Grey2White Initiative

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(Article Reprinted by Popular Demand)

Hypothesis:

Given Ukraine’s current economic and geopolitical situation, one of the most beneficial  steps the US government, business and NGO community can take, is to encourage significant external and internal direct investment into the country’s economy.

Although the US Government has had some success in attracting and supporting American direct investment into Ukraine, those investment amounts are far from sufficient. US investors new to the Ukrainian market are wary of the country’s reputation for corruption, difficulty in doing business, threats from Russia and lack of financing options.

A second and much more viable economic development option, would be to support and enable direct investment by the successful Ukrainian business people who have amassed sufficient capital and are much more comfortable and adept in investing in their home market.

One problem with pursuing that option are high Western standards, which often preclude US government development agencies and public US investors from working with this potential class of investors.  This is due to the fact that for the last twenty-five years, practically all business people in Ukraine had to operate under a certain set of conditions widely considered “grey” and in many cases “black” in the West.

Some of these “grey” conditions are lack of financial transparency, inadequate corporate governance, use of yellow press, use of cash, as well as offshore accounts to conduct operations, bribery and use of adverse political influence.

In their attempts to succeed, some folks in Ukraine went beyond previously acceptable business norms and crossed the proverbial line even further by engaging in criminal “black” behavior – graft, extortion, corruption, tender rigging and illicit drug trade.

To date, these grey conditions have presented significant challenges for the IFIs, development agencies and regulated financial US investors. Yet, it is vital to recognize the necessity to find an acceptable solution that allows Ukraine’s economy to reap significant benefits from the anticipated increase in direct investment and low-cost, long-term financing.

It is also very important to understand that the proposed Grey2White (G2W) initiative aims to broaden and scale up very important development and capacity building work already undertaken over the last quarter century by IFIs, such as IFC and EBRD, USAID; development agencies such as OPIC and USTDA and financial investment communities. Those initial efforts, although quite effective, focused on a relatively small sample of Ukrainian companies and were undertaken during a different stage of the country’s development.

Initiative

The G2W initiative will only work with those companies and individuals, who will be able to create meaningful economic impact in Ukraine, after undergoing the conversion process.  G2W will not in any way target those convicted of the “black” behavior, as their reputation gap is un-bridgeable within the scope of the project.

Thus the question becomes, is it possible for US stakeholders to create an environment and a broad platform from which so-called “grey” Ukrainian businessmen seeking to utilize US financing, equipment, services and franchises, as part of their major investment programs, become “bankable” under Western standards? If the answer is “Yes.”This type of conversion will provide hundreds of millions, if not billions of dollars in direct economic benefit and enhanced geopolitical security to Ukraine and the US.

If the answer is “No,” these businessmen will either be forced to forgo the planned capital investments, or seek alliances with other grey, or black global actors in countries like Russia, China, Brazil, Iran, etc.

It is the fundamental belief by the creators of the proposed initiative that given a concerted effort by the US and Ukrainian stakeholders to develop and implement realistic procedures to increase corporate transparency, introduce financial standards, address any existing reputation issues head-on and provide reputable outside management and board oversight, it is possible within short to medium time-frames to bring these so called “grey” businessmen and their respective projects up to elevated western standards, mitigate investment and reputation risks and affect substantial economic growth in Ukraine.

Thus we hereby propose the following:

Select three-four financially viable projects sponsored  the “grey” Ukrainian actors and use them as a pilot to develop, refine and implement an effective conversion strategy to bring that project up to acceptable Western standards.

From the government side, we propose to involve the US Commercial Service, USTR, US Embassy, Ukrainian Embassy, Cabinet of Ministers of UA, members of the US Congress focused on UA issues, OPIC, regional Governors and local administrations in Ukraine, IFC, USTDA and the US EXIM Bank (when that Agency resumes its activities in Ukraine).

Among the NGO stakeholders we would like to see US-Ukraine Business Council (USBC), AMCHAM, Transparency International, Freedom House, Atlantic Council and US Ukraine Foundation. Additionally, reputable international law firms, audit firms, press, appropriate private individuals, corporate off-takers, financial market regulators, as well as relevant providers of US goods and services should be involved.

