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How Companies Are Benefiting From China Urbanization

Foreign companies seeking China sourcing opportunities will be pleased with a recent report released by the National Bureau of Statistics. Large numbers of rural residents are moving into city hubs to find work. This rampant rise in urbanization is offering benefits galore to those companies doing business in China.

The NBS report reveals that the urban population rose to 51.3 percent, or 690 million people, in 2011 from 17.9 percent, or 170 million people, in 1978. Of course, the trend was reversed in rural areas which saw a drop from 1978 numbers of 82.1 percent to 2011 figures of 48.7 percent. This trend of large numbers of the Chinese population moving to urban from rural areas is expected to continue.

Benefits of Urbanization

Since businesses require workers as well as the supply chain and other necessities that big cities provide, continued urbanization is opening a slew of benefits for them. First of all, consumer demand is increasing as all those masses require China products as well as new and improved public services, housing, and infrastructure. As long as the central government handles such requirements correctly, there is a great deal of potential for the country’s economic growth to be bolstered by both internal and external investments.

Urbanization is also expected to increase market demand. There is a 3.3 to 1 per capita ratio between urban consumption compared to rural consumption. Since wages are higher in urban areas, the amounts of expendable incomes increase with such moves. The middle class is booming in growth within cities due to better pay in China manufacturing and other sectors allowing for more products and services to be utilized.

Don’t Overlook Rural Benefits

Although rural populations are dwindling due to the shift towards urban living, you can’t ignore the opportunities that this process is opening up in outlying areas. For one, family members who have moved to cities and are making better wages are sending money home to their rural relatives. This means expendable money is also increasing in these far out locations that also require products and services.

With the NBS report showing a yearly average increase of 21 million of those relocating to urban areas from rural areas between 2002 and 2011 and an estimated 20 million expected to continue the trend each year over the next 10 years, huge demands for industrial and agricultural goods will be created. This trend in urbanization is consistently opening up huge opportunities in a variety of sectors.

Now Is the Time

The urbanization of Chinese cities is providing huge opportunities to companies wanting to take advantage of China sourcing. Last year, China manufacturing showed its strongest increase in years and the atmosphere remains positive for those seeking to buy from China.

This is an ideal time to either move your company to China or open a Chinese branch in order to take advantage of this explosion in urban development. Regardless of which sector you specialize in, contact Asiatic Sourcing who can help put your plans in motion today.

Chinese Manufacturing Remains On Top despite Labor Cost and Aging Concerns

Results released on Tuesday, 22 January 2013 of an international survey conducted by the United States Council on Competitiveness and Deloitte Touche Tohmatsu Ltd revealed that China was still the top dog when it comes to manufacturing destinations. This conclusion was derived from more than 550 interviews with senior leaders and CEOs of global companies involved in the manufacturing of goods. The manufacturing competitors coming in behind the leader were Germany and the United States.

The short term projection of the survey is that the country will continue to be the big player, at least over the next five years. However, there are concerns that both an aging population and rising labor costs could eventually affect China’s competitiveness. For now, the country is holding its own because labor costs remain relatively low and their corporate tax rates are attractive. Their advanced supply chains and hubs also make them desirable for doing business in China.

The Problems

An aging Chinese population is one of the main concerns for the country to remain competitive in the years to come. In 2012, the working age population shrunk by 3.5 million, which is quite significant and its only seen as getting progressively worse.

A direct result of the diminishing pool of labor is escalating labor costs. With fewer laborers available to fill positions, both national companies and those involved in China sourcing are finding they have to pay higher wages to those wanting to work. Many companies in the eastern provinces are already experiencing labor shortages as well as an increased rate of job turnover due to better wages elsewhere.

The survey also revealed that CEOs ranked Vietnam 10th and Indonesia 11th as Chinese competitors, but the advantages of manufacturing China products still far outweighed producing them in those countries.

