China Embraces The Internet

When International Manufacturing Group Inc. (IMG) began to standardize its computer and Internet procedures six years ago, the going was rough. The company, which has extensive operations in China, found the country's Internet infrastructure so slow and unreliable that e-mails had to be backed up with faxes, and electronically moving CAD data files was out of the question. They were shuttled between countries via three-day airmail. Today, however, the Hillsborough, N.J.-based company considers itself a leader in outsourced product development and manufacturing in China, largely because of its decade-plus presence there but in part because improvements in the communications network in China have enabled IMG to drastically upgrade global Internet-based collaboration. "We extensively use the Internet in all aspects of our business that require communication or sharing of information," says Doug Campbell, IMG's vice president of engineering and operations. "This begins with . . . new product development through shipping finished product." While many hurdles continue to challenge manufacturing companies with China-based operations, one that is becoming easier to clear is e-business. Several research groups have predicted explosive growth in Internet usage in China, and companies such as IMG are finding that the communications backbone itself is improving. This is significant to manufacturers in several ways:

It enables more efficient and less costly internal and business-to-business operations, such as IMG's improved and less costly communication with customers. "Purchase orders, customer orders, order management and daily communication over the Internet has generally replaced the fax machine," Campbell says.

As more Chinese use the Internet at home and work, demand for computers, computer accessories, wireless devices and network hardware such as fiber optic cable will balloon. Manufacturers such as Lucent Technologies Inc. and Nokia Corp. will benefit from an already fomented presence.

For consumer goods manufacturers, the Internet is a hugely attractive way to reach China's disparate residents. Probe Research Inc. forecasts that the number of wired and wireless Internet subscribers in China will increase 1,184% by 2006. The company estimates that currently China, with a population of 1.3 billion, has 16.7 million Internet connections and in excess of 100 million e-mail addresses. (Probe estimates U.S. wired Internet connections at about 54 million. The U.S. population is roughly 285 million.) The Chinese government, although leery of the mass communication aspect of the Internet, has supported its use as a business tool because it sees the Internet as necessary to enhance competitiveness, says Alan Mosher, senior research director with Probe, Cedar Knolls, N.J. Figures from an organization overseen by the Chinese information ministry show that businesses own the largest segment of the country's Web sites. According to the China Internet Network Information Center, domain names ending in ".com" represent 78% of all domain names. Also, users associated with manufacturing make up 8% -- the third-largest category -- of on-the-job Internet users. No. 1 and No. 2 respectively are "trade and commerce" with 16% and "finance, insurance and real estate" with 11%. Mosher points out that while Internet usage is exploding in China, a significant number of Chinese lack a phone, let alone a computer. What this means is that when future Internet users -- both at work and at home -- ultimately connect, it will be with some of the latest technologies, such as wireless devices. "China, when it's done, is going to end up with one of the most modern telecommunication systems in the world," he says.