Industry Watch

MadeSmart CEO Devee Joy

A friend in China

How a local accounting firm helps Minnesota companies navigate the Middle Kingdom

By James McManis

Nobody said outsourcing to China was easy or risk-free. MadeSmart found out the hard way just how perilous it can be. Based in St. Paul, the company sells organizer products sold at retailers such as Target, Bed Bath & Beyond, and the Container Store.

A while back, the factory it had teamed up with in China failed repeatedly to meet its deadlines, and other issues cropped up. After MadeSmart sought to move production elsewhere, the original factory refused to return its molds and tools.

Luckily, MadeSmart CEO Devee Joy found an ally in Minneapolis that was able to retrieve the property: Lurie Besikof Lapidus & Company, a local accounting and consulting firm founded in 1940. With about 140 employees (all working in the same office building) the firm seems an unlikely place to find a China-savvy partner. Yet its China Strategies Group is just that.

The group, founded in 2003, started as a collaboration between Joel Lebewitz and Dr. Hong Yang, who met the same year. Lebewitz is a Minnesota native who's spent nearly 40 years at LBL, where he's a partner. He's also an alum of the University of Minnesota and the William Mitchell College of Law.

Yang is a native of Leshan, in the Sichuan province of China, where he taught chemistry at the university level before coming to the States in mid-'80s. From 2000 to 2006, he served as the director of the China Center of the University of Minnesota, during which time he advised local businesses about forming partnerships and exchanges with China. He was also instrumental in 2003 in the establishment of LBL's China Strategies Group.

While at the university, he also established the Mingda Institute for Leadership Training, which brings Chinese government officials and business leaders to Minnesota for two weeks to six months of leadership training. During their time at the center, Yang built relationships with these students, many of whom, after they returned to China, gained influence in their local communities.

Over the years, Yang's relationships from the institute grew into a network of thousands of useful contacts in China. "They value my skills and also honor my reputation and my background, so that's very important," he says. "Because of the connections, people basically listen if I make the call."

In 2007 Yang left the China Center to become vice president of Asian operations for Griffin International, a Minneapolis-based consumer electronics manufacturer. In 2011 he started JJY International, which is based in Shenzhen, has about a dozen employees, and offers sourcing, product development, and factory and logistics management. He now spends about 75 percent of his time in China and the rest of it stateside.

For its part, LBL was looking for a way to differentiate itself with a new service. "We wanted to be an accounting firm doing something different, to help businesses make money," recalls Lebewitz. "We thought that with Hong as our colleague, we could do that in China."

Today, China Strategies primarily assists small and midsize businesses  most in Minnesota  in utilizing China's immense market and diversified manufacturing capabilities. Its clients hail from a wide variety of sectors. Some, like MadeSmart, import molded plastic goods. Others import textiles, circuit boards, or medical supplies. Lebewitz estimates that 85 to 90 percent of the practice's clients are based in Minnesota and that China-related activity now accounts directly or indirectly for about 15 percent of the firm's business.

On behalf of LBL clients, Yang and his team can meet with local officials in China and develop plans for joint ventures with local factories. They can also create competitive factory situations for companies looking to outsource production. To this end they employ a dual-agent strategy whereby, independent of each other, two separate agents run the price for a particular product. This approach can cut costs by 15 to 30 percent.

China Strategies can also step in to take care of any problems that occur on the ground, which is what it did for MadeSmart. "Of all the firms, we're probably the only one that will even attempt, much less really get involved in, troubleshooting if something happens," says Lebewitz. In the MadeSmart case it used local contacts and law enforcement to recover the molds.

As for MadeSmart, its mishap taught it two main lessons about working in China, says Julie McAdam, the company's chief financial officer. First, don't try to fight with a factory if it is not performing up to standards. Second, use a dual-agency system, which gives a company the option to silently discontinue doing business with a manufacturer or distributor that is not meeting expectations. (It's also a good Plan B in the case of a natural disaster.)

For Lurie Besikof Lapidus & Company, starting the China Strategies practice has paid off. And word is getting out. Lately more local companies that contact the practice are interested in selling and distributing their goods  whether manufactured in Minnesota or the Middle Kingdom  to the increasingly well-off population of the world's second-largest economy.

After all, just as the well-connected practice can help small to midsize companies find suitable manufacturing partners in China, it can also help them find effective distribution channels  or, should the need arise, get them out of a jam.