Foreign Direct Investment

There is also a concern due to the falling Chinese foreign direct investment which saw its first decrease in 2012 since just after the financial crisis that engulfed global markets back in 2009. The manufacturing sector took a 6.2 percent hit last year as companies began looking to invest in outside markets as hedges to any future Chinese investments.

CEOs in Japan, for example, said they were taking an investment approach they deem as “China plus one”. This involves a strategy of utilizing China sourcing for one project while investing in another facility in some other Asian country.

Optimism Based On Advantage

Regardless of the several declining trends in the Chinese nation, companies remain optimistic to both produce in and buy from China. Medium and high-end manufacturing are seen as still quite competitive although the country is slipping in the low-end arena.

Also, China still maintains a workforce that is more highly skilled and possesses a better work ethic than its neighboring competitors. There is also the critical point of its dominant supply network that is essential for competitive manufacturing as well as the country’s huge base of natural resources available to manufacturers.

Microsoft Turns to China Sourcing for New R&D Center in Wuxi

A strategic cooperation agreement has been signed between Microsoft and Wuxi’s municipal government. Wuxi, located in Jiangsu province, will be the recipient of a CNY300 million investment by the computer giant that seeks to construct a Chinese based technical support center.

This particular center, which is expected to be constructed over the next three years, will be the second such base for Microsoft’s Asia Pacific operation which is a merger of its Asia Pacific and Greater China operations. The initial headquarters was established in Shanghai in August of 2007 and meets a variety of technical support and service needs to regional customers and clients who rely on China products. The company also has a strong presence in Australia, Taiwan, South Korea, and Singapore.

Due to the growing Asian market, Microsoft has seen the need to establish another support center in China to meet the rising demand for its products and services. Over the past several years, this behemoth of a country has risen to become the largest market for personal computers, mobile phones and other mobile devices. Due to this increasing buy from China trend, a large number of China manufacturing partners, IT professionals, enterprises, and technological developers as well as personal product users consistently draw from Microsoft’s knowledge, services and products.

The new center in Wuxi seeks to enhance both services and IT support to Microsoft’s growing number of partners and customers located throughout the region. Certain representatives in the new center will be totally dedicated to providing services in languages other than English. The Wuxi center is also being eyed as the future cloud technology support base of operations for Microsoft.

The Wuxi endeavor will require implementation in and cooperation from a broad range of government controlled sectors. Those sectors expected to be enhanced by the CNY300 million deal include cloud computing applications, intellectual property rights protection, the software industry, and intelligent (smart) construction methods. The large investment demonstrates Microsoft’s continued commitment to doing business in China.

Entrepreneurs and business savvy operations that are looking to expand into the China market should be encourage by Microsoft’s new investment in the country. This is especially true of those who can utilize Microsoft’s tech support, products, and services in order to strengthen operations in the country and region.

Major players are increasingly making moves to establish a presence in the rapidly expanding Chinese markets. Such signs of expansion reveal the warming and increasingly inviting business environment within the both the Chinese government and communities. Efforts by the Chinese government to make doing business in their country more tempting are paving the way for companies to become more involved. This not only pertains to corporate giants like Microsoft, but also to micro, small, and medium-sized businesses who are looking to move or setup operations in China’s growing market.

Buyout of US Vitamin Maker Increases Confidence in China Products

The 2010 Chinese buyout of International Vitamin Corp (IVC) based in New Jersey has given promise to further such deals in the future. Since being acquired by Aland Nutraceutical Group, a privately owned pharmaceutical firm in the Jiangsu province of China, IVC has expanded its work force and received an award for its economic contribution in the state.

Kim Guadagno, New Jersey Lieutenant Governor, toured the IVC factory in December and praised it for taking a leadership role in the vitamin and health supplement industry. She stated that IVC reflected the reputation of New Jersey being the best state in which to conduct research in life sciences and a go-to state for cutting edge manufacturing.

The China-IVC connection is also seen as a positive step in providing New Jersey citizens with greater job opportunities. The company has expanded in the past two years since being acquired by its Chinese buyer, creating an additional 130 positions for the state’s highly skilled and well educated workforce.

