The news that China was granted permanent normalized trade relations may encourage more local firms to consider the world’s largest market but it didn’t mean all that much to San Diego-based Cubic Corp., which has been doing business there since the mid-1970s.
The high-tech firm’s Transportation Systems division first won a contract to set up an automated fare collection system for the Hong Kong Mass Transit Railway in 1975, over stiff competition from similar transportation companies in Europe and Japan.
Since then it has won contracts in Guangzhou and Shanghai, two of the largest cities in China, and is bidding on new contracts involving the expansion of those transit systems as well as for new mass-transit systems planned for other Chinese cities.
The company’s success in winning those contracts and gaining additional business in upgrading the systems didn’t happen by accident and was the result of prolonged investment in the region by Cubic.
“We do this pretty much everywhere where we have a lot of business,” said John Hughes, vice president of Cubic Transportation Systems. “We always try to put a large local facility where we intend to be for the long-term , 10, 15, 20 years, and then staff it with local people.”
Since establishing its beachhead in Hong Kong nearly three decades ago, Cubic has maintained an office there and employed between 20 and 50 people, nearly all of whom are native-born Chinese, Hughes said.
– Presence Fosters
Trust Among Leaders
Cubic’s presence over time has been helpful in earning the respect and trust of Chinese business leaders who make the decisions on awarding multimillion-dollar infrastructure contracts such as the ones on which CTS has bid.
“In China, more than most countries, things are done on a personal level,” Hughes said. “They take a little while to build that trust, and once that trust is developed, and you don’t break that trust, you have a very good working relationship.”
In the mid-1990s, CTS built up sufficient trust and proved its expertise to the Chinese to win contracts to install automated fare collection systems for the transit systems built for the cities of Guangzhou (formerly Canton) and Shanghai. Together the contracts were worth in excess of $50 million, Hughes said.
While personal relationships built up over the years gave Cubic more understanding of what the Chinese wanted and what their competition was offering, the biggest factor that helped the firm was CTS’s track record with installing automated fare collection systems in some of the largest transit systems in the world, including New York City, London, Chicago, and Washington, D.C.
“They wanted to go with a company that was going to succeed, and they were prepared to pay a premium for making sure they got the best system,” Hughes said.
Before awarding the contracts for the new transit systems, Chinese officials made numerous trips to Hong Kong and Singapore to inspect what CTS had done in those cities.
– System To Improve
Mass Transit Access
Today, CTS is working on a project to integrate a “smart card” system into the existing Shanghai fare system. Working with several Chinese companies, CTS is helping implement a system that will allow riders easier and more efficient access to all manner of mass transit available including trains, buses and ferries.
The technology permits riders to pass a microchip carrying card across a computerized reading device, automatically subtracting the price of the fare, letting them move quickly through turnstyles. This is especially important in a major city such as Shanghai with a population of about 12 million, most of whom depend upon relatively inexpensive trains and buses for getting around.
CTS first introduced the smart card technology in London in 1989, and provides it to Washington, D.C.’s Metro, the first transportation system in a major U.S. city to have it.
Cubic isn’t doing all the work on Shanghai’s smart card system. The municipal corporation that operates the rail line awarded the contract to two Chinese companies, but Cubic has been retained through a $1.8 million contract to design and deliver the software and reader technology that integrates the existing system into the new one, allowing for use of both.
The awarding of some aspects of the smart card system contract to Chinese firms is a trend that has been occurring in recent years, reflecting the desire by the Chinese to reduce costs while creating more jobs for its residents.
– Bid Involves Large
Amount Of Local Input
Earlier this year, Shanghai officials controlling the rail system told CTS that for the next fare collection contract for Line 2, they expect the winning bidder to provide 70 percent of that bid through local purchases or production.
Hughes said the bid, which will be at least $20 million, may involve forming a partnership or joint venture with one or several Chinese firms. Although the exact type of arrangement hasn’t been decided, it’s clearly a departure for CTS, which has supplied the parts for the past systems.
The reason China has changed the rules on bidding have much to do with money. The nation doesn’t want to spend international currency on importing goods, Hughes said.
Instead, the Chinese are forcing foreign companies to transfer their technology to Chinese partners. Earlier this year, Qualcomm Inc. announced it had a framework agreement to supply its code division multiple access, or CDMA, technology to Chinese manufacturers. However, recent pronouncements by Chinese telecommunications officials concerning a different type of wireless technology have seemed to put the kibosh on that agreement.
While Cubic officials say they aren’t enthralled with the idea of technology transfer, they are looking to find a way to continue winning contracts in China. The payoffs are too large.
The plans for Guangzhou is to expand to at least seven lines in the coming years, while Shanghai has plans to add at least nine lines to the existing two.
– New Rail Systems
Planned Over Years
In addition, the government has five-, 10-, and 20-year plans in place to build new rail systems, all of which would include automated fare collection systems, for the nation’s largest cities.
“We anticipate there is about $500 million (in potential contracts) over the next 10 years,” Hughes said.
That’s a significant amount when considering Cubic’s overall sales for fiscal 1999 was $511 million, up from $414 million in the previous fiscal year. For the most recent fiscal year, some 60 percent of the revenues were generated from CTS. Cubic’s other division, Cubic Defense Systems, which manufactures military communication and surveillance systems, provided the other 40 percent.
While the number of new employees for CTS hasn’t increased that much because of the Chinese contracts, that could change if Cubic continues to win future contracts or add on to existing ones, said Cubic spokeswoman Kelly Williams.
Cubic Corp. has about 3,000 employees, nearly evenly divided between CTS and Cubic Defense, the company said.
