countries at this stage. The approach generally involves defining a joint research agenda, contributing to that agenda from both sides and then jointly owning and licensing the IP that results. This looks to me like where we are currently with China.

  6. Full relationship: At this point, both partners have completely mature economies and the exchange is across the full range of goods and services. This is where we are with Western European countries for the most part.

My opinion is that we’re at about stage five with China and stage three with Vietnam. What’s important, though, is that the states and people who engage with these emerging economies early on are the ones at the head of the line in the later stages, and the opportunities get broader and more lucrative. Prior to this trip, certainly, folks have understood that and made these investments for Washington in many places including China and Vietnam. You can see the results developing for us when you visit there!

On a final note, I think we need to broaden our thinking about how to assess the value of these trips. Traditionally we have measured our success largely in terms of export sales. But some of our biggest opportunities from this trip involve attracting Chinese investment and jobs into our state. This will take at least a couple of distinct forms:

One way is Chinese business people investing in Washington companies to help them scale their business. In Shanghai, a man named Mr. Jiang is creating an incubator there. His plan is to find promising companies in the US, invest in them and then help them access the Chinese market to accelerate their success. On our trip he announced his first two investments in life sciences companies in our state. At a time when our banks are having difficulty lending to small businesses and our IPO market is largely frozen, it’s good news to have international capital available to our most promising companies.

Another example is Chinese companies investing to create a US presence as part of expanding their business outside of China. Huawei is a very large Chinese company that builds technology for cellular networks, among a number of other things. They have grown to be a $22 billion company in less than 10 years, but they hardly have any presence in the US. They have set up offices in 2-3 places in the US, including hiring 30-40 people in Washington. As Huawei realizes their potential for expansion, I believe Washington State is well positioned to benefit.