- 1.International Relations: Challenge and Change in Chinese Export Controls and Industry Compliance
- 2.The Evolution of Business: Restaurant Franchising in China
- 3.Nuclear Power in China: Faster Than Planned
China’s nuclear power expansion “faster than planned”-Xinhua News Agency
Nowhere is the resurgence of nuclear energy as evident as it is in China. The country is buying nearly every power plant design available in the world and building them as fast as it can. With neither the complex legal process required for licensing nor citizens who stand in the way, the process of approval for power plants avoids the intricate maze of legalities common in the U.S. As shown in Figure 1, China plans to add 100 billion kilowatts by 2020, increasing its nuclear energy capacity fivefold in the next 12 years.1 Despite this fivefold increase in capacity the total percentage of electrical power from Nuclear power will only double, from 2% to 4% by 2020 as China is also building more coal, oil and gas plants to meet the increased demand for power. So, while the U.S. struggles withthe idea of building another nuclear plant, China has been, is and will continue to connect two new reactors to the power grid each year for the foreseeable future.
In China nuclear power answers both the demand for power and the desire to provide it from a clean, reliable source. On the environmental side China is choosing to develop nuclear fuel reprocessing plants that will allow the reactor fuel to be reused 3 to 5 times. In the U.S., due largely to transportation concerns, nuclear fuel is used once and then stored as waste at the reactor site. Additionally with as much as 80%3 of China’s current electrical production coming from fossil fuels (mainly coal) and already a net importer of oil, nuclear energy is seen as both a means of reducing the dependency on foreign oil imports and a means to reduce the use of low quality, high polluting domestic coal for power generation.
To meet the growth in nuclear power in China the best and the brightest from Chinese universities are drawn to the industry. The demand for engineers and technical managers is staggering and the demand to provide every aspect of the nuclear power plant from environmental and geological studies of the sites before groundbreaking, to operational maintenance to safety-related modifications to keep it going is more than the Chinese economy alone can provide. All of these services, therefore, are being contracted out to the world to provide.
Who is bidding? The suppliers are everyone from traditional U.S. multinational companies such as Westinghouse to companies like Guangdong Jinli Electrical Appliance Company Limited. Westinghouse got into the China market early by selling nuclear designs and offering technical assistance for its nuclear products such as reactors, steam generators and turbines through technology transfer agreements. Guangdong Jinli Electrical Appliance Company Limited began as a contract manufacturer for an American electrical component maker. They now make and sell products, like light switches, directly to the consumer. Switches, light bulbs and thousands of other equally mundane items that go in to building a nuclear power plant are now made in places like Guangdong. Through joint ventures, partnerships, wholly owned foreign enterprises and local companies, these components are a mixture of domestic Chinese products and manufacturing that was outsourced to China from abroad.
ENERCON Services has begun several major projects with their Chinese nuclear energy counterparts, having been awarded two projects for emergency core cooling systems valued at more than $2.3 million dollars in China in 2007 and 2008. In the course of conducting these projects, ENERCON was approached by both the Chinese utility company and the Chinese state owned engineering institute for additional engineering support on unrelated nuclear safety issues. As a result, ENERCON, like many companies, began to consider how to do business in China on a permanent basis. What ENERCON found was a number of very fundamental differences in the business environment. Some of the significant differences involve intellectual property rights, increased human capital costs, and cultural dimensions.
Intellectual Property Rights
In the Chinese nuclear industry, unlike normal manufacturing or production where the concern is intellectual property theft, “localizing” – or transferring the knowledge base to China – is a government-mandated goal. Chinese nuclear power plants are derivatives of Westinghouse and other western manufactures designs sold internationally in the 1990s and have the same design issues and concerns as the U.S. plants. But the Chinese do not want dependency on foreign experts for their nuclear power generation any more than they want dependency on foreign oil for their economy. As such, each plant that breaks ground becomes another step toward localizing the design, engineering, manufacturing and qualification of the parts, pieces and systems that make up a nuclear power plant. Qinshan Nuclear Power Plant, phase II Unit 1 in Hiayan, Zhejiang Province China which came online in 2002 was the first Chinese nuclear power plant to be more than 50% localized. In March of 2008 the newest plant to break ground in China, located in Fujian Province will be more than 85% localized. The goal, a design and a program the Chinese refer to as CPR1000. A 1000 megawatt nuclear power plant that, though a derivative of a Westinghouse, design will be 100% Chinese design, construction and locally manufactured parts.
ENERCON’s part in localizing becomes selling designs for emergency core cooling systems that will be taken over by the Chinese for duplication in future plants. Suddenly faced with selling not only your design, but the rights to copy it, companies like ENERCON have to ask “How long will it be before a Chinese nuclear engineer or manufacturing company shows up at the door step of a U.S. nuclear power plant with our product?” For ENERCON this question meant that they had to go back and redefine what their products are. For ENERCON it meant a new way of thinking–the results, the engineering calculations, the design drawn on the pages are not the focus of the product that is being offered in China. Although ENERCON is still offering results, calculations and drawings, it is the methodologies, the creativity and problem solving ability that is the true product of ENERCON’s China marketing plan. Creativity, by its very nature, can be learned but it can’t be copied. The ability to solve problems is the product ENERCON will continue to sell in China in the future.