Although the vitamins and supplements are manufactured in the US, China manufacturing plants are utilized for supplying the specially mixed chemical ingredients that are used in them. These powders are imported from China to IVC’s manufacturing plant in New Jersey.

The buyout has increased IVC’s ranking in the US vitamin and supplement industry to second place from its previous fifth place position. This is due to the improvement of production practices. The US Food and Drug Administration inspects both products and production facilities on a two week basis. Since being acquired by the Chinese, the company has not failed an inspection.

IVC’s stellar performance under their new owners is boosting confidence in the “Made in China” label and providing exciting hope for others considering a move towards doing business in China through China sourcing outlets.

Also, because of its success, IVC is in the process of creating a business template so that Chinese investors find it easier to transfer business and technology strategies in future acquisitions. IVC played a key role in this area due to the fact that their new Chinese owners had to move from a mindset of base production to that of supplying materials for products of higher value.

Steven Dai, the CEO of IVC, said that there were initial problems at the beginning of the acquisition, but most were in the area of communication, especially via phone conversations. However, he says that those misunderstandings were soon ironed out and the company is now very pleased with the new management.

Dai goes on to praise the support that the Chinese investors received from the New Jersey state government. He attributes such assistance as a driving factor in the company’s rapid growth.

Lieutenant Governor Guadagno relayed to the newspaper China Daily that New Jersey was increasing its efforts to welcome foreign investors. The state recently opened the Office of International Business Development and Protocol to assist with this effort.  

By providing more US opportunities for Chinese investors and with those companies producing high quality products, it is hoped that “buy from China” will take on a more positive meaning.

Obamacare May Boost Already Booming China Manufacturing of Lab Instruments

An already booming Chinese Lab Instrument and Apparatus Manufacturing industry may see an even greater boost with the implementation of the Affordable Care Act (ACA), better known as Obamacare, which has gone into effect as of 01 January, 2013.

This industry supplies the sectors of healthcare, food production, and education with specially made instruments.

IBISWorld Report

A recent report released by IBISWorld reveals that the Chinese industry that manufactures lab instruments and other relevant apparatus has been enjoying a large, steady rise. The industry has seen a 15.7 percent annual growth over the last five years ending with 2012. That equates to around $3.5 billion in additional revenue.

As of today, large manufactures in this industry control the market in China with the four biggest making over 39 percent of the revenue. Smaller manufactures can’t compete due to the difficulty in raising enough capital so they are forced to produce low quality products.

However, the growing profitability is causing more foreign companies to eye China as fertile ground for establishing branches. The implementation of Obamacare is also likely to thicken the pot, so to speak, by adding more incentive.

Medical Device Tax

One area of Obamacare that went into effect the first of the year is the Medical Device Tax. This addition places an excise tax of 2.3 percent on a variety of medical devices the enactment of which is expected to severely cripple those who design and manufacture such items in the United States.

Various US companies within this industry are voicing their fears of this additional burden. NeuroPace and AdvaMed representatives have both commented on the damaging effects of this policy which is expected to cripple, if not kill, companies involved in the medical device industry.

Exodus to China?

With the medical device industry anticipating a $20 billion or more hit from the Medical Device Tax, eyes may turn to China sourcing in order to set up shop there. A full 80 percent of companies in the United States that are involved in this industry operate with less than 50 employees so many of those may not be able to continue business under the new tax law. That’s a lot of businesses to sink.

On the other side of the coin, those seeking to remain stateside will have to pass on the extra cost to their customers via higher prices on their products, so sectors which require such devices may seek to buy from China instead. The fact is doing business in China is becoming easier and more lucrative with each passing year. China products are also being made with increasingly better quality which is drawing more attention from foreign buyers.

Only time will tell how large and devastating an effect the Medical Device Tax will have on Lab Instrument and Apparatus Manufacturing industry in the US, but those who have a keen eye and a lot of courage and capital may want to get a jump on the possible exodus to China that Obamacare is sure to create.

