By Navjot Singh 

Guangdong Province is at the forefront when it comes to attracting foreign investment into China. 

Companies are increasingly looking to emerging markets like China as a vital source of growth. The problem is these companies often lack an effective strategy for identifying which provinces within China to do business with. For any senior executive sitting in the ivory towers of their offices in London or New York, China will look like a highly tempting market. Immediately people think of 1.3 billion consumers, however they forget how easy it is to fall into a corporate trap, which if and when the wrong decision is made, that can lead to a negative result.

Guangzhou, Shenzhen and Zhuhai

In recent times, Guangzhou, Shenzhen and Zhuhai have been tipped to overtake some of the other big cities of China, especially Beijing and Shanghai, as the most popular market for new foreign businesses to set up in China. Rising land costs, a shortage of skills and increased competition in Beijing and Shanghai have forced many foreign companies to start looking elsewhere, and the three main cities in Guangdong province, Guangzhou, Shenzhen and Zhuhai, are providing what they need. One aspect of this provincial economic boom is being orchestrated by the high quality of business commodities that are offered. Inevitably these drive the attraction of foreign investment into the province.

Unique Provinces

The principles of Economics 101 informs us that companies purchase inputs in the manufactured goods, manual labor, and capital markets and vend their outputs in the manufactured goods (raw materials and finished goods) market. When constructing a carefully laid out strategy, therefore, corporate executives need to formalize on how the manufactured goods, manual labor, and capital markets work (or don’t work) in their target provinces. This will help them understand the differences between home markets and those in China. Corporate executives need to understand that setting up a new business in two different states in, say the USA (or within any western country) would be completely different to setting a new venture in a province in China. The reason being this is that within a complex and dynamic market such as China, every province is unique in terms of governance and laws, including Tax laws and fees. In addition, each provinces’ social and political environment shapes those markets, and senior decision makers need to mull over those factors, too.

Manufacturing

It’s a well known fact that Guangdong province is China’s richest province with the highest total GDP among all provinces. Guangdong contributes approximately 13% of national economic output, and just over 40% of that output comes from the transportation systems flow. The”Pearl River Delta” or PRD, consists of Guangdong plus the Special Administrative Regions (SAR) of Hong Kong and Macau. Cities that have prospered from large amounts of foreign investment include: Hong Kong, Zhuhai, Shenzhen, Guangzhou, Foshan, Zhongshan and Macau. You only need to take a trip to Dongguan, located halfway between Shenzhen and Guangzhou, to witness at first hand the rapid pace at which the manufacturing industry is driving the rest of China’s economic output. 

PRD Region

The Pearl River Delta region around Guangzhou generates one-third of China’s total exports. Guangzhou is becoming the epicenter of a region whose economy is increasing at a dizzying pace, and that will soon top 70 million people (including migrant workers). The vast majority of foreign investors have started to realize that the PRD region would be a useful investment for their business, not only for the coming years, but for decades beyond.

Tax Haven

It was in Shenzhen, the “Garden city of China”, where Deng Xiaoping, opened the market and trade zones for foreign investors to thrive and enjoy the benefits of a tax haven, with China’s first four Special Economic Zones. Much of that development has been fueled by the region’s proximity to Hong Kong, Macau and the rest of South-east Asia. Indeed from Guangzhou or Shenzhen, most of the major cities within South-east Asia (Singapore, Kuala Lumpur or Tokyo) are within four hours flying time, enabling executives to travel for business even for a one or two day meeting. Foreign companies such as Siemens, Motorola, Honda, Conoco, phillips, BP, Thyssenkrupp and a myriad of others have taken advantage of the need to locate their manufacturing or R&D facilities in the PRD region. 

Transport

The transportation system in Guangdong boosts an impressive list that includes nine airports, world class high speed trains (GuangShen rail link as a prime example), as well as a sophisticated network of highways designed to improve road safety and traffic congestion linking all the main cities around the province. It goes without saying that when travelling to and from airports or between two major cities (such as between Guangzhou and Zhuhai for example), passengers expect their journey and connections to be smooth and hassle free. Just as the transportation system was assessed during the Beijing 2008 Olympics in the capital city, Guangzhou will also be under the world’s spotlight when the city hosts the much awaited Asia Games in 2010.

Workforce

It’s astonishing when one is on hand with figures that verify that Guangdong province might on its own have a labor workforce larger than the whole of America’s. Looking at it from another prospective; Guangdong’s population is over 85 million people (2007 statistics). Even if a fifth of its population held a labor job, which would be approximately 19 million, that would completely outnumber America’s entire Manufacturing sector that employees just over 18 million itself. It’s sure an eye-opener and this is the reason why you see so many American and Mainland European companies jumping at the first opportunity to establish a presence in Guangdong Province.

Corporate Culture

Zhuhai has been another success story for the Special Economic Zones in Guangdong Province with an annual GDP on around RMB 70 billion by the second quarter of 2008. It borders the SAR of Macau, and although not getting as much attention as Shenzhen does (with it bordering Hong Kong), but still Zhuhai manages to accommodate an abundance of industries (Electrical equipment, Petrochemicals and Medical equipment are the main ones) that would make any minted foreign investor flock to this city.
For executives who are sent by their CEOs to relocate to the Pearl River Delta region for example, the first few months will be comparable to a sort of corporate “honeymoon” which will comprise of becoming acquainted with your environment. Once you have become a resident in your new setting, apart from having all the essential managed services of daily life being taken care of, knowing some of the major business principles that can determine the difference between success and failure is critical before even setting foot into China. When planning essential managerial tactics, therefore, executives need to work out how the capital markets, product and labor work (or don’t work) in the PRD. This will assist executives to appreciate the differences between the home markets and those in Guangdong Province because that will be the ultimate corporate culture shock for any newcomer arriving to settle for business purposes in the PRD. 

Navjot has written the “Newcomers Handbook Country Guide: China: Including Beijing, Guangzhou, Shanghai and Shenzhen (First Books Inc, 2008)”, and also the “China: Business Travellers Handbook (Stacey International, Feb 2009)”.