Smart planning for overseas investment in manufacturing

On December 18, 2013, the "2013 China Top Ten Management Practice Forum" of "CEConline" was successfully held in Guangzhou. Prof. Justin Yifu Lin, Honorary Dean of the National Development Institute of Peking University, Former Senior Vice President and Chief Economist of the World Bank, Mr. Francisco J. Sanchez, Former Undersecretary for International Trade Affairs of the U.S. Department of Commerce, Sanchez Group (SoZo Group) Mr. Zheng Liming, CEO of SoZo Group, and other heavyweight guests from the academic, political and business circles, focusing on "Overseas Expansion of Chinese Enterprises", explained the in-depth explanation for the 300 executives of export enterprises and the representatives of 800 enterprises who participated in the conference through video. The way of overseas investment in China's manufacturing industry.

Interactive topic: Overseas investment, where to open the company?

Investing in the United States

From January to November 2013, China's non-financial foreign direct investment increased by 28.3% year-on-year, while the increase in investment in the United States was as high as 232.2%. The destination for Chinese enterprises to invest abroad. However, as Ma Weihua, chairman of Wing Lung Bank, said, the failure rate of Chinese companies going abroad is relatively high. In this regard, Sanchez said that everything is difficult at the beginning. Looking back 32 years ago, when American companies began to invest in China, a similar situation occurred. American companies know very little about mainland China, so setbacks and failures are not uncommon. Over time, with the lessons bought through tuition and the experience gained through practice, American companies have gradually adapted to the Chinese market.

Sanchez believes that Chinese companies are now experiencing the above It's the same process for American companies, and in order to successfully navigate the process, two things need to be done well. First of all, we must open our hearts and use new eyes to discover and explore, not only to observe the United States, but also to examine ourselves. The business environment of enterprises has changed from familiar to unfamiliar, and the business knowledge of entrepreneurs has changed from known to unknown, which requires entrepreneurs to challenge deep-rooted thinking patterns and question original business assumptions. It is precisely because people always like to repeat what they are good at and tend to copy the original success model, challenging oneself becomes more painful and difficult. Don't expect the same methods that work well in China to be effective in the United States. From dealing with the government to managing employees, you have to learn from scratch.

Sanchez reminded Chinese entrepreneurs that the key is to find the right people and use the right people, especially the consultant team. Be sure to find practitioners and people who are familiar with local conditions and industry knowledge, and have professional quality and professional ethics, including law firms, accounting firms, and public relations firms. "Chinese companies should pay attention to avoiding cronyism. Looking for lawyers, such as extremely professional and important partners, must not find relatives or acquaintances to entrust acquaintances, otherwise the people they find may not have the qualifications to act as agents for specific projects", Zheng Liming added.

Ms. Yang Lin, a global partner of Yingke Law Firm, shared her views with the participating entrepreneurs with rich experience. She believes that Chinese companies like to "follow the trend" and "follow the trend", and overseas investment is no exception. Entrepreneurs must ask themselves a few questions - is it necessary to invest in the United States? What is the purpose of investing in the United States? Many entrepreneurs invest in the United States for green cards, which cannot be confused with business development. There are also entrepreneurs who make a decision immediately, and then a series of decisions are made without careful consideration, such as not paying enough attention to due diligence or ending hastily, which all contain huge risks. Only companies that are truly professional and regulated will be successful. Yang Lin has personally communicated with the person in charge of Wanda’s acquisition of AMC Cinemas in the United States. It is precisely because Wanda respects international business rules, thorough preparations in the early stage, and standardized and professional mid-term operations, The later integration was well received, and the original management team was retained, so profitability was achieved a few months after the acquisition was completed.

From assessment and site selection to taking root

Mr. Zheng Liming, CEO of Sanye Group, has been active in the field of Sino-US economic and trade cooperation in recent years, running between the two countries, committed to promoting the two countries The development of trade and investment, especially leading the Sanye Group to provide professional and scientific consulting services, help many Chinese companies "settle down" in the United States. In his view, an open mind is the foundation, and finding the right consultant is a prerequisite, but there are still many difficulties for Chinese companies to overcome before they finally successfully land in the United States.

One of the biggest problems is the location selection for investment and construction of factories. Zheng Liming believes that many Chinese companies cannot scientifically compare the conditions for building factories in different regions. In order to promote employment and boost the economy, state governments in the United States are scrambling to increase investment in the "post-crisis era", and have introduced various preferential measures to attract foreign companies to settle in. However, states vary widely and offer a wide variety of incentives, so outsiders are suddenly dazzled and have no choice.

"We see that many companies directly compare these indicators horizontally after receiving the factory construction costs and preferential conditions issued by the United States. However, in practice, there is often room for manoeuvre. , and the amount of wiggle room varies from state to state, these things are not reflected on paper. Take taxes as an example, some states may not give the lowest tax on paper, but after negotiation, they can give tax rebates For example, after the company pays tax for one year, it will be refunded, or selective taxation will be given, and some businesses will be exempted from tax." Zheng Liming said.

