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8 min read . Updated: 23 Oct 2021, 12:48 PM IST Shane Tedjarati spent two decades embedding the U.S.-based aerospace giant and defense contractor in Chinese life; ‘little by little, we had this Chineseness in our bones’
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How can an American company thrive in China at a time when tensions between the two countries are running high?
For Honeywell International Inc., the 115-year-old Charlotte, N.C., aerospace and industrial conglomerate, a strategy that deeply entrenched its local unit in Chinese life has been critical.
The architect of the strategy was Shane Tedjarati, who took over Honeywell China in 2004 and has spent nearly two decades transforming the once-moribund unit. In that time, Honeywell China’s revenue has grown along with the nation’s economy, from $360 million to more than $6 billion last year—a sixth of Honeywell’s global revenue. His approach was to fully 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 Chineseness in our bones," said Mr. Tedjarati.
Over the past two decades, China has become an essential market for most U.S. multinationals, providing much of their global growth. While operating within China’s authoritarian system has always presented companies with practical and ethical challenges, those have grown far more acute in recent years as U.S.-China ties have frayed, placing companies at risk of being caught in the middle.
Just this month, for instance, Microsoft Corp.’s LinkedIn said it would close the Chinese version of its site due to the country’s “challenging operating environment."
Mr. Tedjarati moved to China three decades ago and committed to learning the language fluently at the outset, he said, at a time when foreign executives typically parachuted into the country for two or three years without engaging deeply with its culture, people or customs. The Canadian has since served as a visiting professor at Shanghai’s China Executive Leadership Academy, an elite school that provides leadership training to the Communist Party’s rising stars. He received a Chinese green card a decade ago, making him one of the first few dozen foreigners to obtain one.
Building personal relations with local officials was important to shielding Honeywell from the choppy U.S.-China politics of the past few years, he said.
“I have a very, very close relationship with Chinese officials. We have intimate discussions, often without interpreters," said Mr. Tedjarati, 58 years old, who is to retire at the end of 2021 as Honeywell’s chief executive for high-growth regions such as Africa, Latin America and Eastern Europe. He continued to oversee China and live in Shanghai after his promotion to the global role in 2012.
Mr. Tedjarati is to be succeeded by Ben Driggs, a Honeywell veteran who has spent his career in the U.S. and Brazil, except for three years he spent in Shanghai a decade ago. A team of local executives, currently led by a Shanghai native, runs the China business day to day.
Today, Honeywell is everywhere in China, with facilities in over 30 cities employing 13,000 people. It makes 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 the broadcast system for Beijing’s “Bird’s Nest" stadium to the fire-safety equipment for the Terracotta Warriors museum in Xi’an.
It supplies components including flight-control and navigation systems for the Comac C919, China’s first commercial jetliner designed to rival Boeing Co. and Airbus SE. In 2018, it agreed to help a string of state-owned industrials including Sinochem Corp. and China Baowu Steel Group Corp. to modernize by digitizing and automating their factories. 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 that has since become something of a template for a number of other multinationals doing business in China, according to James McGregor, the head of consulting firm APCO Worldwide’s China business.
Numerous U.S. multinationals grew stronger in China even as the broader Beijing-Washington relationship crumbled during the Trump years of trade war and efforts to pry apart the two economies.
Walmart Inc. began a major China expansion in 2019. Starbucks Inc. opened over 500 Chinese stores last year. Comcast Corp.’s Universal Studios pressed ahead with building a $6.5 billion Beijing theme park, which opened in September.
In some cases, Honeywell has advanced in China in areas that might have proved controversial back home.
A decade ago, it helped Huawei Technologies Co.—now subject to U.S. sanctions—build three gas pipelines linking western China and Central Asia. Building on that partnership, the two companies said in 2017 that they would collaborate globally on smart-building technology.
It also set up a branch in Xinjiang, where the rounding up of Uyghur Muslims in camps has prompted severe U.S. sanctions. In one of its deals there, Honeywell agreed in 2017 to supply security services with protective equipment.
Honeywell has since wound up both its Huawei and Xinjiang activities for commercial reasons, said Mr. Tedjarati. No U.S. or Chinese officials have ever told him the company should do, or should avoid doing, specific things in China, he said.
The company has also openly supported China’s Belt and Road Initiative, an ambitious global infrastructure program that is viewed with suspicion in the West, and has run a program to help Chinese companies expand abroad.
