Published in Philippine Daily Inquirer January 27, 2006
China has one of the worldâ€™s highest foreign direct investments (FDIs), attracting more FDIs than any other country except the United States. However, in 2002, China was the first country since the 1980s that attracted more FDIs than the United States at $53.2B while $52.7 was flowed into the United States.
Based on a report by the Institute of Management Development (IMD) in its 2005 World Competitiveness Yearbook, China ranks second to the U.S. in inward direct investment flows at $62B. This however accounts only for 3.76% of the countryâ€™s GDP. China has since 2000 ranked no. 24 in world competitiveness, only slipping slightly in 2001, 2003 and recently in 2005 to ranking 26, 29 and 31 respectively. World competitiveness is determined by four factors that include economic performance, government efficiency, business efficiency and infrastructure.
What makes China tick ahead of its many neighboring Asian countries despite its 1.3B population? A great deal lie in the countryâ€™s overall sound business and marketing strategies that include among others the following:
Clarity of the national governmentâ€™s marketing direction to encourage FDIs at local regional level.
This clear direction comes from the national five-year economic development plan. The new national 5-year economic plan took effect January 1, 2006. This would be Chinaâ€™s eleventh “five year plan” since 1953. What is striking is Chinaâ€™s near perfect effort to cascade its directions to the local regional level. Other than national media, the local regional Chinese government partners with private publications to disseminate new economic policies and business incentives like the China Briefing, a 40,000 circulation complimentary publication mounted with consulting firm Dezan Shira and Associates and distributed in highly targeted areas like hotels, cafes and public areas frequented by foreign business people.
FDI benefits are resolutely substantiated and implemented.
Due to the stepped up implementation of WTO agreements made with China beginning 2006, many of the restrictions on domestic market access has been lifted. Export quota requirements from joint venture companies have been relaxed, wholly formed foreign owned enterprise(WFOE) can now operate even in once restricted distribution and service segments, trading rights are more flexible, tariffs and tariff barriers are lower, etc. For example, Pudong in Shanghai has become one of Chinaâ€™s fastest growing commercial areas. The Chinese government aims to further expand the areaâ€™s growth by establishing Lujiazhu as a financial center, Zhangjiang as a technology center while further developing the
Waigaoqiao free trade zone and other investment zones. Some of the benefits extended to new foreign owned enterprises include the payment of taxes by manufacturing companies at a corporation tax rate of 15%. If the business operation is more than ten years, the first two years will be a tax holiday and the company will pay only fifty percent of the normal rate from the third to the fifth year of operation. Should the company qualify as an advanced technology manufacturing company, the firm is extended the fifty percent reduced tax scheme until the eighth year of operation. In some cases, Pudong offers added financial subsidies including cash rebates from taxes paid, office rental and research expense subsidies to some industries that include logistics companies, research and development organizations, reputable professional service firms and other high technology companies.
Continuous improvement of backroom support systems.
Truthfulness of a marketing claim can only be achieved in large part through the efficiency of skills, infrastructure and technology. China has consistently kept low labor rates while providing government subsidies in the basic needs of its local people. On the other hand while it keeps its labor rates low, nevertheless, it improves the skills of its people and invests heavily in education and skills improvement, technology and infrastructure.
The country is seriously improving its secondary, tertiary and post-graduate educational institutions. Many of Chinaâ€™s post-graduate schools have partnerships with Ivy League schools, European and North American institutions worldwide to provide local Chinese with management expertise, having recognized management as a weak area. Thus, china is quickly expanding its pool of technical and management talent.
In 2001 alone, China graduated a million technicians and engineers, rising to 2 million in 2003 and higher in succeeding years. The quality of engineering training has risen in the recent years resulting in fewer Chinese studying overseas for a degree in engineering.
Quick to adapt to customer preferences is one way of strengthening guanxi (positive relationships).
In the early years of Chinaâ€™s opening up to free markets, foreign firms can only enter China through an equity joint venture (EJV) with a wellconnected Chinese partner. This has brought tremendous pressure on foreign principals due largely to inconsistency of goals between the two partners. Chinese principals are after providing work for its labor force while enforcing export consumption and not domestic consumption; while foreign management is keen on operational efficiencies and stimulating local market demand. In 1996, through the counsel of Chinese leader Deng Xiaping, China has become quite responsive to providing investors with alternatives to entering China, one of which is to look into an WFOE (wholly foreign owned enterprise) option. As Deng Xiaping put it, “Iâ€™m afraid the opportunity may be lost. If we do not seize it, it will slip away.”
Chinaâ€™s one vision, clear roadmap from simply providing world labor to building national then global brands.
In its early stage of economic reform, China was clear about providing jobs for its huge labor force while consequently creating awareness for its production capability and output by enforcing equity joint ventures (EJVs) to export the output rather than allow foreign principals to simply feed on the local marketâ€™s domestic consumption. Hence, unknown to many, the roadmap to establishing awareness for china made products has been seeded. The price was too stiff for other foreign principals with appetites whetting for local market. It was not until after 1996 that China became ready for the WFOE. Today, China is onto its second stage for originating Chinamade products and services – building China-conceptualized, China-made products and services into national brands and global brands thereafter. Some have made it globally like Li-ning (sportswear), Haier (home appliances), TCL (television and mobile phones), Legend (motherboard), Galanz (microwave), Huawei (telecommunications), etc.
China is a huge market with many faces. Each face represents one local region, with its set of uniqueness and competitive advantages. Yet, China is on the road to maximizing these faces – building strong, local regional muscle much like company SBUs (strategic business units) and powerful multi-brands.