Chinese Consumers Catching & Surpassing American Shoppers

Chinese consumers are rapidly catching up to American shoppers and, in some cases, they are already overtaking them. This is a world-changing trend away from the decades that have seen consumers in the United States as the driving engine of world economies.

2012 Reports and Projections

The recently released Bank of China (BOC) report reveals that Chinese consumption together with aggressive investments are expected to produce an 8% growth in the second largest economy of the world in 2013. Investment stands as the predominant growth influence currently, but consumerism is projected to outperform investment within the next decade. Also, within this period of time, the consumer market in China is expected to become the world’s largest, surpassing the consumer habits of the American market.

The government think tank State Information Center added to the projections, stating that they expect a 14.5% growth in consumption just within the 2013 year. They suggest that growing consumerism will provide the fuel necessary for key restructuring of the economy which will, in turn, ignite greater consumer activity.

Chinese Consumers Outperforming Americans in Luxury Goods

Chinese consumers have already surpassed Americans in the purchasing of luxury goods. A report released by Bloomberg News shows that, currently, Chinese shoppers make up a full 25% of the market for expensive items purchased with the United States trailing at 20%.

This uptick in luxury sales is due to a rapidly growing middle class within Chinese society. With a large number of workers netting more income, they are increasingly becoming affluent and savvy shoppers within bustling cities. Also, high end stores have been setting up in large numbers over the past months and credit card use is soaring among well-to-do Chinese consumers.

The Economic Catch

A major factor that is slowing down China’s run for world consumer dominance is a weak European economy. The grueling and stubborn economic downturn across Europe (and the United States for that matter) has kept the Euro low and, therefore, more attractive to shoppers.

Chinese consumers with growing incomes and buying power often strike out to Europe on special shopping trips to grab deals on luxury items. Although workers in China are enjoying more expendable incomes, they are still very price conscious and looking for deals in order to get the most products at the best price.

The Challenge to Big Brands

This trend of going outside of China to purchase desired items will no doubt continue as long as the Euro remains weak. These travel spending sprees are sure to increase as long as Chinese worker wages rise, giving Chinese shoppers more available funds to spend on expensive brands that are offered at better deals in the European markets.

If major brand name manufacturers and venders want to expand in China, they will be required to come up with inventive ways to increase sales within the market of mainland China and not only abroad.

It is sobering to note that major world economic changes are occurring which could significantly redefine who controls the fueling of world markets. If current trends continue, it looks like China and not the United States will soon be the dominating consumer force on the world scene.

Chinese Manufacturing Remains On Top despite Labor Cost and Aging Concerns

Results released on Tuesday, 22 January 2013 of an international survey conducted by the United States Council on Competitiveness and Deloitte Touche Tohmatsu Ltd revealed that China was still the top dog when it comes to manufacturing destinations. This conclusion was derived from more than 550 interviews with senior leaders and CEOs of global companies involved in the manufacturing of goods. The manufacturing competitors coming in behind the leader were Germany and the United States.

The short term projection of the survey is that the country will continue to be the big player, at least over the next five years. However, there are concerns that both an aging population and rising labor costs could eventually affect China’s competitiveness. For now, the country is holding its own because labor costs remain relatively low and their corporate tax rates are attractive. Their advanced supply chains and hubs also make them desirable for doing business in China.

The Problems

An aging Chinese population is one of the main concerns for the country to remain competitive in the years to come. In 2012, the working age population shrunk by 3.5 million, which is quite significant and its only seen as getting progressively worse.

A direct result of the diminishing pool of labor is escalating labor costs. With fewer laborers available to fill positions, both national companies and those involved in China sourcing are finding they have to pay higher wages to those wanting to work. Many companies in the eastern provinces are already experiencing labor shortages as well as an increased rate of job turnover due to better wages elsewhere.

The survey also revealed that CEOs ranked Vietnam 10th and Indonesia 11th as Chinese competitors, but the advantages of manufacturing China products still far outweighed producing them in those countries.

