Navigating China Guide (2012) - New Zealand Trade and Enterprise

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Shenzhen has the highest GDP per capita and is the information and communications technology (ICT) and manufacturing hub of China, exporting machinery, sports equipment, toys, apparel and furniture. The city’s Special Economic Zone is the business and financial heart of the city and the reason why most visitors come to Shenzhen. Beijing and the Binhai business zone Beijing is home to the Chinese Communist Party, central government, the country’s finest universities and research institutes, and is the leader in research and development. The capital city also offers ‘Zhong guan cun’ – the Chinese Silicon Valley. The city is also home to the China head offices of many major international companies and a large, wealthy expatriate community. Of the first tier cities, Beijing (population 15 million) has the most room for future expansion. Unlike Shanghai and Guangzhou, Beijing is not at the centre of a wider economic development region, meaning its commercial infrastructure and industrial sector are relatively less developed. However, this is likely to change with the further development of the nearby Binhai New Area business zone. China plans to turn the Binhai New Area, located 120 kilometres southeast of Beijing, into the country’s third economic engine. Tianjin city is the largest city in the Binhai area and has the largest port in North China and its international airport is the largest cargo freight centre in China. Beijing and Tianjin are the leading cities in the Bohai Rim Region strategy. This initiative is an effort to attract the sort of development to the central and coastal areas of northern China that has been so successful in the Pearl River Delta region. The Rim also includes the cities of Dalian in Liaoning province and Jinan and Qingdao in Shandong province. China’s second and third-tier cities The so-called second tier cities are promoting themselves by focusing on developing modern industrial zones, new infrastructure projects, the best telecommunications networks, and providing enough energy to prevent shortages. Infrastructure developments to ease transport to and from the coast to these cities are also under construction. Labour costs are 20 to 30 percent lower than what local employees are asking in the coastal cities. Salaries are also increasing at a slower rate than in the already established industrial cities. However, in the second and third tier cities it can be extremely difficult to find qualified and experienced employees who speak fluent and comprehensive English. In general the quality of education in these cities is lower than the first tier cities. They also have limited access to foreign schools. They are not ideal destinations for foreign or even local managers coming from the first tier cities. Skellerup Industries has a factory in Baochang village on the north bank of the Yangtze River, east of Haimen and Nantong cities. From Shanghai it takes 90 minutes to reach the river crossing. The boat ride across the river takes a further 30 minutes and from there it is around one hour’s drive to the village. The central government is doing its best to eradicate disadvantages for expats to bring stability and further development to these regions. One such incentive is that the government provides and ‘pushes’ business licenses onto key industries of foreign enterprises. Intensifying competition in retailing is also forcing retailers to expand to China’s second-tier cities which offer more than twice the number of consumers (albeit with a lower per-capital disposable income). The advantages of second and third-tier cities include: • rising demand as manufacturers shift operations to smaller cities to cut costs • lower accommodation and wage costs • less competition • a growing middle class fuelling demand for consumer goods. Second-tier cities cover other key regions, including cities such as Shenyang, Dalian, Tianjin and Harbin in the industrial north east. The metropolises of Chongqing, Chengdu and Wuhan cover the more developed areas of western China. Nanjing, Suzhou, Hangzhou and Ningbo cover the eastern coastal areas. The third tier cities are numerous and catching up rapidly. Many are key cities in the far west, the south west and central China. They serve areas that are economically undeveloped and less well provided for in terms of infrastructure. Trade development zones and special economic zones Special Economic Zones, and the hundreds of development zones, have in the past offered foreign investors incentives that include reduced income taxes, land use fees and import/ export duties. They also offer favoured treatment in areas such as getting infrastructure and utility