Internet of Things IoT
Internet of Things = Shenzhen

A little more than a year ago, I did a post, entitled, Shenzhen As China’s Most Competitive City. It Just Might Be…. I wrote that post in response to the Chinese Academy of Social Sciences having just named Shenzhen as “China’s most competitive city.” I talked of how our China lawyers were seeing a shift to Shenzhen among our clients:

Five years ago, my law firm’s clients would nearly always set up their China operations in either Shanghai or Beijing. Beijing if they were in media or entertainment or software and Shanghai if they were in consumer goods or finance or pretty much everything else. Though we would occasionally get strays who would set up in Qingdao or Dalian because they were in the fishing or shipping industry or Xiamen or Xi’an because they liked those cities or knew someone there, or Shenzhen because they knew the city from having gone there so many times to oversee their product manufacturing outsourcing, certainly our bigger and more sophisticated clients were choosing Beijing or Shanghai.

But in the last few years, many of our China WFOE formation clients are requesting we set them up in Shenzhen.

I noted that our clients were giving us the following reasons for choosing Shenzhen:

1. It’s close to Hong Kong but cheaper.

2. It’s become the electronics hardware center for China, and not just for manufacturing, but for design and engineering.

3. It may not be as exciting as Shanghai or Beijing, but it’s the best place for business.

4. It is a nice place with a number of good international schools.

5. It is a lot less expensive than Shanghai or Beijing.

In just the last year since I wrote the above, Shenzhen (despite getting considerably more expensive) has almost taken over our China practice. Not so much with WFOE formations (though those for Shenzhen have increased) but with anything having to do with hardware and with the Internet of Things (IoT). At least half of our new clients in the last year are involved with Shenzhen. Some are seeking to go into Shenzhen via WFOEs, but most are working with the electronics manufacturers there and with them they are looking to manufacture, do joint ventures or technology licensing deals. If we were to subtract out our China media and entertainment work (virtually all of which takes place in Beijing) Shenzhen is without a doubt the most important city for our law practice right now.

As part of that, Steve Dickinson and I will be going to Shenzhen in late September to speak on the legal issues related to hardware and the Internet of Things. We have spoken countless times in Beijing and in Shanghai (and even in Qingdao and Dalian) but until about a year ago, never in Shenzhen, and yet we will be speaking at least twice there in September.

Of course it is not just lawyers who are taking note of Shenzhen’s increasing importance. Renaud Anjoran, on his Quality Inspection Blog, recently did a post entitled Shenzhen, the Best City in China for Manufacturing? Renaud started his post by talking of how views of Shenzhen vis–à–vis (I’m using French here as a nod to Renaud) Hong Kong have so radically changed:

Many Hong Kong people still shriver when they hear “Shenzhen”. It used to be a very poor patch of land along their border with the mainland. Unsurprisingly, Hong Kong people were seen as an easy target for some Shenzhen criminals. But things have changed a lot.

Nowadays, most Shenzhen residents are happy with their lives. When they visit Hong Kong, they wonder how people can survive in such a tiny, cramped environment, where the basic necessities of life are so expensive.

Renaud then writes about how so many tech companies are located in Shenzhen:

Recently a bunch of glowing articles about Shenzhen appeared in the Western press. They tend to focus on the long list of tech companies headquartered in Shenzhen: Huawei and ZTE (telecom equipment, phones…), Tencent (the only other internet company at Alibaba’s scale in China), DJI (drones), OnePlus (mobile phones)…

MakerBot, the famous 3D printing company, was a big advocate of “Made in USA”… until they moved production to Shenzhen!

Renaud then puts forth the following proposition: “Quite simply, the North of Shenzhen might be the best location in China, and even in Asia, for a manufacturer of complex products.”

I will raise Renaud one by saying that for most hardware and for virtually all IoT products, Shenzhen seems to have become just about the ONLY place for manufacturing in China, and, to a large extent, in the world.I cannot even think of even one of our IoT clients not tied in with Shenzhen. It’s possible such a client exists, but every single one that springs to mind is linked to Shenzhen.

As IoT continues to boom, Shenzhen no doubt will as well.

What are you seeing out there?

For more on China and the Internet of Things, check out the following: