Setting up in China: Dos

1
Setting up in ChinaDos Donts.

• Elias S. van Herwaarden
• European Service Leader, Global Location and
  Facility Services
• Deloitte Corporate Finance, Brussels
• China seminar
• 19 January 2006

2
Topics for today

• Your site selection process
• Basic principles and site selection factors for
  manufacturing
• 10 Golden rules
• Setting up in China
• Factors unique to China
• Adapting the principles
• Which zones fit you (best)
• Overview of typical regions for your China project

3
Setting up in ChinaThe classic key selection
steps
What are your drivers Reduce costs (Sourcing,
Manufacturing) vs. Increase revenues (Market
share)?
Strategic Context Project Definition
What are your location criteria and filtering
factors, and have all relevant aspects/candidate
regions been reviewed?
Initial Screening Business Case Development
Are your sources and resources up to the task?
Operational Evaluation
Have you considered the what if scenarios and
factors outside of your control?
Financial Evaluation
Did you rush, fully document, use a sounding
panel and adapted your vision/project
specifications?
Due Diligence and Joint Field Visits
Which guarantees did you obtain and above all
from whom?
Negotiation
Did you involve locals?
Implementation
4
Setting up in China Factors for manufacturing
location selection
Scalability and Risk considerations
5
Setting up in China 10 Golden rules

• Everything is possible
• Nothing is easy
• Patience is the essence of success
• You are the expert so. means they are setting
  you up.
• You dont understand our country means they
  disagree.

• Provisional regulations means they can change
  the rules anytime they want, even retroactively.
• Basically, no problem means BIG problem.
• Signing a contract means the beginning of the
  real negotiation.
• When you are optimistic, think about Rule No 2.
• When you are discouraged, think about Rule No. 1.

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Setting up in China Prevailing strategies in
2005

• With a few exceptions, companies in Western
  Europe use China for a sourcing strategy. Belgium
  lags behind its peers in this respect.
• Export growth to Belgium (37) is just below
  average (39), yet import growth is among the
  better ones

60.000.000
China foreign trade Jan-Oct 2005 (US '000)
Exports
Imports
50.000.000
40.000.000
Untapped sourcing potential for Belgian
manufacturers? Further market opportunities for
Belgian manufacturers?
30.000.000
20.000.000
10.000.000
Italy
Spain
Russia
Finland
Ireland
0
Britain
France
Sweden
Belgium
Germany
Denmark
Switzerland
The Netherlands
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Setting up in China Factors Unique to China
8
Setting up in China Adapting the principles
Location Strategy, Zone Identification and
Development of Short-List
Step I
Step II
Step III
Step IV AB
Level of Zone
Zone Orientation / Acceptable Conforming Use
Zone Management / Transparency
Critical Facilities
Interviews and Experiential Recommendations
-Joint Team Field Investigations
State Level Provincial Level
Acceptable Orientation
Competent and Transparent
Available
Recommended
ü
ü
ü
ü
ü
Municipal Level Township Level
Unacceptable Orientation
Questionable
Unavailable
Not Recommended
x
x
x
x
x
Eliminate
Eliminate
Eliminate
Eliminate
Finalists
Eliminate

• Step I eliminate higher risk municipal and
  township level zones. These zones have less
  autonomy and ability to approve investment, are
  unable to provide the same investment security to
  MNCs, have fewer central government sanctioned
  incentives, and typically result in unnecessary
  and un-timely bureaucratic procedures.
• Step II eliminate zones less likely to welcome
  the proposed investment and manufacturing
  activity
• Step III eliminate zones based on a combination
  of factors that have proven problematic to other
  foreign companies.
• Step IV prioritize and rank the candidate areas

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Setting up in China Which zone fits you (best)?
10
Setting up in China Some Dos and Donts

• Conduct internal stakeholder analysis
• Mobilize relevant expertise
• Localize the specs
• Maintain confidentiality
• Conduct detailed field investigations
• Go out and see for yourself
• Build in slack-time
• Stay abreast of parallel tracks
• Brief senior management at milestones
• Recruit through Employment Agencies and HR fairs

• Chase incentives
• Assume all local agencies are equal
• Underestimate the local agencies
• Assume you understand people because they speak
  English to you
• Assume its OK if its documented
• Rely on statistics
• Underestimate permitting issues
• Opt for easy answers
• Rush
• Recruit through mass media

DONT
DO
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Typical regions for your China projectEconomic
and Technological Development Zones
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Typical regions for your China projectExport
Processing and Foreign Trade Zones
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Typical regions for your China projectWhere
Belgium settles today
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Typical regions for your projectThe case of
Hangzhou, Zheijang Province

• 2.5 hours from Shanghai
• Biological medicine, textile chemical fiber,
  light industry food and high-tech chemical
• Approx. 300 foreign companies Taiwan-ese (32),
  Japanese (24), USA (15)
• Motorola, Allergan, BC Coca-Cola, Siemans,
  Aventis, Stäubli, Matsushita, Mitsubishi,
  Toshiba, Terumo, LG, ..

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Contact details

• Elias S. van Herwaarden
• European Service Leader, Global Location and
  Facility Services
• Deloitte Corporate Finance
• Avenue Louise, 240
• B-1050 Brussels
• Phone [phone]
• Fax [phone]
• Email evanherwaarden_at_deloitte.com