Foreign Direct Investment

There is also a concern due to the falling Chinese foreign direct investment which saw its first decrease in 2012 since just after the financial crisis that engulfed global markets back in 2009. The manufacturing sector took a 6.2 percent hit last year as companies began looking to invest in outside markets as hedges to any future Chinese investments.

CEOs in Japan, for example, said they were taking an investment approach they deem as “China plus one”. This involves a strategy of utilizing China sourcing for one project while investing in another facility in some other Asian country.

Optimism Based On Advantage

Regardless of the several declining trends in the Chinese nation, companies remain optimistic to both produce in and buy from China. Medium and high-end manufacturing are seen as still quite competitive although the country is slipping in the low-end arena.

Also, China still maintains a workforce that is more highly skilled and possesses a better work ethic than its neighboring competitors. There is also the critical point of its dominant supply network that is essential for competitive manufacturing as well as the country’s huge base of natural resources available to manufacturers.

Overcoming the SME Hurdles of Doing Business in China

Although experiencing a slowdown in some sectors, China manufacturing has just reached a two-year high. HSBC’s January index figures showed a rise to 51.9 from December’s showing of 51.5. Anything over 50 indicates growth.

This booming nation continues to draw an ever increasing group of businesses and entrepreneurs seeking to set up shop, especially since the government is continuing to make the business atmosphere more appealing to such investments. This is an ideal time to jump on the bandwagon and relocate shop or set up branch businesses there. Not only can China products be manufactured cheaper in the country for export to those who buy from China, but its own middle class is growing, making better wages, and spending more money internally as well.

Barriers to Doing Business in China

The problem is that a majority of SMEs (small and medium enterprises) find making such a move daunting due to the numerous barriers entailed with breaking into the Chinese market.

For one, managers need to be deployed in order to find qualified China sourcing vendors to do business with. This isn’t always a welcome option for small to medium businesses because they operate on limited resources. Sending valuable management away on business trips for weeks or months just isn’t appealing.

There is also the problem with the time and finances required to move or establish a branch as well as recruit staff. Again, this isn’t a readily available option for SMEs that are already struggling with a stagnant economy, tighter bank loan restrictions, and heftier competition.

How SMEs Can Break Into the Chinese Market

One way for small and medium sized businesses to get started in the country is to partner with local businesses already in operation. Although this option provides an established business and existing working personnel, it also has its challenges with language barriers, customs differences, management problems, etc.

Another advantage that SMEs have is that they often belong to national trade associations that can assist them with breaking into China manufacturing or other business sectors. Trade organizations can do a great deal of the footwork like create shortlists of possible vendors, link your business with a shared Chinese facility, assist with contract negotiations, ensure the quality of produced goods, help monitor suppliers, and more.

Growth of Western China via Attractive Links to UK & Dubai

Western China is seeking to lure more of its quarter billion population to its cities by offering alluring jobs and financial opportunities. In past years, the Eastern seaboard containing such powerhouses as Shanghai has been the main attraction due to the wealth of that area’s cities.

However, those doing business in China are finding that very attractive offers are being made to draw them to the western section of the country. For example, Chengdu, the capital of Sichuan, is aggressively courting British and Dubai financial firms in the hopes of drawing their business to the city.

Such financial companies, which include those specializing in fund management, insurance, and private equity, along with those interested in China sourcing via lucrative Chinese businesses, are finding that the tax breaks being offered by China’s “go west” policy are possibly worth the risk of building there.

The “go west” plan was devised by the Chinese government to stave off the constant flow of poor migrants that are flooding eastern cities and creating a variety of potentially explosive problems. The hope is to diffuse the situation by diverting more of the population flow to the western sections of the country.

The plan channels a great deal of development money to western cities and offers tax breaks to corporations interested in starting up or relocating China manufacturing firms and other forms of business. Corporate tax breaks include a 2-year tax-free status on profits and a lower corporate tax rate of 15pc compared to the normal 25pc for a ten-year period.

