In 1987 Governor Robert Orr had the foresight to establish a sister state relationship with Zhejiang, one of China’s wealthiest provinces. His work laid down a path for Hoosier businesses to be able to tap into the Chinese market and bring investment back to Hoosier soil. But even before Governor Orr made his foray into China, Columbus-based Cummins Inc. had begun to tap into the Chinese market. Cummins was one of the first American companies to enter China and continues to maintain an enviable position in the Chinese marketplace today.
Despite Governor Orr’s prescient maneuvering, Indiana’s relationship with the Chinese lulled significantly through the 90s and into the early 2000s. Actually, Governor Mitch Daniels’ trip in 2009 was the first trade mission to China by an Indiana governor in over a decade. Nevertheless, his trip marked Indiana’s renewed focus on China as a priority partner for trade, business, education, culture and social interactions.
With Governor Daniels’ trade mission to China, relationships at the city level began to proliferate. Today there are 22 existing or pending sister city relationships between Indiana and China. These interactions are more than ceremonial. The exchange of ideas, people, business, goods, services and experiences is consequential for Indiana’s development and Hoosier prosperity.
On Oct. 4, 2012 Lt. Governor Becky Skillman and the Indiana Working Group on China will present a sister city seminar hosted by Barnes & Thornburg LLP in South Bend. The event will equip Hoosier mayors, business leaders, economic development directors and leaders in education with the tools they need to create and invigorate sister city relationships with China. To better understand these relationships Sagamore Institute spoke with Dennis Kelley, President of Pacific World Trade.
Kelley has 34 years of experience working in China. In 1978, he became the first Cummins manager assigned to China. There, he helped to negotiate the company's first engine technology license agreement and opened Cummins' Beijing office in 1982. In 1986 Kelley co-founded Pacific World Trade (PWT) with Cummins, which now has three offices in China—Beijing, Suzhou and Hangzhou. PWT conducts a diversified business that includes industrial and automotive manufacturing, quality control and inspection services, and business consulting.
Since its founding in 1986, PWT has represented the state of Indiana in China. After one year of operation, PWT and Governor Robert Orr co-founded Indiana's sister state-province relationship with Zhejiang. Most recently, Kelley joined Lt. Governor Becky Skillman and a 37-member delegation on a business and trade mission to China to celebrate Indiana’s 25-year relationship with Zhejiang Province.
Sagamore: For those who don’t know, can you explain what a sister city relationship is?
Kelley: Sure. It is a government-to-government relationship established through a formal agreement or agreements. The sister city linkage is intended to expand relationships, which includes cultural, educational and business relationships. This is usually done over a long period of time. We aren’t talking about a one or two year range. These things can last for decades if they’re active.
What they actually look like depends, in my judgment, on how committed the city leaders are to being active with their counterparts overseas. How committed are they through monetary, financial and manpower resources to make these relationships function? I’ve spent time with some cities that do a good job and some cities that are dormant and have no interest in active work with the sisters. Really, it depends on the city’s leadership.
Sagamore: What are the basic components of a sister city relationship?
Kelley: At its most basic level, the relationship is comprised of interactions between cities. Generally speaking it’s cultural, educational, and business-related activity. Within that you could have music, arts, literature, sports and things like that. Education would consist of K-12 exchange programs as well as teacher exchanges. Depending on the city, universities or colleges might hook up with universities abroad. And of course there is business, trade and investment.
Sagamore: If I’m in the private sector and I hear “government-to-government relationship” I might be concerned about what that means for my business. Can you parse out a little bit better how the private sector can benefit from that government-to-government relationship?
Kelley: In China that government-to-government bridge is extremely important to doing business. Without the mayor or the leaders of the city active in the development of the relationship, it wouldn’t go anywhere. The sister government in China, for instance, isn’t likely going to respond to an email directly from a company asking for help.
So for instance, a business leader can travel with a mayor and his delegation to China. While they are there they connect with government leaders as well as the economic development leaders at the city’s commerce department. And so because this business leader is with the government delegation he has credibility. He’s viewed as the leader of the economic development team, so he can meet the commerce department officials. Then he can come back to his city in Indiana and begin communicating directly with the commerce officials he knows in China. And then if there’s a company in Indiana that’s interested in doing a joint venture in China, the department of commerce over there will find a counterpart.