services and government approvals. Don Johnson, Marketing Manager Lumber, Pan Pac Forest Products, which has a warehouse and distribution centre in the Tianjin Free Trade Zone, says you need to be aware of your business scope in the future because once it is established it can be limiting as well as empowering. “For us, it was about planning for the future and also planning contingencies. And this zone in particular gave us the flexibility to do what we wanted, whereas other zones didn’t.” The direct financial incentives to foreign companies are being phased out by the central government to level the playing field between local and foreign businesses. KIWI LESSON – GO TO A ZONE “I think location is the most important thing in China if you’re going to do what we did which was manufacture. If you’re contract manufacturing that is different, because the responsibility for everything lies with the contract manufacturer.” – Keith Curry, Skellerup’s former China Chief Executive “In my opinion, in China, you should not go outside any of the recognised zones – the recognised zones are managed by professional people and they haven’t got a political input.” 30
KEY LEARNINGS • thoroughly research on the options • get advice from businesses already in China • competition is toughest, and costs higher, in and around the main business centres. 3.3 HONG KONG AND TAIWAN AS “WIDER CHINA” OPTIONS Depending on your type of business and the nature and scale of your target markets, Hong Kong and Taiwan maybe gateway options for China. For companies uncomfortable with some aspects of dealing direct in China, both provide bases from which to launch into China. These options should be considered alongside other models for setting up in China. The opening up of China has brought greater commercial integration with Hong Kong and Taiwan and the pace of integration is speeding up. More businesses are adopting “wider China” market strategies recognising the mainland, Hong Kong and Taiwan complement each other as parts of a diverse “wider China” market mix. Hong Kong Hong Kong is now so open to southern China that some see Hong Kong as part of a Pearl River Delta market made up of the Special Administrative Regions of Hong Kong and Macau and China’s Guangdong Province. The mainland China part of the Pearl River Delta is home to over 40 million people and accounts for 10 percent of China’s GDP and 30 percent of its exports. Guangdong’s growth partly stems from decades of Hong Kong’s manufacturing industries relocating to southern China and increasingly the development of new industries. Significantly for businesses looking to sell to industrial customers, the headquarters of these companies tend to remain in Hong Kong along with functions such as sales and marketing, procurement, finance and logistics. Thanks to its strategic location, open international business environment and supportive government policies, Hong Kong is also a recognised location for regional offices servicing Asia generally. More recently, Hong Kong has become a ‘technology multiplier’ proactively seeking international links with companies looking to convert ideas or technologies into products quickly and cheaply. This utilises Hong Kong’s involvement with manufacturers in China in conjunction with its experience in overseeing Chinese business operations on behalf of foreign partners. KIWI LESSON – VISIT CHINA CONTINUALLY Gallagher Security has a regional office in Hong Kong. Every week the majority of the Hamilton-based company’s clients across China will see a member of the Gallagher team. “People are seeing more and more of us. You need to keep going into China continually to maintain relationships and ensure the New Zealand office has quality information about local Chinese developments and needs.” – Peter Francis, Regional Manager Asia Pacific and Middle East, Gallagher Security The large number of Chinese tourists visiting Hong Kong (60 percent of a total 40 million arriving in 2011) make Hong Kong a great test market for consumer goods, particularly for southern China. New Zealand has a Closer Economic Partnership (CEP) agreement with Hong Kong which, read alongside Hong Kong’s own Closer Economic Partnership Arrangement (CEPA) with China, gives Hong Kong companies domestic status for trade and investment. For Kiwi businesses this opens up opportunities for easier access to China by partnering with CEPA-qualified Hong Kong businesses. Duty reductions under the New Zealand-China Free Trade Agreement mean shipping goods through Hong Kong for China is becoming less attractive, unless there is some customising done in Hong Kong before entering China. Taiwan Taiwan has increasingly looked to China to boost its growth, driving ongoing investment in Chinese businesses. From an initial