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'We've really toughed it out, I tell you' In more than 10 years in the wild northeast, Adrian Kuypers's business dream has survived several near-death experiences. His story is a classic, warts-and-all example of what the nation has to offer investors.

In more than 10 years in the wild northeast, Adrian Kuypers's business dream has survived several near-death experiences. His story is a classic, warts-and-all example of what the nation has to offer investors.


Saturday afternoon in Adrian Kuypers's Chinese factory, four women are labouring over unfinished door panels piled beside the silent production line.

The wooden sheets are scarred by small defects, rendering them unfit for export to markets in Europe and Asia. But the women painstakingly examine the panels and fix them by hand -- an act of labour intensity unheard of in North America.

"In Canada, they'd just dump these panels," says Mr. Kuypers, the Canadian executive who commands this 30-year-old factory filled with modern fibre-board technology.

The factory, in a shambling industrial area of this northeastern Chinese city, discards almost nothing -- mainly because these casual labourers work for 600 yuan a month, equivalent to less than $100 (Canadian).

Mr. Kuypers, the plant's tough, affable general manager, says that if not for his plant, the women probably would not be working at all. Even his full-time workers earn just $200 to $250 a month, which in Shenyang is a very good wage.

The powerful appeal of this economic formula -- excess labour, low wages, strong work ethic and the latest Western technology -- has kept Mr. Kuypers in China despite the torrent of trials that has befallen him and his employer, Innovative Board Technologies Inc. of Cambridge, Ont.

Since first contemplating a Chinese factory a decade ago, the 61-year-old executive has seen one joint venture fall through, several financings evaporate and thousands of dollars spent in transactions not authorized by the company's board.

He has quarrelled at times with his major Chinese partner, Shenyang Heavy Machinery Group. He has battled managerial favouritism, engineered two executive coups, coped with quality-control problems and faced down the threat of factory disruption by terminated employees.

"We've really toughed it out, I tell you," Mr. Kuypers says, in what qualifies as a classic understatement.

And yet he has remained committed to China, and that's finally paying off. In April, 2003, his joint venture with two state-owned partners finally started producing moulded door panels, known as doorskins, at the 185-employee plant. By the end of this year, Mr. Kuypers hopes to eke out a positive cash flow.

"I'm disappointed with the length of time it's taken, but I can't pin it on Adrian," says Mr. Kuypers's boss, Ken MacDonald, who, as the owner of IBT, has invested $9.5-million in the venture. "He's a significant optimist and one of the hardest workers I've ever met."

The joint venture, called Shenyang Shendor Wooden Co., embodies the things that can go wrong for Canadians in China, and why, despite it all, they are often willing to stick it out. Part of the lure is the huge potential payoff. There is also the sense that, after investing so much sweat and cash, it would be painful just to walk away.

"There are always good reasons not to be in China," Mr. Kuypers acknowledges. "But I'm afraid that we will do all the hard work and miss out on the fun."

Mr. Kuypers, who was born in Amsterdam and emigrated to Canada as a 22-year-old, did not get into this as some fresh-faced innocent. A seasoned forest-products executive, he has been back and forth to Asia during the past 25 years, building and managing fibre-board plants. He undertook his first Chinese project in the early 1980s.

In the early '90s, Mr. MacDonald approached him about developing a Chinese factory that would be a showcase for the work of engineering companies that the entrepreneur controls in southwestern Ontario.

Mr. MacDonald, with Mr. Kuypers as his hired gun, would come in as a minority partner working with local and international investors, build a model plant with worldwide sales and use his cut of the cash flow to seed other fibre-board and door plants across China and elsewhere in the world.

Canadian contacts drew Mr. Kuypers to Shenyang, a city of seven million in China's northeastern rust belt with a reputation for decrepit state-run industries and corruption. But there was also the promise of financing and a new wave of public officials intent on burying the region's infamous past.