The framework of the proposed initiative shall be as follows:

  • Initial Sponsor/Project assessment and preliminary due diligence
  • Project selection and stakeholder awareness and involvement
  • Project G2W Team building (attys., directors, advisers, auditors, suppliers, investors etc.)
  • Full due diligence and implementation plan for the Western financial, FCPA and governance standards
  • Investor cultivation and underwriting of the financing package
  • Project development and implementation
  • Monitoring and compliance

To kick off the proposed initiative, we propose an intensive education and awareness-building campaign designed to simultaneously involve all the stakeholders.

After the initial buy-in into the initiative is secured, work will begin on developing the pilot projects.

During the pilot project phase, the G2W pilot project team will be seeking to achieve specific and tangible goals:

  • Fully assess the existing reputation risks, possible political influence issues, suitability for OPIC/IFC financing and Political Risk Insurance for the US project participants
  • Prepare a legal due diligence report by a world-class law firm
  • Recruit highly reputable and competent outside board members to the Project’s Board
  • Design a comprehensive PR/IR strategy to inform stakeholders of the project and its ongoing developments
  • Design and implement transparent financial audit, reporting and management accountability standards
  • Develop ways to tangibly measure economic effect of the pilot project
  • Continue to promote the initiative and seek to move it from the pilot project phase to full-blown implementation.

(to be continued)

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Broad Street Capital Group’s new assignments in Ukraine total over $300 million

Ukraine - Proprietary Fi180 Country Profile - page 1 of 4(June 15th, 2016, London, UK)  Broad Street Capital Group announced today that it will act as the Financial Developer and Exclusive Financial Adviser on two complex, high-profile financing assignments in Ukraine. The underlying projects for these assignments deal with Ukraine’s energy security, food security and infrastructure development.

In the first assignment, Broad Street Capital Group , will serve as the Project’s Financial  Developer, and will be part of a mandated financing consortium, which will consist of a major banking institution, a Development Agency of the US Government, a US lending trust and an internationally renowned law firm.  The financing consortium will evaluate and structure a cutting-edge $250 million capital markets transaction to finance US supply and construction contract to build a national energy safety facility to be located in the Kyiv region of Ukraine.

In the second assignment, Broad Street Capital Group will serve as the exclusive Financial Adviser, whose role will be to secure up to $75 million in long-term debt financing, provided by a development agency of the US Government.  The funding will be part of the financing required to develop and construct a major grain terminal in the Odessa region of Ukraine.

“We are delighted to serve as financiers for these two cutting-edge projects” stated Alexander M. Gordin, managing director of Broad Street Capital Group. “Our assignments should serve as catalysts and spark broad-based financing of worthy infrastructure projects. The financing climate in Ukraine has been extremely challenging over the last few years, but despite continued difficulties, the prognosis is quite optimistic. We look forward to being part of Ukrainian financial renaissance, as that country rebuilds itself and finds a way to regain its economic footing.”

 

About Broad Street Capital GroupWP_20130620_022

Based in the World Trade Center’s Freedom Tower in New York City’s financial district, Broad Street Capital Group is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. The Firm focuses on arranging project financing in the $50-500 million range, providing political risk mitigation, export management services and cross-border market development advisory. Although the Firm has clients ranging from Bangladesh to Oklahoma, its primarily geographic focus is on the countries of Eastern and Central Europe and Central Asia.

The  firm works closely with all trade and development agencies of the U.S. Government and Export Credit Agencies of several European and North American countries.  Since its inception, Broad Street Capital Group has been involved in several high-profile cross-border transactions in IT/telecom, aerospace, healthcare,  energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory portfolio exceeds $675 million.  For more information, please visit www.broadstreetcap.com, or contact Rustem Tursynov at info@broadstreetcap.comBroadStreetCapitalGroupServices_Page_1

Export Champions!™ With help of cutting-edge financing, four small and mid-size US companies are poised to export over $525 million of goods and services!