concentration on manufacturing this investment has diversified alongside China’s own development and is now more pronounced in services, distribution and supply chains. Taiwan’s commercial links with China present opportunities for New Zealand businesses to enter or build markets in the mainland. Taiwan can be a source of customers in China, usually through piggy-backing existing relationships in Taiwan and offering new or complementary lines to existing channels or supply chains into China. For New Zealand exporters this approach can mitigate contractual and performance risks. But expansion into China will often be governed by the interests and operations of the Taiwan partner. Your partner may offer to take your products into the mainland, but if your relationship is strong, it is worth asking the partner about using their channels for selling in China. Entering China with a Taiwanese partner need not be exclusive. The mainland is big enough for multiple channels to most markets and, properly controlled, can build market share quicker than with just one channel, especially if the Taiwan channel is Taiwan owned or controlled. Marketing your products in China through other channels can be managed from a Taiwan base, giving you closer control over direction and process. This is an alternative to remote management from New Zealand where the perception of a situation in China can often be very different from reality. Taiwan is a good test market for products aimed at Chinese consumers. With its 23 million people in an area the size of Canterbury, it is densely populated with high income consumers and product adaptation for mainland consumers can be managed quickly by Taiwanese partners. Foreign companies, including ones from New Zealand, sometimes chose Taiwan as home for their Asia regional offices. This is especially popular among high-tech businesses reflecting Taiwan’s strengths as a global manufacturer and supplier along with recognition of Taiwan’s high level of integration with China. 31
Page 1 and 2: NAVIGATING CHINA For New Zealand Bu
Page 3 and 4: This booklet provides practical adv
Page 5 and 6: is somewhere between half a million
Page 7 and 8: KIWI LESSONS - LOCAL EXECUTION IS V
Page 9 and 10: For China, and the rest of the worl
Page 11 and 12: Telecommunications China’s teleco
Page 14 and 15: 2. RESEARCHING THE MARKET 2.1 RESEA
Page 16 and 17: 2.2 MARKET VISITS Visiting the mark
Page 18 and 19: However, cold calling (for self int
Page 20 and 21: • Seek advice on the choice of ch
Page 22: If the Chinese side is hosting a di
Page 25 and 26: Testing the waters New Zealand comp
Page 27 and 28: much higher than this. The authorit
Page 29 and 30: Other options • Coat-tailing - ta
Page 31: closely with them at all levels, on
Page 35 and 36: It is also important to put IP issu
Page 37 and 38: Administrative enforcement The main
Page 39 and 40: 3.5 BUILDING RELATIONSHIPS Building
Page 41 and 42: WAIKATO UNIVERSITY CASE STUDY My cu
Page 43 and 44: Meetings Understanding meeting prot
Page 45 and 46: Deep guanxi is a strong feeling of
Page 47 and 48: Entertaining Evening banquets are n
Page 49 and 50: On it’s website, NZTE has a list
Page 51 and 52: • ask for details on the company
Page 53 and 54: KIWI LESSON - BEWARE OF OVERPROMISI
Page 55 and 56: Before signing a contract with a di
Page 57 and 58: KIWI LESSON - LOGISTICS ARE STILL A
Page 59 and 60: You should also build into your pri
Page 61 and 62: Trade media CATEGORY Food and Bever
Page 63 and 64: “Recommendations are a company’
Page 65 and 66: Chinese television personality and
Page 67 and 68: • registration information and qu
Page 69 and 70: agreement was missing (should be A8
Page 71 and 72: How to make contact with ‘half-pa
Page 73 and 74: Accounting records must be kept in
Page 75 and 76: If you have a long-standing relatio
Page 77 and 78: These foreign exchange controls are
Page 79 and 80: translations in all cases - it’s
Page 81 and 82: Using e-logistics China faces a num
Page 83 and 84:
6.6 LANGUAGE AND USING INTERPRETERS
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Things to avoid: • leaving senten
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7. MANUFACTURING IN CHINA 7.1 PROS
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BUSINESS MODELS Least Cost and oper
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Finding and building a relationship
Page 94 and 95:
ATRAX CASE STUDY Sourcing from Chin
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Protecting intellectual property In
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The contents of this brochure are t
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Navigating China Guide (2012) - New Zealand Trade and Enterprise

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