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 petrochemicals facility in Brunei.
It is becoming harder for multinationals to avoid controversy. “What looks good in China may look bad in the U.S. It’s a minefield," said APCO’s Mr. McGregor.
“There’s one bipartisan issue in Washington right now, and only one," he added. “The idea that China’s a bad actor."
As an industrial supplier rather than a consumer company, Honeywell is relatively insulated from the kind of public backlash that has hit foreign brands including Burberry, Hennes & Mauritz AB and Tesla Inc. in China in recent months, though in 2019 it appeared in jeopardy when the People’s Daily, the Communist Party’s official news outlet, named Honeywell as one of several U.S. companies that faced possible blacklisting by Beijing over U.S. arms sales to Taiwan.
Honeywell, which had supplied engines for tanks, protested that it had delivered equipment directly to the US government and had no control over the Taiwan deal. It was omitted from a subsequent list of sanctioned US defense companies that China published a year ago.
Honeywell has generally managed to retain its status as a kind of corporate exemplar in both countries.
When he toured a Honeywell plant in Phoenix in May of 2020, former President Donald Trump praised the company for making face masks on U.S. soil. That same month, China’s premier spoke highly of Honeywell after it opened a new research-and-development facility in Wuhan, helping the city normalize several months after the outbreak of the Covid-19 pandemic.
“I shouldn’t do any commercial promotion for any company," the premier, Li Keqiang, said in his once-a-year press briefing. “But I highly appreciate this move."
Honeywell was a peripheral player in China when Mr. Tedjarati, previously a consultant for Deloitte, first took charge.
On his first day, “I got into the office—there was about a half inch of dust on my desk," Mr. Tedjarati recalled. That air of neglect extended to the bottom line: Honeywell’s local revenues were barely budging at a time when the Chinese economy was growing at 10% or more a year, and “nobody knew if we were profitable or not," he said.
Managers were targeting only a small share of the China market and the company was plagued by knockoffs. One Honeywell unit, Garrett Motion, which produced vehicle turbochargers, was being especially targeted by Chinese copycats. “In 2004 we had 100 Garrett look-alikes, we had Carrett, Farrett, Parrett, Tarrett—you name it," he recalled. “All at 40% of our cost and 50% of our capability. And they sold well."
Mr. Tedjarati decided that rather than resorting to the standard practice of legal action, Honeywell would instead copy the copycats.
He saw that local rivals weren’t just mindlessly replicating Honeywell’s technology; they were producing local versions in response to feedback from Chinese businesses that bought the equipment. “I realized those guys would go and sit with the clients," Mr. Tedjarati said. “We would do desktop research; they had a desk at the client’s factory."
So Mr. Tedjarati asked his local team to develop a no-frills version of its turbocharger that was roughly half the price of the company’s global equivalent. It was disastrous for the imitators. “Of those 100 local players, only three survived and they became our suppliers," he said.
Such experiences led Honeywell to stop viewing China as an outsourcing base, but rather as a market in its own right. Mr. Tedjarati began benchmarking Honeywell’s performance against Chinese rivals, rather than against other multinationals. “We studied the locals and we said we’re going to do better than them," he said. “The company became energized."
Overhauling Honeywell’s sales team was another urgent task.
Salespeople were put through a rigorous recruitment process, but most interviews were conducted over the phone by American executives. “So naturally, the people who made it were the ones with 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 U.S. executives 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 sour U.S.-China ties, though he doesn’t think multinationals’ heyday in the country is over. Provided both American and Chinese politicians focus on the benefits of cooperation, U.S. companies that stay committed to China can still reap huge rewards, he said.
U.S. companies have a significant role to play in helping China to address societal problems, he argued. “China’s climate challenge is huge," he said. “China’s food-security challenge is huge."
He also dismissed criticism that U.S. companies should refrain from supporting strategic programs like the C919 jetliner. There’s no stopping a country of China’s scale from building its aerospace capabilities once it chooses to do so, he said, and U.S. companies should participate and share in the rewards rather than excluding themselves on principle. That is safe so 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, Mr. Tedjarati said.
He said that while Honeywell’s success in China may have benefited the Chinese, the biggest winners have been its mostly American shareholders. “We went from a $20 billion market cap to a $160 billion market cap, and China played a big role in that," Mr. Tedjarati said.
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