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| Business
- Factory |
Your Factory
in China (December 2008) |
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Introduction
This section is quite complex because many options impact
upon one another. You need to remain focused on what
really matters, apart from making money on your investment
of course. To generalise: If you need access to high-tech
parts, or a range of skilled labour, then head for Guangzhou
or Hangzhou. If what you really need are raw materials
and cheap labour, then head for suitable rural locations
with appropriate transportation. If you need a mix of
above and are under funded or worry about making a massive
bank loan, consider either partnerships or developing
Cities offering huge incentives if you locate with them
Starting Your Own Factory in China
Your business may have grown to the point where you
need a factory to support it, or perhaps to transfer
production from an expensive UK plant to somewhere a
lot cheaper. Normally this means starting a WOFE (Wholly
Owned Foreign Enterprise) in China, although Joint Ventures
also remain a viable option
Many companies and entrepreneurs have considered this
as a very viable alternative to relying on local representatives
and direct contact with manufacturers. If it were that
easy then everybody would be doing it!
Type of Factory
1. The very first consideration is
what type of factory do you need. Is it a full manufacturing
operation, assembly plant, processing plant, or something
to perform certain other functions?
2. Investment. How much money do you
have available for investment? How much is cash, and
how much is in the form of a Bank loan? Perhaps locating
in a rural area or forming a Joint Venture with a Chinese
partner may negate the need for the Bank loan
3. Is the expense of brand new premises
warranted? Perhaps a better alternative is to acquire
a factory that used to make what you want to, except
it went bust. By doing this you will normally also get
machinery, tooling, and local personnel with experience.
Beware of buying a factory that was closed because the
Government has banned manufacturing in the area, and
is promoting modern alternatives. This option is very
cost-effective, but seldom carries much weight with
Government, which is also very important in China
4. Assembly Plants vs Manufacturing?
This will be specific to your business and business
plan. Both options give you total control of QA re finished
products, but supplier sourced parts could be larger
QA problem with an assembly plant. However, you can
always change supplier, or build any problem part yourself.
There is a possibility the former may give you greater
flexibility regarding products and exports.
5. Areas of operation. In China there
are very strict regulations concerning what a manufacturer
can make and export = it has to be within the official
company portfolio at inception (Or as altered subsequently).
Therefore a bathroom manufacturer cannot suddenly start
making nor exporting computers or kitchens, it is illegal!
An assembly plant can have a broader area of operations
- think carefully on this point before you decide what
to do
China Expats have experience that can help you directly,
and also ease your worries about how Chinese go about
developing new business operations, relationships and
partnerships
Location
Are you in an Economic Development Zone? There are basically
two areas for you to look at in China: The Pearl River
Delta in Guangdong Province, centred on Guangzhou (Canton).
The other is Northern Zhejiang province centred on Hangzhou
City (Some refer to this as being the Shanghai Area,
which is not quite technically correct).
Within these zones are areas set aside for particular
enterprises, such as computers say. Opening a computer
factory in the right location will have massive incentive
packages, that do not apply if you open a bathroom factory
in the same location
Some developing city districts within Economic Enterprise
Zones may offer you huge incentives to locate with them;
and in Guangdong Province (Pearl River Delta) Gaoming
and Zhaoqing are two good examples. It may be possible
to get the land and/or buildings for free. Tax concessions
are also common. To get these incentives you may have
to have a local partner, and commit for a certain period
- say 10 years.
Some Cities such as Shen Zhen also have a very special
status, and associated incentive packages, differing
restrictions, especially regarding monetary exchange
and export matters. However, you should weigh the real
costs yourself, as Shen Zhen is relatively expensive
compared to Gaoming or Zhaoqing, which both lie further
inland on the same Pearl River shore, and also have
customs clearance facilities
What is local and Regional Government Policy? How much
Government support do you need - this is very important
in China. Local resources and manpower availability.
Social and environmental concerns. Transportation. Direct
Export permitted from the region?
With all these attractive incentives + advice from 'Friends',
it is very easy to be swayed into locating in a specific
place. However, we urge you to remain focused upon what
you really need to achieve. Lets say you need to make
100, 000 wooden doors every month. What is most important?
Probably the raw timber and cheap labour. This could
lead you far away from the Eastern Economic Zones, and
too very rural areas where both are plentiful. Transportation
then becomes a central part of the equation, and inland
waterways although slow, may provide the perfect solution
Type of Company
After addressing all the alternatives presented above,
plus any other we have not mentioned in this brief and
generalised snap-shot, you should be well-placed to
decide what type of company you need to create in China.
As a guideline, most Foreign manufacturing bases in
China are of the WOFE type
|
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Contact
Address
Tel
Mobile
Fax
Website |
|
Nancy
Li
2206 Citic Plaza, Guangzhou ... (Also Hong
Kong & Shenzhen)
+86 020 2831 3523
+86 135 600 73294
+86 020 2831 3554 - 3523 and 020 2831 3556
www.chinabiz21.com
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Summary
Opening a factory in China is very cost effective when
compared to Western alternatives. It is also not for
the faint hearted, and can bankrupt you if you get it
wrong or invest with shady characters who basically
disappear with your money. You will probably need to
work closely with local government, and may need their
support
Remember the Four C's, which are essentials for anyone
wishing to be successful in China: Connections, Clout,
Cash, and Culture.
Finally: Don't give up, as China has a peculiar way
of always coming through in the end. We call it "Here
is China"! |
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This information is as supplied by the Chinese Embassy
in UK, as dated 20th June 2008, and/or other reliable
sources. Please check this information yourself as it
may alter without notice, and whilst we try our best
to ensure it is correct, please do not hold us responsible
for any errors - this is intended as a simple guide
only |
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