China Business

Where To Locate Your Business In China Or Asia

A reporter recently asked me why our clients that had chosen to locate in Vietnam had chosen Vietnam over China. I mentioned lower costs, less competition, and how some had told me that it was because they just flat out preferred spending time in Vietnam to China. He replied: “But it must be strictly the low costs in the end, right?” I said that could not be the case because if companies were choosing their locations on low costs alone, countries like Yemen and Niger would be on the top of their lists, rather than nowhere on them.

We are always getting asked why our law firm has its lead China lawyer and an office in Qingdao — we also have an office in Beijing, but nobody ever asks us why there. The answer is actually quite simple, particularly when compared to the high-level analysis companies often employ in making their location decisions. Co-blogger Steve Dickinson is in Qingdao because we have had an excellent relationship with one of Qingdao’s biggest and best Chinese law firms for nearly a decade, and that firm was instrumental in helping us establish ourselves in China. But probably the driving factor in our choosing to locate in Qingdao is that Steve loves the place and loves that he can easily afford to live in a luxury apartment with twelve-foot-high windows overlooking the East China Sea at about half the price and the pollution of Shanghai or Beijing. The fact that at least 80 percent of our China work is 2-3 hours from Qingdao by plane only adds to its attraction. Steve is completely fluent in Chinese (as is our other attorney stationed there), and so Qingdao’s small expat community and dearth of people who speak English is no deterrent.

For most companies, the decision whether and where to locate in China is of much greater complexity and we are always interested in hearing the methods employed in making this decision, especially since we so often assist our clients in choosing a location. We have worked with companies that have hired high-powered consultants, spent hundreds of thousands of dollars, and more than a year deciding on where to locate. We have also worked with companies that went into Shanghai “because there are already so many Americans there,” or went into another city simply because that city was where their best and most trusted Chinese contact lived. We have worked with companies that went into a particular city only because their competition did, and they assumed their competition had done all the right research in choosing that particular city. We have had companies choose to locate in expensive Singapore based pretty much solely for IP protection reasons.

We have seen all of the above methods of location selection succeed. We also have seen all of the above methods fail.

We generally find that some or all of the following factors are used to determine the right China city and sometimes also used to determine the right country, not in any order of importance:

  • English Language Skills
  • Human Resources
  • Wages
  • Labor Laws
  • Environmental Laws
  • Import Quota/Duties for Equipment
  • Import Quota/Duties for Material
  • Tax Benefits
  • Physical Infrastructure
  • Financial Infrastructure
  • International Schools
  • Local Domestic Schools
  • Cost to Build a Facility
  • Quality of Already Available Facilities
  • Transportation
  • Port
  • Crime
  • Quality of the courts/Quality of the legal system
  • Political Risk
  • Economic Risk
  • Electrical Utility (Quality and Cost)
  • Water Supply
  • Vendor Support
  • Government Support
  • Cost of Living
  • Health Care
  • Language abilities of the general populace
  • Quality of life
  • Ease of getting in and out of the city/country

There are few common themes in choosing a business location, beyond the big issues like cost, labor force quality, and access to markets and the that go into choosing a business location in Asia are nearly limitless and typically very much depend on the company searching out the location.

In other words, it’s complicated and no one size fits all.

What factors did your company emphasize in choosing where to go in China or in Asia?

5 responses to “Where To Locate Your Business In China Or Asia”

  1. I just assumed that you locate your office where the factory is. I guess at the high levels, things are different.

  2. I worked for a great company that moved it offices from Harbin to Beijing, because they thought being close to the central government would allow for better relations. In the end they sacrificed the excellent customer and provincial level relationships they had spent decades building in Heilongjiang and their business suffered immeasurably for it.
    Location is certainly important. I completely agree that the location must be made on a per company basis.
    If you are seeking to do business more broadly in Asia though, I am a large fan of Singapore. Living expenses are high, but taxes are low, formation is very easy, the government is extremely stable, travel is a breeze, and with the diversity it is very easy to find people who speak multiple languages.
    I thought it extremely interesting when GM left Shanghai last year in favor of Singapore. The reasons they gave were telling:
    The only city in Asia I find hard to continue to justify locating in is Hong Kong. I know some people are ardent defenders of Hong Kong for its courts and free press, but it’s no longer the financial hub of Asia, with each individual nation taking on more of that role, and those freedoms are eroding under Chinese rule. Hong Kong is the most expensive city in the world, it is not particularly strategically located, there are three languages competing for dominance, one of which is useless, it’s population doesn’t speak English as well as other Asian locations, such as the mainland, and it’s economy continues to weaken. Hong Kong for centuries was the doorway to China, but now it’s more of the back door, most commonly used for capital and political flight. Maybe that is my bias having mostly done business in the Mainland and Taiwan, but I just cannot find any reason that makes Hong Kong relevant. I would love to hear from those with extensive experience there on why Hong Kong is relevant.

  3. Where are your offices in Qingdao and Beijing? They’re not listed on your website perhaps you should update it. Also the phone numbers would be useful thanks

  4. Seven or eight years ago I did my research on the Net because I knew nobody here. My criteria were:
    > Personal safety and crime rates
    > Industry clustering relevant to my wood business
    > Proximity to most suitable ports for export to Japanese major and minor ports
    > Infrastructure (mainly transport and communications)
    > Relative cost of rent and labour within China
    > Level of corruption in conducting business
    > Lifestyle
    > Climate
    I chose Huzhou in Zhejiang province (two hours west of Shanghai) because it seemed to tick all the boxes. I did not worry about the fact that there were only a handful of foreigners here because we did not employ expat staff. We had no spoken Chinese but had a fair grasp of characters being Japanese speakers, so communication was not as big an issue as it might be for English monolinguals.
    I don’t think that the hard part is having a list of criteria, it is weighting the criteria and my criteria were in the order stated above. For others they might be somewhat different depending on a host of factors.

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