Great Leap into China

Type of business: Producer of telecommunications-access systems
Founded: 1991
International start: 1991
Rationale for expanding overseas: Opportunity to reach a vast Chinese telephone market

In 1990, Hong Lu sold his California-based laser-printer distribution business and decided to travel. For his destination he chose China. Though he had been raised mostly in Japan and educated as a civil engineer at the University of California at Berkeley, Lu had been born in Taiwan. Visiting mainland China would take him to the land of his ancestors and allow him to scout out its business climate.

Selling in overseas markets wasn't foreign to Lu. Though his distribution company had worked only within the United States, Lu had done extensive business in Japan--he had previously owned a Berkeley-based software-development company that had a market there. His China trip took him to Shenzhen, a city near Hong Kong then undergoing exponential growth. (Since the mid 1980s, its population has zoomed from 100,000 to 3 million.) There Lu thought perhaps he'd discover the inspiration for his next venture. "It was very eye-opening," he recalls. "I never thought China was so lively. Everyone seemed happy, very busy, full of energy, walking quickly, riding bicycles, smiling, hurrying to do something."

But the monumental bottleneck, Lu learned, was a woefully inadequate telephone infrastructure. "China had only five or six digits for telephone numbers," he says. "If you wanted to make a call from Beijing to Shenzhen, you'd have to hire a secretary to keep dialing until the call went through or call people at lunchtime or at home at 10 or 11 at night." Back in the states Lu found 10 engineers at Bell Labs who were eager to join him in starting a business. The company, initially called Unitech Telecom, was first based in Oakland, Calif., and later moved to Alameda, Calif.

But where exactly to enter China's vast market? Lu first tried the bustling city of Beijing, only to discover that he was completely overshadowed by such already dug-in giants as Lucent, Siemens, and Motorola. "We were nobody--too small for people to pay attention to us," he says. In 1993 he shifted his focus to Hangzhou, a midcoastal city with 30 universities and a population of one million. Hangzhou offered plenty of customers, an educated workforce, and, Lu figured, less red tape to hinder him in selling telecommunications-access equipment and services to government-owned phone companies.

In 1994, the company's first full year of production, Lu sold $4 million worth of equipment, nearly all of it to China. The next year, Unitech Telecom merged with Starcom, a telecommunications-software company founded by two U.S.-educated Chinese immigrants. The consolidated company, named UTStarcom (#34), has research-and-development offices as well as manufacturing facilities in China. Of its 850 employees, 700 work in China. The rest, save for a lone employee in Israel, are located in the United States.

Western-based companies like Lu's have helped China take a major leap forward. In this decade alone, thanks to its technological advances and unquenchable market, China has created a telephone system equal to that built in the United States over the past 100 years, Lu says. The booming market helped UTStarcom generate revenues last year of $165 million, 95% of which came from China, where Lu now spends half his time.

Straddling Time Zones

Type of business: Business and technology consulting
Founded: 1991
International start: 1998
Rationale for expanding overseas: Source of cheap, reliable labor

If you'd told me that the first television interview I'd do would be translated into Hindi, I would have laughed in your face," says Tom Finegan, CEO of Clarkston-Potomac Group (#256). But such surprises have caused Finegan to redefine himself as a global entrepreneur ever since his business and technology consulting firm, based in Durham, N.C., expanded into India in February. The 30-employee office that Clarkston-Potomac has in Mumbai (formerly Bombay) wasn't opened just to tap another market for the company's services. Its purpose is more ambitious: holding down labor costs and improving service for its American customers.

The story of Finegan's foray into India began in mid-1998, when he traveled to Mumbai on behalf of Dow AgroSciences. Pleased with Clarkston-Potomac's work in the United States, Dow AgroSciences had hired the consulting firm to do more of the same in India. Finegan soon confirmed what he had already heard: high-tech companies like Microsoft, Cisco Systems, and Siemens were opening offices on the subcontinent and sending some of their technical work overseas. The reason was instantly clear: labor costs to drool over. In India highly skilled engineers and programmers were paid as little as $15,000 a year including benefits--about one-fifth the U.S. rate.