So in this case it’s really a top down situation but that’s how it works. And if we are going to work well with China, it has got to work that way. But I think over time as personal relationships are established that the process can be streamlined. After those personal connections are made, they no longer have to go through the mayor’s office to do these things. If you get to the level of connecting with the commerce department, the school system, the superintendant of the school system and the department of education in a sister city, chances are things are going to work.
Sagamore: So the government is a legitimizing factor to the Chinese and helps to build trust between partners. And then over time private sector links develop with each other—a company will be able to maintain a relationship with another company rather than having to go through the city government or through the Chinese department of commerce.
Kelley: That’s exactly right. You want to get to that level so that you have an elementary school dealing with an elementary school or a company working with another company. It’s really the working level that’s the key to these activities.
Sagamore: And how important is it for there to be a familiar face in these sister city relationships?
Kelley: Personal relationships are very important. And in China there seems to be more focus on personal relationships than in other countries. They like to see the same people over and over. Even though, they have the same issues we do at the senior levels. They have mayors, deputy mayors and counsels. Those people change because they’re politicians. They may be in office two, three or four years and then they move on to different positions. We also have changes in our political structure. So in my judgment, it’s critical to have the working level staff remain consistent as much as possible and to create a smooth transition of people when needed. Of course, that’s not always done and there are personnel changes in China. It happens here as well.
Sagamore: Why establish sister city relationships with China? What value do these relationships bring to Indiana cities and to the state?
Kelley: China is one of the most powerful nations economically, and we want to make the most of that situation. The advantage of doing that through a sister city relationship is that it brings the activity down to a local level. With state level interactions, like Indiana’s relationship with Zhejiang, there isn’t going to be much activity at a community level.
So my strategy a few years ago was to approach Indiana cities and advise city leaders that they need to be engaged; they need to be active. Cities need to be engaged culturally, in educational programming and also at an economic development level. Cities should be recruiting Chinese companies themselves and not relying on the state to do it.
Fort Wayne is a good example. I went up there on my own time to help them develop a sister city relationship. They have an international sister city committee and were considering a sister city relationship in China. I met with their sister city committee and offered a second sister city option for them to consider in Indiana’s sister province of Zhejiang. After I provided background information on the city of Taizhou and briefed them on the opportunities in Zhejiang province, Fort Wayne responded quickly because they saw tremendous economic and education development opportunities with Taizhou. Mayor Henry and a trade delegation went to Zhejiang in November 2011 and signed a memorandum of understand with Taizhou. Since that time Fort Wayne has been aggressively working on specific economic development projects and setting up educational exchange programs. They have done an outstanding job in a short period of time due of the leadership of Mayor Henry, the International Sister Cities Committee and John Sampson, President of the Northeast Indiana Regional Partnership.
So we just have to educate people and convince them that it’s important to establish these relationships. I think most of the communities will see the value if we can find the resources locally, if we engage the communities and make an effort to have a direct interaction. I think that’s why you’ve seen these 20 sister cities established with China recently. And that number is going to grow because the communities are responding to this initiative.
Sagamore: By bringing it down to the city level, do you see this as a way to mitigate some of the concerns that some of the major manufacturing centers might have about China coming in and taking jobs? Because city level officials know more about the conditions on the ground they can help mitigate those issues when they make decision about connecting to China—like when, how and to what extent to trade?
Kelley: You’re absolutely right and that goes back to helping educate local officials. Some of these mayors in recent years have seen the value of these interactions so they have been proactive, traveling to China to establish relationships and trying to better understand what in the world is going on.
It’s important to inform businesses and schools that we’re trying to attract Chinese companies here for employment, as well. We’re not promoting the exportation of jobs; we’re trying to bring jobs into Indiana. It really becomes a comprehensive effort to educate the stakeholders and alleviate concerns.
Sagamore: Is establishing sister city relationships in China a strategy that’s used nationwide or at least within the Midwest?
