Honeywell’s Formula for Success in China

For Honeywell International Inc., the 115-year-old Charlotte, NC, aerospace and industrial conglomerate, a strategy that has established its local entity deep in Chinese life is key.

The strategy’s architect was Shen Tedjarati, who acquired Honeywell China in 2004 and has spent nearly two decades transforming the once-dying entity. In that time, Honeywell China’s revenue, along with the country’s economy, grew from $360 million last year to more than $6 billion – one-sixth of Honeywell’s global revenue. His vision was to completely immerse the company in Chinese business and culture – and not shy away from helping Chinese companies achieve strategic goals set by Beijing.

“Little by little, we had this sugariness in our bones,” said Mr. Tedjarati.

Over the past two decades, China has become an essential market for most US multinationals, driving much of their global growth. Operating within China’s authoritarian system has always presented companies with practical and ethical challenges, which have intensified in recent years as US-China relations have deteriorated, leaving companies in the middle. There is danger.

For example, this month, Microsoft Corp’s LinkedIn said it would shut down the Chinese version of its site because of the country’s “challenging operating environment.”

Mr. Tedjarati moved to China three decades ago and was initially committed to learning the language fluently, he said, at a time when foreign officials usually stayed in the country for two or three years to become deeply involved with their culture, people or customs. Do without a parachute. The Canadian has since served as a visiting professor at Shanghai’s China Executive Leadership Academy, an elite school that provides leadership training to rising stars of the Communist Party. He had received a Chinese green card a decade earlier, making him one of the first few dozen foreigners to receive it.

He said it was important to build personal relationships with local officials to protect Honeywell from the US-China politics of the past few years.

“I have a very, very close relationship with the Chinese authorities. We often have intimate discussions without interpreters,” said Mr. Tedjarati, 58, who will travel to high-growth regions such as Africa, Latin America and Eastern Europe by the end of 2021. He will retire as CEO of Honeywell. He continued. After promotion to a global role in 2012, oversees China and resides in Shanghai.

Mr. Tedjarati is to be succeeded by Ben Driggs, a Honeywell veteran who has spent his career in the US and Brazil, except for the three years he spent in Shanghai a decade ago. A team of local officials, currently led by a Shanghai native, runs the day-to-day China business.

Today, Honeywell is everywhere in China, employing 13,000 people with facilities in more than 30 cities. It manufactures avionics in Shanghai, heating systems in Suzhou, medical sensors in Nanjing, industrial control systems in Tianjin and car turbochargers in Wuhan. It has supplied everything from broadcast systems for Beijing’s “Bird’s Nest” stadium to fire-protection equipment for the Terracotta Warriors Museum in Xi’an.

It supplied components including flight-control and navigation systems for the Comac C919, China’s first commercial jetliner designed to rival the Boeing Company and Airbus SE. In 2018, it became Sinochem Corp. and China Baowu Steel Group Corp. agreed to help a string of state-owned industries modernize their factories by digitizing and automating them. And it is helping to build a new petrochemical-processing complex in eastern China as the country overhauls its industrial infrastructure.

Honeywell was a pioneer in a localization approach, which has since become a template for many other multinationals doing business in China, according to James McGregor, head of China business at consulting firm APCO Worldwide.

Many US multinationals grew stronger in China, even as broad Beijing-Washington relations broke down during Trump’s years of trade wars and attempts to separate the two economies.

Walmart Inc. began a major expansion to China in 2019. Starbucks Inc. opened more than 500 Chinese stores last year. Comcast Corporation’s Universal Studios pushed for a $6.5 billion Beijing theme park that opened in September.

In some cases, Honeywell has gone further in China in areas that could prove controversial back home.

A decade ago, it helped Huawei Technologies Co – now under US sanctions – build three gas pipelines linking western China and Central Asia. Taking that partnership forward, the two companies said in 2017 that they would collaborate globally on smart-building technology.

It also set up a branch in Xinjiang, where Uyghur Muslims are under severe US sanctions from besieging camps. In one of its deals, Honeywell agreed to supply Security Services with protective equipment in 2017.

Honeywell has since ceased both its Huawei and Xinjiang activities for commercial reasons, Mr. Tedjarati said. He said that no American or Chinese official ever told him that the company should or should not refrain from doing specific things in China.

The company has also openly supported China’s Belt and Road Initiative, an ambitious global infrastructure program viewed with suspicion in the West, and a plan to help Chinese companies expand overseas. program is run.

Those partners have rewarded Honeywell’s support with lucrative contracts, including recent deals to supply a range of technologies to a new port complex in Saudi Arabia and a petrochemical facility in Brunei.