When helping Jinlong Copper Tube Group, the world's largest precision copper tube manufacturer, to select a location in the United States, Sanye Group, according to the needs of customers, sent to 62 cities in the five states that met the preliminary selection conditions. Project invitations were issued, followed by bids from most U.S. cities for projects. Next, Sanye Group followed scientific methods and systematic steps, from direct investment in land and property costs, to supporting conditions such as infrastructure, transportation network, financing facilitation, and loan interest rates, to cash subsidies and labor training subsidies. , tax relief and deferred preferential policies, and conduct a comprehensive assessment of the investment environment.

After careful selection, Arkansas and Alabama were finalists. And Zheng Liming also wanted to get more concessions, so he initiated and successfully pushed Alabama to pass a bill to give King Long Group generous compensation during the investment and construction of factories in the United States under certain conditions. Zheng Liming also emphasized that it is understandable to invest in the United States to obtain the maximum discount, but if Chinese companies want to gain a firm foothold, they must pay taxes according to the law, care for their employees, protect the environment, advocate public welfare, give back to the community, and learn to be good corporate citizens in American society. .

The American society has high demands on the transparency of enterprises. Chinese companies going to the U.S. should actively communicate with various stakeholder groups such as employees, suppliers, customers, the public, and the government. Chinese entrepreneurs should not only go out of the door, enter the community, and make friends with people from all walks of life; they should also take the initiative to open the door, show their corporate achievements and contributions to the community, dispel local residents' doubts and prejudices about Chinese companies, and target them continuous and adequate communication of their demands.

Investing in the United States should follow scientific methods and systematic steps, evaluate the investment environment, search for the location that best matches the project, enjoy preferential policies, obtain government support, and win the public opinion of the community. on the success.

East or West?

Different from Sanchez and Zheng Liming who advocated going east to the United States, Professor Justin Yifu Lin advocated going west to Africa. He believes that high labor costs make the original comparative advantage of Chinese manufacturing gradually disappear. China's labor-intensive manufacturing industry should follow historical experience and move overseas with similar labor productivity but much lower wages. Africa is the only place that can undertake the transfer of China's 150 million manufacturing jobs without a rapid rise in wages within 20 years. It is the best and last stop for the transfer of China's labor-intensive processing industries.

In the difficult recovery of the global economy, the Chinese economy is focusing on transformation Against the background of China's manufacturing enterprises, what should they do in the face of the challenges of high costs, escalating demand and hindered exports? In the two most developed and least developed regions in the world, the United States and Africa, with different advantages, coexisting opportunities and risks, how should we choose?

Here, we may use the comparative advantage of the resource factor price of the investment destination as the starting point for analysis. Justin Yifu Lin pointed out that the wage level in Africa is roughly 1/10 of that in China, so it is highly attractive to labor-intensive manufacturing. Although the productivity of the United States exceeds that of China, the labor cost of its related industries is about 5-6 times that of China. Does this mean that it is difficult to build factories in the United States? Not necessarily, many entrepreneurs participating in the forum, like Zheng Liming, are looking for ways to solve this problem with automated production methods.

Energy expenditure is also a cost that cannot be ignored by manufacturing companies. If it is at the forefront of the cost structure, as Sanchez said, due to a series of factors such as the development and utilization of shale gas, it is a source of cheap energy. The United States is worth considering investing in. For example, Zheng Liming said that Sanye has a customer that produces ceramic fibers. It suffers from power outages during the peak electricity consumption period in the mainland in summer, and it takes 48 hours to resume production. These problems can be avoided in the United States.

Proximity to the target market is the real strategic consideration. Many companies already have considerable business volume in the US market. Some have begun to consider building factories in the United States because of trade barriers such as anti-dumping and anti-subsidy, and because of poor supply chain efficiency and poor market response. Zheng Liming said that it is good for companies to follow the market, but entrepreneurs should have a longer-term vision. The investment they make now should not only focus on the current market, but also target the market in five or ten years. If the United States is yours The company's future market should invest in the United States.

Some entrepreneurs who participated in the forum asked whether the transfer of manufacturing industry will continue to circulate between China and the United States? Sanchez pointedly pointed out that a developed and civilized society is often oval or olive-shaped, and the middle class is the main body of this society; now Chinese companies invest in the United States, aiming at the mature American market and serving American 2 In ten to twenty years, the population of the Chinese middle class will be twice that of the United States. For Chinese companies, the realistic choice is to invest in both China and the United States. Further analysis along the logic of Sanchez, it is not difficult to find that with the arrival of the demographic dividend period and the formation of a large number of people with certain purchasing power, Africa, as another market with 1 billion consumers, cannot be ignored either.