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China Law Blog China Law for Business

Where To Locate Your China Business.

Posted in China Business

A portion of a Silk Road International post got me to thinking of one of my favorite China topics: where should you locate your business.
David Dayton’s Silk Road post is of no help at all if you are looking for a one size fits all answer, but if it is common sense you seek, he has got it:

First, if you’re into general manufacturing or sourcing or in need of multiple products than your location will be different than if you’re doing finance or logistics or investment. If you’re setting up an office, you need to know where you want to be in relation to your suppliers or distributors. If you’re planning on marketing within China you must know where your market and DC’s are before you’ll know where you want to be.
Second, if you are doing research into living conditions of Chinese cities I’m convinced that maybe the single worst thing you can do is read about those cities online. Foreigner posts and government sponsored info will typically give you only the highlights and lowlights–not what you’ll have to deal with on a daily basis. You really need to see these places for yourself. I suggest that you stay for a week and “try it on, if you can. Oh yea, and your spouse better be included in that discussion or you’ll be looking at a divorce lawyer faster than you can say “Chongqing, what a dump!” (This was the lead line for the Lonely Planet’s chapter on Chongqing when I first moved there in 1995.)
I got two or three emails a month from people asking me where they should locate and my response is always the same: “Where are your main suppliers/partners/DC’s? That’s where you should locate.” One guy from London was doing significant business with a supplier in Chongqing and wanting to know what I thought about him relocating to Beijing, Shanghai or Chengdu as he didn’t think that Chonqing was a good place for his family.
Not having lived in Chongqing before I agree that Chongqing may indeed not be good for you or for your family. But it’s not like Beijing or Shanghai or Chengdu are any cleaner or safer. And being in a city that is not convenient for your business interests means that you’re going to be on the road a lot—which isn’t good for the family either. My personal experience is that being gone on business all the time is worse for the family than a couple years of pollution and inconvenience.

David’s final prescription is to “look before you buy”:

My basic recommendation, no matter if you’re coming here for a month or a year or a decade, is to do some research before you get here but actually visit the potential cities to determine where the best place for you should be.

Of course he is right.
Rarely do our clients ask us where they should locate their businesses and that is generally a good thing. It is a good thing because where they locate their business is primarily a business decision. The only time I express my opinion is when a client is talking about locating in some remote region, and then I mention how they should not expect the same kind of legal regime there as in Shanghai or Beijing or even most second tier cities. I then explain how this might impact their contracts, their joint venture, their intellectual property, etc.
Though I hardly ever proffer advise on where to locate, I virtually always ask clients why they chose a particular city. I ask strictly to feed my own curiosity and because the answers also oftentimes tell me more about my client’s China business. I would say the most common answers are as follows:
1. Our long-term partner is there.
2. Our suppliers are there.
3. That is where our biggest client is located.
4. That is where most of our customers are located.
5. I studied there and I know a lot of people there.
6. I like it there.
7. That is where we can get the kind of skilled workers we need.
8. Labor costs are low.
9. Utility costs are low.
10. We are getting government incentives.
If I had to estimate where my firm’s clients go, I would say the following:
1. Shanghai/Suzhou area 25%
2. Beijing/Tianjin area 15%
3. Qingdao/Jinan/Yantai 15%
4. Guangdong 15%
4. Dalian/Shenyang 10%
5. Chengdu/Chongqing 10%
6. Elsewhere (Xi’an, Xiamen, Hebei Province) 10%
Our client base is probably more skewered towards service companies, food companies (particularly fish products), and tech companies than most law firms, which I think goes a long way towards explaining the above ratios. Most of our tech clients seem to go to Shanghai, Beijing, and Chengdu. Most of our food clients seem to go to Qingdao, Jinan, Yantai and Dalian. Most of our manufacturing clients seem to go to Guangdong, Qingdao, Shanghai (broadly defined), Beijing (broadly defined) and Chongqing. Though many of our existing manufacturing clients are in Guangdong Province, a surprisingly small percentage of our new manufacturing clients choose to locate there. But, if I had to name one area with which we are most often drafting up OEM contracts for the sourcing of products for companies without an on the ground China presence, it would have to be Guangdong.
Why are you where you are and why? Where are you thinking of locating and why?

  • http://adamdanielmezei.com Adam Daniel Mezei

    Still can’t believe there are no comments to this post as yet (!!!)…one of the better on offer in the past 24 hours. Will be coming back here to see what other people think.
    Try before you buy is exactly the sort of thing that Peter Levenda talks about in The Mao of Business. Not to mention Jack Perkowski at Managing the Dragon.

  • Caitlin

    I found this article particulary interesting. And, I completely agree with the statement “If you’re planning on marketing within China you must know where your market and DC’s are before you’ll know where you want to be.” Due diligence is critical to successful business in any country.
    The U.S. Commercial Service is hosting a webinar that pertains directly to doing business in China, particularly the $586 billion stimulus package from the Chinese government. The webinar focuses specifically on how U.S. firms can be involved in China’s recovery – from the Sichuan earthquake – and continued growth. Speakers from the U.S. Embassy in Beijing, The Economist Intelligence Unit, the JLJ Group and Baker & McKenzie will each be presenting. The webinar will be held April 27th, 2010 at 4pm Pacific time. Information and registration at http://www.buyusa.gov/asianow/chinastimulus_webinar.html