By sending a team of engineers and technical managers to China for project kick-off meetings and periodic status update conferences on the projects, ENERCON started off its China business with the “Flying Squad” method of staffing. The “Flying Squad” is a small group of individuals who travel back and forth to China meeting the demands of the business and customer. Generally a blend of Management level and Technical Experts who are able to simultaneously adapt to both the cultural changes as well as contend with jet lag, the “Flying Squad” is not so much a business response but a highly orchestrated effort involving cultural training, family awareness, planning and ultimately support at all levels. For all the obvious reasons, both the costs and the burn-out rate for these flying “road warriors” is very high. On one recent trip to China ENERCON took a team of managers and engineers on a 12-day series of meetings. To accomplish the meetings the six man team spent more than 250 man-hours sitting on airplanes, used 3 limo’s 2 buses and a dozen taxi’s to travel to and from various hotels and meetings in Beijing, Shanghai, Shenzhen and Hong Kong. The team’s total labor and travel cost for the 12 days was over $125,000, which would exceed the normally expected profit on projects of this size. For ENERCON it’s not just a matter of costs and profit, it’s the investment in the relationships they are creating in their travels. But being available to the customer has some additional costs. The 12 hour time difference between the east coast of the U.S. and the east coast of China means getting calls from customers literally around the clock no matter where you are. Once you finally returning home, trying to “catch up” on emails and correspondence while re-adjusting to the local time is a struggle. As one Atlanta-based Manager put it, “The only good thing about flying back and forth to China so much is that flying from Atlanta to California no longer seems long.”
Faced with astronomical travel costs and with a growing demand for work in China, ENERCON asked- why not just set up a couple key managers to live and work in China and have them direct the enterprise as expats from there? Expats are generally male (82%) between 30 and 49 (60%) and married (65%)4 and usually represent one of two categories of the organizational structure. Expats are usually either a senior level manager or a technical expert sent with their families on “tours” or “assignments” abroad for three to five years. Typical costs for expats can range from three to five times their domestic U.S. costs. Unfortunately, expat failure is more common than success. Whether the failure is defined as the expat’s inability to achieve the business goals they were sent abroad to accomplish or for one reason or another the expat decided to come home early, estimates of the failure rate range from 45 to 75%5. For ENERCON this means that although expats might be slightly cheaper per productive hour than a “Flying Squad,” the risks are no less significant.
While ENERCON has found their Chinese national nuclear engineering and technical management counterparts to be enthusiastic and diligent, the “depth of experience” becomes a defining factor in the work. In the U.S. it is often still possible for ENERCON to tap into the original team of engineers who, 30 years ago designed and developed these plants in the first place. Bringing in this level of senior talent for particularly difficult problems, even the youngest engineer at ENERCON can turn to a “grey beard” who may have been on the original design team or at least has seen the problem before and ask the question “what were you thinking?” or ”why did you do that?” This accessibility to not only relevant to the plans and designs but also the considerations, rationales and often most importantly, the ideas that were rejected is an advantage. This depth of knowledge allows U.S. engineers a clearer picture of the problems and the solutions. In China, this is like the difference between the woman who gives birth to a child and the man who reads about it. China has purchased plans and services from the world and the local engineers study them in meticulous detail, but the reluctance to make changes to the plans sometimes become as big an obstacle to work through as resolving the problems in the first place. It was recognition of the cultural differences that motivated ENERCON to reconsider exactly what they are selling in China. The product for sale is not drawings or design, but the means to create and accomplish them.
The demand for power in China is relentless. Building new plants as fast as they can, the Chinese are looking to nuclear power to provide the clean, reliable and safe energy that will sustain the Chinese economic engine. In a methodical, step by step progression that sometimes seems to go hand in hand with the Chinese culture, the Chinese are “localizing” the design, engineering and manufacturing of the nuclear products required to build and operate the plants safely. Drawing resources from around the world, companies both large and small are struggling with the ideas of supporting the work there. The burn out rate of the “flying squad” or the failure rates of expats make the work at a distance both expensive and difficult but there are rewards. No new plants have been built in the U.S. and gone into operation in almost 30 years but there are now a young American engineers, fresh out of school and recently hired who are not only learning to work the nuclear world, they are learning to work in one that has gone global as well. The experiences they are gaining by working on the new construction in China will make them the “go to” problem solvers for the next 30 years.
Kyle Milliken is a Project Manager at ENERCON Services, a Tulsa, Oklahoma based, employee owned service company that focuses on engineering, design and project management in the nuclear power industry. Learn more at the ENERCON website.