I recently spoke with a reporter who asked me why our clients that had chosen to locate in Vietnam had chosen Vietnam over China. I mentioned lower costs, less competition, and how some had told me that it was because they just flat out preferred spending time in Vietnam to China. He then said, “But it must be strictly the low costs in the end, right?” I said that could not be the case because if companies were choosing their locations on low costs alone, countries like Yemen and Niger would be on the top of their lists, rather than nowhere on them.
We are always getting asked why our law firm has its lead China lawyer and an office in Qingdao — we also have an office in Beijing, but nobody ever asks us why there. The answer is actually quite simple, particularly when compared to the high-level analysis many companies employ in making their location decisions. Steve is in Qingdao because we have had an excellent relationship with Qingdao’s biggest (and I think best) law firm for nearly a decade, and that firm was instrumental in helping us establish ourselves in China. But probably the driving factor in our choosing to locate in Qingdao is that Steve loves the place and loves that he can easily afford to live in a luxury apartment with twelve-foot-high windows overlooking the East China Sea at about half the price (and the pollution) of Shanghai or Beijing. The fact that at least 80 percent of our China work is 2-3 hours from Qingdao by plane only adds to its attraction. Steve is completely fluent in Chinese (as is our other attorney stationed there), and so Qingdao’s small expat community and dearth of people who speak English is no deterrent…
For most companies, the decision whether and where to locate in China is of much greater complexity and we are always interested in hearing the methods employed in making this decision, especially since we are so often called on to assist our clients with location questions. We have worked with companies that have hired high-powered consultants, spent hundreds of thousands of dollars, and more than a year deciding on where to locate. We have also worked with companies that went into Shanghai “because there are already so many Americans there,” or went into another city simply because that city was where their best and most trusted Chinese contact lived. We have worked with companies that went into a particular city only because their competition did, and they assumed their competition did all the right groundwork. We have had companies choose to locate in expensive Singapore based pretty much solely on its IP protections.
We have seen all of these methods succeed, and we have seen all of these methods fail.
We generally find that some or all of the following factors are used to determine the right China city and sometimes also used to determine the right country, not in any order of importance:
- Human Resources
- Labor Laws
- Environmental Laws
- English Language Skills
- Tax Benefits
- Import Quota/Duties for Equipment
- Import Quota/Duties for Material
- International Schools
- Physical Infrastructure
- Financial Infrastructure
- Quality of the courts/Quality of the legal system
- Political Risk
- Economic Risk
- Electrical Utility (Quality and Cost)
- Water Supply
- Vendor Support
- Government Support
- Cost of Living
- Health Care
- Language abilities of the general populace
- Quality of life
- Ease of getting in and out of the city/country
There are few common themes in choosing a location for business, beyond the big issues like cost, labor force quality, and access to markets. The factors one can and should use in choosing a business location in Asia are nearly limitless, and the decision itself depends heavily on the company searching out the location. In other words, it’s not all that different from what goes into choosing the location for domestic U.S. businesses.
Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firstname.lastname@example.org.