At the first Team Canada trade mission to China in 1994, Mr. Kuypers and Mr. MacDonald were among the many Canadians who announced deals with Chinese firms. But the original partnership to build a fibre-board plant quickly collapsed, Mr. Kuypers says.

The dream was shelved for two years, until new partners emerged in the form of two state-owned enterprises, including Shenyang Heavy Machinery Group. Mr. MacDonald took a 25-per-cent interest in the new project to make door panels using pulp chips harvested in northeast China forests.

But that venture went through some near-death experiences. Mr. Kuypers says he relied too much on the verbal assurance of local bankers and partners that the funding was in place. "We should have had financing lined up in black and white."

At one point in late 2000, "we were wondering if we were going to stay alive" because of a financing impasse. He made it known at the Team Canada mission in 2001 that he might have to announce the collapse of the Shenyang project.

Suddenly, the government of Liaoning province stepped in and unlocked some money, giving Shendor a chance to live again. Within a week, the funding was in the joint venture's bank account.

It showed Mr. Kuypers that he had to work directly with local governments, even if that meant bypassing his state-owned partners. He has made it his mission to understand the lattices of power in China and to keep powerful bureaucrats on side. But, he adds, he has never participated in bribery.

He does, however, believe in the value of guangxi, the traditional Chinese emphasis on cultivating connections. "We work at it all the time," he says, alluding to an elaborate lunch earlier that day with a senior official in the foreign affairs department of the City of Shenyang.

On two occasions, Mr. Kuypers has helped to orchestrate the replacement of the joint-venture company's top management. He has learned that managers who come from the ranks of the Chinese partners tend to favour their former companies in decision-making -- often at the expense of the foreign partners.

Again, he relied on political connections to get the top managers replaced. Following the second coup, he felt that to salvage the project he had to take up the on-site role of general manager, which keeps him in China for three of every four weeks and away from his home in Oakville, Ont.

After the first executive change, he found management was dotted with relatives of his business partner's senior managers. He relocated the beneficiaries of this nepotism back to their original companies and brought in new blood.

He told one manager to go fishing for three months on the company's payroll while he found him a position elsewhere. But now, he says, he gets along well with his major partner's leadership and has been able to pick and choose his senior team.

Mr. Kuypers has often managed business relationships with a bluntness that belies the conventional wisdom that the Chinese, above all, need to save face. "The new China is not about saving face; the old China was about saving face," he says. "The more direct you are [now], the better."

At the moment, the factory is operating at only 30-per-cent capacity, still short of the 45-per-cent at which he figures he can make money. The plant has an intermittent production schedule, producing for a week or so and then shutting down as inventory is sold.

But Mr. Kuypers has hired new production and sales managers, whom he hopes will move the product faster. He has also contracted with the Canada China Business Council to provide space for his salespeople in five of the council's Chinese offices. At this point, up to 60 per cent of output is exported.

Mr. MacDonald, who owns several Ontario companies that produce industrial machinery, has not abandoned his dream of using the Shenyang operation as a springboard for other Chinese plants. The continuing boom in Chinese construction and house building has firmed up his interest, he says.

He recently made an offer, subject to financing, to buy out the 49 per cent of the joint venture owned by Shenyang Heavy Machinery. Or the Canadian company might still sell its interest at the right price, Mr. MacDonald says.

Meanwhile, the door-panel factory, which had been the property of Shenyang Heavy Machinery, remains a monument to the potential and the problems of China.

Vegetable gardens and rental homes remain on site, relics from when state enterprises looked after workers' cradle-to-grave needs.

Mr. Kuypers shudders at the sight of broken windows in a neighbouring plant building. But he also finds things to buoy his optimism.

On an earlier visit to Shenyang, he had found sand scattered on the cement area used to store wood chips. Some of the dirt had shown up in finished door panels. Today, the storage surface is clean and he makes a mental note to praise the manager in charge.

It's a small victory but he takes a moment to savour how far he's come. "It's nearly there," he says. "I can feel it."

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