With the help of cutting edge financing, four small and mid-size US companies are poised to export over $525 million in just three individual transactions! 

Fi3E Badge(April 23, 2015, Washington, DC) During US EXIM Bank’s Annual Conference, Export Champions!™, a new program, which allows small and mid-size US manufacturing companies to vastly boost their export sales by utilizing cutting-edge export credit and capital markets financing for international opportunities, was announced by the Broad Street Capital Group.

Using actual case studies of the three US companies, whose export revenues from just three projects total over $525 million, as the result of their foresight to deploy financing techniques traditionally reserved for large companies and mega projects,  Broad Street Capital Group and representatives of various US Government and private trade and project financing institutions, will empower other US small and midsize companies to successfully compete for large export business opportunities.

“Today, we are witnessing a paradigm shift in the way US small and mid-size companies are able take advantage of sales opportunities, which are two or three times their annual revenue.” said Alexander Gordin, Managing Director of the Broad Street Capital Group. “The key, is a carefully structured project, which is developed with specific long-term, low-cost financing solution in mind from the beginning” said Gordin.

The Export Champions! program will offer monthly half-day web based programs and live training events to help companies learn:

  • which foreign markets and buyers to target,
  • how to correctly develop a financeable transaction,
  • which financing tools and programs to utilize,
  • how to put together a correct team of advisers,
  • utilizing external economic and political factors to gain an advantage,
  • how to mitigate risks along the entire transaction life cycle

The first Export Champions! event to take place in New York on May 8th.  Companies seeking to boost their international sales opportunities should send their inquiries to info@broadstreetcap.com , or call  + 1 212 705 8765 ext 702

About Broad Street Capital Group

Based in the heart of the New York City, Broad Street Capital Group is an international private merchant bank with extensive experience in developing and financing exports and infrastructure projects in emerging markets. The firm works closely with a number of international Export Credit Agencies, as well as with all trade and development agencies of the U.S. Government.   For over 25 years, Broad Street Capital Group has successfully served a broad array of private and state-owned clients in multiple countries and has been involved in several high-profile cross-border transactions in energy, IT/telecom, aerospace, healthcare, hospitality and franchising sectors. The firm’s hallmark is its proprietary Develop, Finance, Supply and Insure™ approach to help clients achieve their international business goals For more information, please visit www.broadstreetcap.com

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Maintaining Export Advantage in the Face of a Rising Dollar: Part 2

The path to becoming competitive in the international export space.In my previous post, I outlined the first two steps of the five-step framework that would enable U.S. exporters to maintain their competitive edge in the face of rising U.S. dollar, which makes all U.S. goods and services more expensive abroad. Those first steps were to recommit to exports and expand markets served.

Below, I describe the remaining three steps: READ MORE

Broad Street Capital Group announces major expansion campaign

Broad Street Capital Group announces major

expansion campaign to meet surging demand for

its ExportBoost™ program.

18 Merchant Banking Offices to open in multiple countries

in the next 18 Months

 

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“FLY ME TO THE MOON” Ukraine-USA Air & Space Forum Invite

 

Alert! An International Business Development Opportunity

Do Not Miss one of the most anticipated Air and Space events of the year, as a high level delegation led by the Deputy Chief of the National Space Agency of Ukraine, presents Ukraine’s capabilities in the Air and space Arena and discusses cooperation options with US companies.  Register Today!

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TurboBoosting American Exports – Disruption of The World’s Second Most Ancient Profession

ExportBoost™ dovetails with the NEI/Next Announced By Hon. Penny Pritzker, The Secretary of Commerce

By: Alexander Gordin

International trade is thought to have its roots in 19th century BC with Assyrian merchants. Over centuries the business of exports  changed dramatically with evolution in transport modes,  advent of incoterms, standardized shipping containers and  computerized customs clearance. Yet for all the progress and record $2.3 trillion amount, exports in the US still remain a complex and not terribly efficient process.  Multiple players involved in exports are still largely silo(ed). Even at large companies export related functions like international sales, legal, shipping, banking, financing and insurance often have difficulty communicating with one another. Concepts such as international payment protection mechanisms, US content policy, or US flag shipping requirements are often misunderstood.