A good example of a top performing company taking advantage of the deal is Foxconn, a huge electronics company that manufactures Apple iPads and has set up base in Chengdu. Foxconn has grown from a handful of workers 18 months ago to just over 80,000 employees today. Other big name players are Intel which has moved its operations to Chengdu from Shanghai, and Volkswagen which is using Chengdu as its car manufacturing base to produce 20 million Polo and Golf cars each year for the booming Chinese market.

Proton Products is also eyeing a possible western relocation. The company catering to the steel cable industry currently has a Shanghai plant that produces laser-based machinery, but admits it pays twice as much for a Shanghai engineer as it would for one in the west which forces it to charge more for those wanting their China products.

British firms have been quite slow in responding to the incentives even with cheerleaders such as Lord Green, Britain’s trade minister, heralding the “limitless” potential of Western China business. Although London seems to be coming around, countries like Dubai, Germany and the United States are the ones making solid moves to set up business in Western China.

Experts are anticipating the same magnitude of growth in the western portion of the country within the next ten years that was experienced in the 1990s Shanghai boom. The uncertainty in the whole deal is how much assistance and freedom the eastern-based Chinese government will give the leaders of cities as Chengdu in their march towards growth and expansion of businesses that will ultimate attract those who wish to buy from China.

Finding the Right China Manufacturing Partner

There is a great deal of benefits awaiting a company that can hook up with a good Chinese manufacturer. However, there is much more involved in the process of China sourcing than simply grabbing a willing party. There are various pitfalls that loom around doing business in China so here are a few tips that will help you not only find a Chinese manufacturer, but one that is the right choice for you and your business.

Meet Face to Face

This is an important step for anyone doing business of any kind, but especially in China. By meeting prospective business partners face to face, you get a much better feel for their character than by just meeting over the phone or internet.

One of the main objectives when searching for the right business partner is to find someone that you can trust and that is reliable. Endless headaches and losses in customers and money are the result of unreliable partners, so it’s well worth the effort to meet and evaluate potential China partners face to face.

Sell Your Vision

The Chinese are a bit more aggressive when it comes to business ventures. If they see the slightest possibility of success in an idea, they will jump on and go with it. This is even true if you are only a small, upcoming business that has yet to prove yourself.

Therefore, you want to convince manufacturers that you have a strong vision, a bright entrepreneurial spirit, and a lot of enthusiasm and most will be eager to do business with you.

Demand the Best Product

Common knowledge is that Chinese companies have the tendency to produce cheap, shoddy products. And, although that used to be expected, more consumers today are looking for better quality in the products they buy from China. Therefore, when you are negotiating with a manufacturer, demand the best quality in China products from the beginning.

The best way to determine production quality is to request several prototypes of the product. Carefully inspect each one and ensure that they all are 100 percent perfect before moving forward. The reason for requesting numerous prototypes is that manufacturers in China often produce really good quality the first time, but then it progressively goes downhill from there. They regularly set speed and high volume as priorities over quality. Keep the pressure on for producing good quality once you find your right partner.

Be Bold When Negotiating Payment Terms

The Chinese can be difficult to deal with since they can come across as intimidating with their hard-line attitudes. However, they also respect aggressiveness when doing business and this is a must when negotiating a partnership with them, especially when it comes to payment terms.

First of all, to show a manufacturer that you are serious about starting a venture, a 30-50 percent deposit is quite sufficient. When it comes to paying for shipments, do not pay more than 25-50 percent up front with the remaining 50-75 percent being paid upon delivery of the goods.

Keep Up Inspections

After receiving several good quality product shipments from your China partner, it can be easy to get lazy and stop closely inspecting further deliveries. You might assume that further shipments will contain the same quality and may see future inspections as a waste of time.

However, it must be stressed again that the Chinese have a tendency to slack on quality. Continue close inspections of incoming orders and make sure that your China partner doesn’t start cutting corners on the manufacturing of your products.

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