Moving your manufacturing Out Of China

In addition to my regular legal practice advising companies on relocating their manufacturing or business operations around the world, I have over the last few months given a number of presentations in-person (pre-Covid-19) and online (during-Covid-19) about the opportunities and challenges of relocating internationally. Some of these presentations you can now view online: Effects of COVID-19 on Doing Business with China, How to Rebuild Your Asia Supply Chain, Understanding CFIUS, and Southeast Asia as an Alternative to China.

My colleague Fred Rocafort and I have also been providing additional international context to companies considering international relocation by hosting guest speakers located from around the world in our new Global Law and Business Podcast, which is available on SpotifyApple PodcastsGoogle Play and Stitcher. So far we have covered regions as far-flung as Brazil, East Africa, Southeast Asia, and the European Union (EU), as well as internationally relevant topics like Artificial Intelligence (AI), Brexit, International Cannabis, and Public Private Partnerships (PPPs) (episode drops this week).

We will continue to canvass the world and cover different countries and topics, and we would like to know what you want to learn about. In some areas, like China, we can talk for days on various aspects of doing business with China. In other areas (like Africa), we are deepening our international law and business expertise by familiarizing ourselves with the relevant business laws, opportunities, and challenges presented. Each country has its own set of laws, which are often a patchwork of civil law, common law, and, in some instances, also Sharia law mixed together. Currently many countries are seeking to capture some of the manufacturing leaving China as a result of the trade wars and coronavirus and/or looking to foster homegrown businesses that can fill domestic demand and grow internationally.

Whether you are looking to move your manufacturing or target international markets, relocation is rarely something that can be done cheaply, easily, or simply. It is complex and mentally tasking to consider how to relocate from a country like China that has, for the past two decades, been essentially a “plug and play” destination housing almost 1/3 of the world’s manufacturing capacity, to a country with a different legal structure, climate, geography, industries, government priorities, history, negotiating style, and global aspirations. But all of this does not mean that there are not opportunities for companies looking to relocate manufacturing or to access new consumer bases.

Take Indonesia as an example. Indonesia is working hard to modernize its laws and regulations to make the country more attractive to international businesses, including its recent rollout of its updated Online Single Submission (OSS) platform for all business licensing. After China and India, Indonesia is the next most populous Southeast Asian country, with a population of 260 million and a labor force of approximately 135 million (double Vietnam’s).

The Indonesian legislative branch is called the People’s Consultative Assembly (MPR), which is its bicameral parliament (made up of two houses) comprised of the People’s Representative Council (DPR) (550 representatives) and the Regional Representative Council (DPD) (128 representatives). Indonesia’s MPR is currently considering four omnibus bills that, if implemented, will radically alter the business landscape in Indonesia:

  • Job Creation Omnibus Bill (aims to provide more certainty and flexibility to businesses regarding employee matters)
  • Tax Omnibus Bill (would lower the corporate tax rate from 25% to 20% to bring it more in line with regional competitors, with a bonus 3% reduction for publicly listed companies)
  • Micro, Small and Medium Enterprises (MSMEs) Omnibus Bill (aimed to foster the growth of small and medium sized companies)
  • Capital City Relocation Omnibus Bill (from Jakarta to East Kalimantan on Borneo)

But like any international jurisdiction, Indonesia has and will continue to perpetuate certain ways of doing business, some of which are codified in its laws, while some are not. For instance, Indonesian LLCs (called PT PMAs) must have an Indonesian human resources (HR) director, among other director positions reserved solely for Indonesian nationals, and the company cannot exceed the debt to equity ratio of 4:1. Rather than see these requirements as quaint quirks of Indonesian law that will be repealed when Indonesians become more enlightened, it is important to see these as foundational to the way Indonesia has and will continue to do business due to historical and cultural factors.

Dealing with these types of complexities is the cost of doing business internationally, but it is in your best interest to get up to speed as quickly as you can about existing and up-and-coming alternatives to China. We will continue to keep you abreast of significant legal and business developments around the world both on here, as part of our podcasts (on SpotifyApple PodcastsGoogle Play and Stitcher), and via webinars.

 

 

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Photo of Jonathan Bench Jonathan Bench

Jonathan is co-chair of Harris Bricken’s corporate practice group, where he focuses on international and domestic business transactions. He discovered his love of foreign locales, people, and languages in his early adult years after moving from “small town” Wisconsin, to Hong Kong and…

Jonathan is co-chair of Harris Bricken’s corporate practice group, where he focuses on international and domestic business transactions. He discovered his love of foreign locales, people, and languages in his early adult years after moving from “small town” Wisconsin, to Hong Kong and then to Sichuan, China. Jonathan is fluent in Mandarin and Cantonese Chinese and consistently works to enhance his language and business expertise so he can best assist our clients with their varied international and domestic projects. Jonathan co-hosts Harris Bricken’s weekly Global Law and Business podcast, which covers legal and economic developments in locales around the world to decipher global trends in law and business with the help from international guests.

Jonathan studied international business and international law at The George Washington University in Washington, D.C., earning both JD and MBA degrees. He describes himself as a businessperson who went to law school rather than a lawyer who studied business. Jonathan’s business clients value his ability to think like a business owner as he provides sound legal guidance while maintaining key business issues at the forefront of the discussion.

In his spare time, Jonathan enjoys spending time with his young family, bouncing on their trampoline, playing hide-and-seek, enjoying the outdoors, playing any sport involving a ball, learning guitar, and working on his Spanish.