Generally, business approach to managing export transactions is reactive, rather than proactive. Situation is even more difficult in small and mid-size businesses where resources are significantly more scant. A relatively small percentage of businesses export. Of those that do, a large portion exports to only one country. Expanded exports of goods and services represent amazing possibilities not only to help companies grow their profits and shareholder returns, but also to benefit our nation’s economy by creating new jobs and generating additional tax revenues.

President Obama’s National Export Initiative has served as a catalyst to spur job growth and along with general economic recovery led to a resurgence of manufacturing activity. More needs to be done, and companies should focus on exports as a fundamental part of their business activities, rather than an afterthought. The entire export ecosystem is ripe for disruption and entry into the technological age. I can envision a day in the very near future when shipping containers of foodstuffs, plane loads of licensed computer equipment, dozens of Ro Ro tractors, or construction cranes will be as simple as buying individual items on eBay or Amazon.  Of course handling export transactions is infinitely more complex and requires signed multilingual contracts, letters of credit, export credit and freight insurance, licensing, quality inspections and complex shipping arrangements. Thus the disruption process that is being put in  place needs to account for the nuanced complexity that characterizes exports.

Fi3E BadgeA week ago the world witnessed the first step in this transformation. ExportBoost™ – a new curated service guaranteed to help small and mid-size companies to at least double their present exports in 18 months – was  recently unveiled  by the Broad Street Capital Group (“BSCG”) at the Annual Conference of the Export – Import Bank of the United States (“US Ex-Im Bank”). Specifically developed for US manufacturers and distributors with revenues of between $5 and $750 million and for providers of professional services , ExportBoost™ uses proprietary export building methodology and tools such as: Fi3E™ Export Indices, XPORTINSURE™, FinanceABLE™ and EZShip™  to greatly simplify export operations and mitigate international business risks. ExportBoost™ was designed to help small and medium companies who are either experienced exporters, or just looking to start their international expansion to significantly grow their exports.fi180_cover

ExportBoost™ service has two tiers – one where the exporter is guided by the Broad Street Capital’s professionals and implements the program internally and the second where Broad Street Capital Group implements ExportBoost™ on its client’s behalf. In either case, the clients will be offered a unique guarantee, should they follow the program and their exports do not at least double in 18 months, Broad Street Capital Group will refund all the fees paid by the clients for the ExportBoost™ service. ExportBoost™ is the first product of the very ambitious project being developed by the Broad Street Capital Group and its partners to greatly streamline international trading operations. The project codenamed “Barbell” is scheduled to be unveiled at the Broad Street’s annual conference later this year.

Why Exports Will Help More American Businesses Thrive

Hon. Penny Pritzker, LinkedIn

American businesses are driving economic growth and creating good jobs through exporting.

The President’s National Export Initiative (NEI) has been a remarkable success:

The United States has had four straight record-breaking years of exports. We hit an all-time high of $2.3 trillion dollars last year – up $700 billion from 2009.
Nearly one-third of our economic growth since mid-2009 has been driven by exports.
Nearly 30,000 businesses have started exporting for the first time.
And most importantly, 1.6 million more Americans have export-supported jobs, bringing the total to 11.3 million – the highest in 20 years.
In addition, exports have been the driving force behind growth in communities across the country. In fact, exports account for nearly all of the post-recession growth in cities like Albuquerque, Youngstown, Detroit, and Kansas City.

Clearly, foreign demand for U.S. goods and services is helping American families gain economic security – buying more homes and cars, saving for college and retirement, or simply heading for a night out.

Each day, more Americans appreciate the fact that 95 percent of the world’s customers are outside our borders. Our trade partners want what U.S. businesses have to offer – from consumer goods to infrastructure products – and everything in between.

Yesterday, we unveiled NEI/NEXT – the next phase of the National Export Initiative. This is a data-based, customer service-driven initiative to ensure that more American businesses can fully capitalize on markets that are opening up around the world.

NEI/NEXT is focused on 5 strategies:

We will help businesses find their NEXT customer abroad.
We will increase the efficiency of a company’s first and NEXT shipment.
We will help firms finance their NEXT order.
We will help communities integrate trade and investment into their NEXT growth plans.
And we will open up the NEXT big markets around the world while ensuring a level playing field.
In a number of these areas, we are already making progress. For example, we are customizing our export promotion efforts through initiatives such as:

Look South, which is focused on maximizing the potential of our 11 free trade agreements in Latin America. Already, our Look South team has created more than 100 tailored guides that show where American products are in highest demand across the region – from auto parts in Honduras to medical devices in Colombia. Therefore, a company expanding into one Latin American market can expand into all 11 with only a little extra effort.
In addition, the Department of Homeland Security is spearheading the implementation of the “single window” by the end of 2016. This effort will enable businesses to use just one electronic platform to complete the forms needed by dozens of federal agencies. It also is smart regulatory reform that will streamline, simplify, and automate processes – saving government and businesses precious time and money. In a fiercely competitive global economy, there is no room for unnecessary delays at borders and entry points.
Also as part of NEI/NEXT, the Small Business Administration and the Export-Import Bank will equip more community banks to offer federal export-financing tools. Traditional credit is still hard-to-find for too many potential exporters – even for creditworthy firms with eager customers waiting abroad. Through NEI/NEXT, we will increase the number of partners in the financial industry who offer federally-backed working-capital loans, loan guarantees, and insurance.

Finally, the Administration will continue to advocate for an overall environment in which American exporters and their workers can thrive. In particular, we are encouraging Congress to invest more in infrastructure and to support trade agreements that reflect our values – such as the Trans Pacific Partnership.

For America to remain competitive, we need more businesses to see the success stories of companies like JWB Manufacturing, based in Tempe, Arizona. This firm produces blades for carpentry tools and precision machinery and our commercial service team helped them break into new markets. In fact, JWB now sells in 12 countries in every corner of the world – including Mexico, Malaysia, Brazil, and Australia – and exports now account for 40 percent of their business. Owner Jeff Barth recently told us that “there is nothing to fear in exporting outside our borders. My international clients have been nothing but gracious, and I encourage other small businesses to realize the power of exports to help their business succeed.”

Ultimately, NEI/NEXT will help create the environment in which more businesses of every size – and their workers – adopt that same mindset.

My commitment is that this Administration will continue to support American businesses as we roll out NEI/NEXT… as our exporters create even more good jobs… and as we continue to send the clear message that America is Open for Business.

Let’s get to work.

Photo: Pixomar/Shutterstock

How GE and IBM are Playing Global Development to Win

by Jonathan Berman, HBR BLOG

Most big corporations follow global development trends. Where there is economic growth, there is opportunity, and the companies that can predict where growth will take place are better positioned to take advantage of it. That is the reactive approach to economic development.

In the last few years, a more powerful dynamic has gained traction. CEOs are proactively engaging with emerging market government to spur economic development and create opportunities for their companies. In the fast growth markets of Asia, Africa and Latin America, national governments are responding to a more empowered citizenship, and looking for corporate partners to achieve their development goals. Companies that fill that need effectively are doing more than reacting to development. They are playing development to win.

General Electric is a good example. Four years ago, GE initiated a strategy to compete more effectively in Africa, one of the fastest growing regions in the world in terms of GDP. GE did more than take advantage of growth as it came. The company’s leadership moved proactively to accelerate it and shape it. “If we see a country where reward outweighs the risk, we want to invest,” CEO Jeff Immelt says in Success in Africa. GE spent months understanding the development priorities of countries where it planned to invest. Partnering with those governments, the company sought out discussions at the ministerial and head-of-state level to identify and work on the country’s most significant infrastructure challenges. The results are encapsulated in a “Country-Company MOU,” which describe key challenges the country faces and the role GE will play in helping meet them. For example, the two parties identified the challenge of national electrification and committed to work together to bring $10 billion of investment and 10,000 megawatts of new power online, along with local manufacturing and training. Emerging market infrastructure is a segment many Western companies have ceded to China, but GE is winning contracts because it is playing development to win.

