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Asian Crisis Helps Electronics Co.

January 22, 1998

LOS ANGELES (AP) _ As economies in East Asia have plummeted, prospects for Brendan Chen’s young electronics company, Emax International Inc., have soared.

Benefiting from a sharp drop in the cost of imported components, Chen expects sales of Emax’ point-of-purchase computer equipment to jump 50 percent during 1998.

At Hirsch Pipe & Supply Co. it’s a different story. Asia is a key export market, and buyers there already are canceling orders or demanding big discounts.

``We do our best to accommodate our customers, but I just can’t sell on the amount of discounting they want and remain profitable,″ said Greg Mariscal, Hirsch’s managing director for international sales.

For importers like Chen, the Asian financial crisis has created a bonanza of lower costs and higher profits. But for exporters, it has created a dilemma. Should they try to wait out the crisis, or focus on developing new markets in Latin America, Europe and the Middle East?

It’s still too early for reliable statistics on the impact of the Asian crisis on export trade. To those who are in the business, however, it is clear that many American companies already are selling less to Asian countries.

Cargo ships bound for Asia from the ports of Los Angeles and Long Beach, the nation’s busiest harbors, are leaving with partially empty holds, said Jay Winter, executive director of the Steamship Association of Southern California. Hardest hit, he said, have been bulk commodities such as grain, hay pellets and wastepaper.

``These products generally deal on thin margins. As soon as you take a big jump in price to the buyer, suddenly the customers can’t pay. They can’t afford them,″ he said.

Asian customers must pay more because of currency devaluations that have made the Thai baht, Indonesia’s rupiah and other Asian currencies worth less in relation to the dollar. Asian banks and businesses that borrowed dollars during boom years also have been hurt because it now takes more local currency to pay off the loans.

At Hirsch Pipe, in surburban Van Nuys, sales of pipe and bathroom equipment to Asia have comprised about 75 percent of all international sales, which in turn make up 10 percent to 15 percent of the company’s $30 million in annual sales.

Hirsch said he hopes to compensate for lost sales with a search for new markets in Latin America, Eastern Europe and the Middle East. But he is skeptical any of those markets can replace the booming business Hirsch has done in Asia in recent years.

``These people (in Asia) have been willing to pay for American quality and designs. I don’t feel that specifically is the case in South America, Latin America and Eastern Europe,″ he said.

Others hope to wait out the crisis and bear whatever losses it brings.

Bruce Groefsema, senior vice president for sales at Calcot, said the Bakersfield cotton growers’ cooperative expects to lose some sales. But new letters of credit for South Korean buyers will help keep losses to a minimum, and might even result in a boost in business with Korea.

Another big customer, Indonesia, buys U.S. cotton primarily to produce textiles for export. So far, customers there have been willing to pay higher prices for high-quality cotton in order to keep their export industry alive, Groefsema said.

Asian customers buy about 75 percent of the 2.2 billion bails of cotton produced annually in California, and Groefsema said he doubted new markets could be developed quickly enough to offset any potential losses.

The same market forces that have created problems for Mariscal and Groefsema have yielded a windfall for Chen’s Emax. Based in suburban Santa Fe Springs, Emax was launched in 1992 as a subsidiary of the holding company Imperial Pacific. Emax employs about 20 people at its headquarters, but has about 230 more at other U.S. locations and overseas.

Because he pays about 50 percent less for components, he has been able to cut prices for equipment that is sold primarily in the U.S. and Europe to big retailers such as Kmart and Blockbuster.

``I’m buying even cheaper now. ... The profit is more than before,″ he said.

For example, South Korea’s Samsung is offering to sell Chen display modules, a key component, for less than half the price he has been paying to Japan’s NEC Inc.

``Used to be when I wanted to buy something at a lower price, they were not willing to cooperate, but now they are really after me,″ he said. ``The attitude is very important, their willingness to cooperate.″

Chen also is hoping to expand by buying factories and other real estate offered at big discounts in hard-hit Asian countries including Indonesia, Malaysia and South Korea.

``Before the government policy, with someone like South Korea, they didn’t welcome you to buy them, but now they have to open it, and it’s cheaper, much cheaper,″ he said.

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