It is becoming increasingly difficult for MNCs to avoid disputes. “What looks good in China may look bad in America. It’s a minefield,” said Mr McGregor of Epco.

“There is one bipartisan issue in Washington right now, and only one,” he said. “The idea that China is a bad actor.”

As an industrial supplier rather than a consumer company, Honeywell is relatively untouched by the kind of public backlash that has affected foreign brands including Burberry, Haynes & Moritz AB and Tesla Inc in China in recent months, although in 2019 It appeared to be under threat when the People’s Daily, the Communist Party’s official news outlet, named Honeywell as one of several US companies facing potential blacklisting by Beijing over US arms sales to Taiwan.

Honeywell, which supplied the engines for the tanks, protested that it had supplied the equipment directly to the US government and had no control over the Taiwan deal. It was dropped from a later list of approved US defense companies published by China a year earlier.

Honeywell has generally managed to maintain its position as a one-of-a-kind corporate example in both countries.

When he visited the Honeywell plant in Phoenix in May 2020, former President Donald Trump praised the company for manufacturing face masks on American soil. That same month, the Chinese prime minister spoke highly of Honeywell after opening a new research and development facility in Wuhan, helping the city return to normal several months after the outbreak of the Covid-19 pandemic.

“I should not do any commercial promotion for any company,” Premier Li Keqiang said at his once a year press briefing. “But I appreciate the move very much.”

Honeywell was a peripheral player in China when Mr. Tedjarati, formerly a consultant to Deloitte, first took over.

On his first day, “I came into the office – there was about half an inch of dust on my desk,” recalled Mr. Tedjarati. The wind of neglect extended to the bottom line: Honeywell’s local revenue was barely growing at a time when the Chinese economy was growing at 10% or more a year, and “no one knew whether we were profitable or not.” ,” They said.

Managers were targeting only a small segment of the China market and the company was plagued by knockoffs. A Honeywell unit, Garrett Motion, which produced the vehicle’s turbocharger, was being specifically targeted by Chinese copycats. “In 2004 we had 100 Garretts identical, we had carats, ferrets, parrots, terrets—you name it,” he recalled. “40% of our cost and 50% of our capacity. And they sold well.”

Mr. Tedjarati decided that instead of resorting to the standard practice of legal action, Honeywell would copy the imitators.

He noticed that local rivals were not recklessly copying Honeywell’s technology; They were producing local versions in response to feedback from Chinese businesses buying the equipment. “I realized they would go and sit with the customers,” said Mr. Tedjarati. “We would research desktops; they had a desk at the customer’s factory.”

So Mr. Tedjarati asked his local team to develop a no-frills version of his turbocharger that was about half the price of the company’s global counterpart. It was disastrous for the imitators. “Out of those 100 local players, only three survived and they became our suppliers,” he said.

Such experiences led Honeywell to stop looking at China as an outsourcing base, but as a market in its own right. Mr. Tedjarati began benchmarking Honeywell’s performance against Chinese rivals rather than other multinationals. “We studied the locals and we said we were going to do better than them,” he said. “The company got activated.”

Another urgent task was to overhaul Honeywell’s sales team.

The salespeople were put through a rigorous hiring process, but most of the interviews were conducted over the phone by US officials. “So naturally, the people who built it were better English, but they had no idea about industrial sales.” Mr. Tedjarati eliminated English as a job requirement and ensured that all interviews were conducted in Chinese.

Some US officials initially resisted but eventually accepted the change—when “our sales productivity went through the roof,” he said.

Mr Tedjarati acknowledged that the business environment has become “more constricted” amid souring US-China relations, although he does not think the days of multinationals in the country are over. Provided both American and Chinese politicians focus on the benefits of cooperation, the U.S. He said companies that remain committed to China can still reap huge rewards.

He argued that American companies have an important role to play in helping China address societal problems. “China’s climate challenge is enormous,” he said. “China’s food-security challenge is enormous.”

He also dismissed criticism that US companies should refrain from supporting strategic programs such as the C919 jetliner. There is nothing stopping a country of China’s scale from building out its aerospace capabilities, he said, and US companies should participate and share the rewards rather than outsmarting themselves on principle. It is safe as long as they are careful to protect their intellectual property, he said. Honeywell’s work on the C919 has supported hundreds of high-quality jobs at the company’s facilities in Arizona and Kansas, Tedzarati said.

He said the Chinese may have benefited from Honeywell’s success in China, but the biggest winners have been most of its American shareholders. “We went from a market cap of $20 billion to a market cap of $160 billion, and China played a big role in that,” said Mr. Tedjarati.