IBM is doing something similar in data analytics. CEO Ginni Rometty took the top job in 2012, and identified Africa as a locus of technological growth early in her tenure. IBM identified a set of “Grand Challenges” facing the continent that could be addressed through superior data analytics, including water and sanitation, energy management, financial services, transportation, public safety, healthcare, and agriculture. Last month, IBM launched a dialogue with the government of Nigeria. It was co-hosted by the Minister of Technology and included ministers from the cabinet charged with meeting the Grand Challenges IBM identified. Rometty, on her second trip to the region in three months, led the session for the company. IBM is speeding the region’s growth, and helping shape its direction. That is playing development to win.

I recently spent some time with Bob Diamond, the former CEO of Barclays. Now head of Atlas Mara, he’s positioning the investment company to play development to win. Earlier this year, they raised $325 million in the public markets and this month acquired BancABC, a bank with operations in Botswana, Mozambique, Tanzania, Zambia and Zimbabwe. “Governments want banks who will lend to businesses and homeowners,” Bob explains, “That’s what we intend to do. The private sector is growing in Africa and we plan to enable that in multiple countries.”

Playing development to win does have costs. It requires an up-front investment of money and time to understand the growth challenges within each host country or region and to establish the government and civil society relationships needed to act on those challenges. It also demands senior management and board involvement. Companies playing development to win have CEOs traveling to the region 2-3 times per year, supported by engagement of the full management team. Furthermore, the returns on investment are long term. For a large company, it’s common to invest for a decade or more before shareholders see material earnings. The anticipated scale of new business has to be large enough to warrant that.

Playing development to win should not be mistaken for corporate social responsibility (CSR). Sustainability and core values support any great company, but expanding long-term earnings by meeting big development challenges takes more. At a company that’s playing development to win, business units are leading the effort, enabled by sales, marketing, finance, supply chain management, CSR, and social investment.

Some might see playing development to win as cynical or undermining the cause of inclusive growth. It’s neither. Cynicism would be to bet against development. The companies playing development to win need the institutions and policies with which they are engaging to yield tangible results. If the government of Nigeria fails to deliver widespread, low-cost power, the fallout for GE will be significant.

Playing development to win will be the hallmark of great companies operating in emerging markets. Over the next decade, they will be the companies addressing the most pressing challenges in countries where the potential for growth is ripe. As a result, they will shape the landscape in which they compete, attract and retain superior talent, build stronger brands and enjoy stronger relationships with customers in the fastest growing global markets.

More blog posts by Jonathan Berman

Develop, Finance, Supply & Insure – a winning merchant banking model for cross-border expansion

After 25 years in business we have developed a winning business model to help companies establish, or expand their business internationally . We then put our business model into a poem and that helped us distill and internalize it better. Can you express your business as a poem? If yes, submit your entry to agordin@fluentinforeign.com before 5pm April 4th, 2014 and the poem we judge to be the best, will be published in our upcoming Trade Week Special Edition in May.

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How to Sell Garbage Disposals in China

Emerson’s InSinkErator Rejiggered to Munch Kitchen Favorites Like Eel, Bullfrog Skin and Duck Heads


Emerson Electric hopes China’s housing market will open up for its kitchen disposals. Pictured, workers at its Racine, Wis., InSinkErator factory. Rob Hart for The Wall Street Journal

By JAMES R. HAGERTY, WSJ.com

RACINE, Wis.—About half of all U.S. homes have garbage disposals gurgling under kitchen sinks to grind up food waste. The rest of the world generally doesn’t share Americans’ enthusiasm for this gadget.

That’s a problem for Emerson Electric Co. EMR -0.15% ‘s InSinkErator unit, the world’s largest disposal maker, whose founder invented the device 87 years ago. The U.S. market for disposals, totaling about $1 billion at the retail level last year, is mature and slow-growing. Despite decades of overseas promotion by InSinkErator and others, the U.S. still accounts for more than three-quarters of global demand for disposals.