Kelley: No, this is embryonic. I’ve been in China 34 years, and the effort to bring Chinese investment to the U.S. is fairly new. Indiana started to look at bringing Chinese investment here in 2005 and 2006, but the Chinese weren’t ready to come. Then when Governor Daniels went to China in 2009 that started the race because nothing in China happens unless you have the states’s chief executive say, “We’re here and we’re going to help you invest in the U.S.” So it’s been less than three years that we’ve been actively engaged in attracting investment. It’s very fresh and very new activity.
As my staff and I worked on the China side, we recognized that it’s very difficult to have a state or our offices recruit individual Chinese companies. We were asking, “How do you get them to even talk to us?” So we had to have business seminars in China and have considerable engagement with them. And from 2009-2010 it became obvious that China did not yet have the structure in place to properly recruit these individual companies.
So I thought to myself that the fastest way we can do this is to set up sister cities relationships to begin a direct engagement. When you set up a sister city interaction you initially limit yourself to a certain population. Fort Wayne is connected to Taizhou, which has 4 million people and major industries. But that’s just the starting point.
All of our communities in Indiana have to learn how to do business with China and this is the fastest way to get going. It’s a faster way for Hoosier communities to connect to Chinese companies, and then over time our communities will be able to update their capabilities and spread out across China. The hope is that these cities will build confidence to go elsewhere to recruit.
You can’t just snap your finger, go into China, say, “I’m from Indiana” and expect people to line up to invest. Indiana has a tremendous amount of competition from surrounding states and from Europe. All are looking for the same money, the same investment and the same companies in China. This sister city program helps to gear things up. And it has exceeded my expectations at this point.
There is a lot of energy in numerous cities to embrace this approach. It is an aggressive approach to recruit Chinese private sector investment, and cities don’t have to rely on the state to do it for them.
So far we’ve created a solid strategic plan. About the same time the sister city initiative began, Lt. Governor Skillman created the Indiana China Working Group. The sister city initiative and the working group were two tremendously important initiatives that we had to get moving in the state to be competitive on a long-term basis.
Sagamore: And on that point of competition, how does Indiana compare in the Midwest as far as our game in China?
Kelley: From a Midwestern standpoint, we were at the top in the mid to late 80s. At that time, we were ahead because Governor Orr had the vision to take us into China and get us started there. But in the 1990s, interest in China was negligible so we lost our momentum from the late 80s.
Most of the business development done in China has been done privately. Look at Lilly, Cummins, Allison and the bigger companies. They’ve all done that on their own. That’s an advantage we have in this country.
But up to this point, we’ve spent most of our time recruiting Chinese investment to Indiana; however, China’s FDI is very embryonic. It’s not as though you have 10,000 Chinese companies moving into the states this year, and we need to get a 1000 of them. That is not the case. There are very few companies coming in to manufacture. Although, we have learned a lot and will benefit from those efforts in the next ten years.
All of that to say, we have had ups and down in the process. But if you compare Indiana to Illinois, Michigan, Ohio we are probably somewhat behind. At the same time, the other states have had a lot of problems. Indiana has an advantage because of our economic and financial stability. As we try to recruit Chinese companies that’s a major advantage to us.
Sagamore: Can you give me an idea of what a perfect sister-city relationship would look like?
Kelley: Of course nothing is perfect. But I would have to go back to what I said earlier about activity. Educational exchange programs, economic development initiatives, interaction among the private sector companies. Interaction. Engagement. Things are happening. Communication is occurring.
Sagamore: What are some of the best sister city relationships you’ve seen in Indiana?
Kelley: Fort Wayne’s relationship is recent, but they are doing a great job. I would say Anderson has done well—they are at the top of my list. They are very active. They try to go to China once or twice a year, and they communicate directly with their sister city. They’ve done really well and we set that up for Anderson about three or four years ago.
Columbus is also active in China. They have a sister city with Wuxi in Jiangsu province.
Elkhart is active and has business and sends a delegation back and forth. In Marion, Mayor Wayne Seybold has done very well and he travels to China frequently to seek Chinese investment to his community.
Sagamore: Thanks for your time.
Kelley: Thank you.
For more on sister cities, you can attend a sister city seminar on Oct. 4 in South Bend, Indiana.
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