Life of Guangzhou - Survey: 92% German Business Operations to Expand in China

How's the foreign business going in Chinese mainland? Germans give their overall positive perspectives --- 83% operations met or even exceeded their targets in 2007, some 60% companies and offices expect future sales market potential would be more attractive …, according to the survey of German Business Expansion in China (2008-2010) that was just released in Guangzhou, South China on the evening of July 17.

The survey of German Business Expansion in China (2008-2010) is presented in Guangzhou on July 17. (LOG)

The survey was co-conducted by the German Chamber of Commerce in China (GIC), Shanghai, and the Euro Asia Consulting PartG (EAC), involving 273 German companies, JV and representative offices in China. It is the largest ever survey of German operations in China.

The Vice Consul General of Germany in Guangzhou Christian Rumplecker and scores of Chinese and overseas businesspersons attended the survey presentation.

German presence is bigger and better.

German operations are increasing substantially to about 4,500 in the mainland now, including more and more SMES. Production (68%) still tops the sectors while service (24%) and trade (8%) are growing in terms of parent companies' business. Machine building (29%) and automobile (16%) are leading business types in China.

Mr. Bruno Rudnik of EAC, the presentation speaker. (LOG)

The statistics shows Chinese sales market potential is the No.1 motive (chosen by about 80% respondents) for entering China, followed by appealing labor and production cost (21% - 38%) and sourcing opportunities (about 30%).

Most operations are located in the Yangzi Delta -- 47% in SH plus 20 % in the neighboring provinces of Jiangsu and Zhejiang. The speaker Bruno Rudnik, senior consultant of EAC attributed it to three reasons --- The coastal region and Germany share the strengths in automotive, machinery and chemical industries. The delta has long provided attractive sales market, plus the free-trade zones and preferential policies in Shanghai.

Business independence is found as overwhelming 73% operations are companies, including 71% Wholly Foreign Owned Enterprises (WFOE) in legal framework aspect. Most companies prefer WFOE as model to JV for the good of management control.

Evolving China with satisfactory value-chain depth

Germans have to confront the major challenges of cutbacks of FIE tax subsidies (79% respondents regarding it negative), RMB appreciation (66%), lack of qualifies human resource, and IPR infringement (57% respondents affected). But there is still good news in the survey.

Since its entry into WTO, China's non-tariff barriers are reduced and the corruptions are controlled, compared with last study.

The satisfaction degree with value-chain depth is encouraging: over 70% positive in all categories, especially in production (82%).

The sales market (59%) and sourcing (40%) are still expected to be beneficial and major business rationales while operation cost (51%) will be the opposite.

Much more respondents foresaw China's bureaucracy, authorities, market data, infrastructure and logistics to improve, than the pessimists. But recruiting qualified staff will remain the biggest HR headache. The audience agreed on it and shared similar problem.

Massive expansion ahead
Encouraged by the optimism, as many as 92% operations are to expand in the future, a "surprising" figure Mr. Rudnik admitted.

Automotive, machinery and chemical industries, environmental technologies, hydraulics are suitable business to Germans in China, Mr. Rudnik reckoned. Focusing in Greater Shanghai and Guangdong, Germans will develop more operations in the west, like Chongqing and Chengdu.

Mr. Rudnik also addressed the need for German operations to be more localized in R & D and products customization, and to become part of Chinese community.

Compared with other countries, he boasted German strengths in China in the commitment to the host country, demanded technologies and traditionally international experiences due to their small domestic market. He also pointed out German operations lacked of localized management and R & D for IPR concern.

The audience listen to the presentation. (LOG)

Guangdong Promise to further tap

Guangdong has only 8% German operations, because the local economic pillars, like electronics, household appliances, leather and shoes, are not German might, according to the EAC consultant.

Currently there are around 450 German companies in the province, around half engaged in production. They come here for the large local sales market, favourable geographic location good to set up a regional platform, production for export, and low production costs, according to Ms Alexandra Voss, Executive Director of the German Chamber of Commerce in Guangzhou.

Overall their business performs very well, and the majority plan to expand, Ms. Voss said.

But Germens are troubled by production costs rise and difficulties of having qualified staff. They, however, suffer less than their competitors from Taiwan or Korea because their labour cost share amounts fewer.

Mr. Rudnik and she both thought Germans have the opportunities here in electronics, automotive products, premium consumer goods sales, and hi-tech sectors, especially for SMEs.

"There are huge opportunities in Guangdong for local and foreign companies." Ms. Voss said.

[Click here for more about Ms. Voss' comments]

(By Ronald Li)

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