So InSinkErator has staked its growth hopes on China, where it sees big potential even though the product is almost unknown there.

“We are turning the dial up in China,” said Dave MacNair, vice president of global marketing at InSinkErator. The company in November 2012 opened a plant to make disposals in Nanjing, China, its only manufacturing site outside the U.S. It is pitching its product to the Chinese via online marketing and in-store displays, while working with home builders and local building-code and waste-handling officials to explain its benefits.

While browsing at Jiahe Jiamei Furniture City in Beijing recently, Wang Chao, an office worker, was skeptical about the disposals on display, costing 1,000 to 4,000 yuan, or $161 and $645. “I don’t know much about that,” she said, “and I’m not interested in buying one either.”

But James Liu, an antique dealer who studied in Britain, was interested in one to avoid blocked drain pipes and “disgusting” smells. “Not many of my friends have this at home,” he said.

So far, sales in China are tiny. InSinkErator won’t provide data but says sales are growing quickly—more than 30% a year—from a small base. The company is competing against several Chinese rivals, including Beijing Becbas Technology Co. and Ningbo Oulin Kitchen Utensils Co.

China is attractive partly because it has more housing construction than any other country. InSinkErator executives also believe the Chinese have a greater need for disposals because they eat less processed food than Americans and have more leftover vegetable peelings, fish bones and other items that can be ground up.

InSinkErator redesigned its disposals for the Chinese market, angling the grinding teeth differently so they could handle tough waste, including eel or bullfrog skin. The device also grinds more finely so leftover rice or noodles won’t clog pipes.

At InSinkErator’s labs in Racine, workers test disposals by feeding them with cow ribs and pinewood blocks. They also now test food more likely to be found in China, such as white radish (whose density presents challenges) and duck heads.

The technicians have found shark skin nearly impossible to grind up. Mango pits are equally tough. “They’re like nature’s Kevlar,” said Dane Hofmeister, a lab manager.

InSinkErator regularly seeks meetings with local Chinese officials to explain how disposals could reduce the amount of household waste that needs to be hauled away and buried in landfills. One victory came in early 2012 when the Shanghai Urban Construction and Communications Commission, under a pilot program, recommended use of disposals in certain types of housing.

The disposal was invented in 1927 by John Hammes, an architect in Racine, who got the idea while watching his wife clean up after dinner and built a primitive grinder from sheet metal and a small electric motor. He obtained a patent eight years later and formed the company in 1938. InSinkErator sales didn’t take off until after World War II, when housing construction boomed.

Sales depend heavily on new construction because it is expensive—often $400 to $800—to retrofit disposals into old homes. For that reason, they’re far more common in the Western U.S., with its newer housing stock, than in the Northeast’s older cities.

In the 1970s, InSinkErator used wild-haired comedian Phyllis Diller as a pitchwoman. Her lines included: “Every woman needs a leftover lover.” It diversified into trash compactors, which squash refuse into smaller bundles, but quit making them because they weren’t a big hit. It found more success with kitchen spigots that provide instant hot water at temperatures near boiling.

Still, disposals are the company’s mainstay. “We know kitchen waste solutions better than anyone,” says a banner hanging from the ceiling in the company’s bustling Racine factory, which has about 900 workers and 24 robots, including one nicknamed Wilma after the “Flintstones” cartoon character.

In the U.S., InSinkErator disposals retail from about $80 to $340. The company competes against General Electric Co. GE +0.50% and the Waste King brand of Anaheim Manufacturing Co., both of whom import disposals from Asia.

For now, InSinkErator is focusing efforts on China’s high end, but it may eventually have to offer lower-cost versions, Mr. MacNair said. “We think it will become a mass market [good],” he said. “The question is how long it is going to take.”

—Lilian Lin in Beijing contributed to this article.

Write to James R. Hagerty at bob.hagerty@wsj.com

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