Why businesses invest in China
It is natural for a nation to respond in swift and possibly inconvenient ways to national health and diplomatic crises. Official measures are reported every day about India’s response to the coronavirus and to the China situation. As intelligent citizens, we must adjust to the decisions taken by our leadership. Equally, our leaders must learn from the positive aspects of other nations, even as we reject their negative aspects.
I wish to recount, in the first person, the experience of two Indian managers on ‘ease of doing business’ (and managing a pandemic-like situation) in China, as I am aware of what they experienced. The managers and companies are not named but these are their accounts:
Case I: A plastics component company, Nanjing, China
It was May 18, 2009 and I was paying my first visit to the Nanjing plant to take charge from my predecessor. I was going to spend two years as per my contract to run a plastics component company located in Nanjing. Swine flu was reported in some countries across the globe and it was just the beginning of the outbreak. I landed in Nanjing at 8:00 a.m. and, after completing the formalities at the airport, hopped into the company car and headed for the hotel. I was booked in a hotel that was close to the plant and conveniently located from the airport. On the way, I got the first glimpse of Chinese infrastructure and road networks.
Our leaders must learn from the positive aspects of other nations, even as we reject their negative aspects.
Having freshened up, I reported to the Nanjing plant by 1:00 p.m., where my predecessor briefed me in his office while simultaneously attending to routine office issues.
By 1:30 p.m., two government officials arrived at the plant and met the Chinese HR head. They informed her that, at the airport, they had identified a Chinese passenger with a higher-than-normal body temperature and flu-like symptoms. The passenger was tracked down to the same flight in which I had travelled. He had occupied a seat two rows in front of me. As a precaution, the local government authorities decided to quarantine all passengers who had sat within a radius of three rows to his front and back, and send them to a government-designated place for one week at the local government’s cost. The HR head tried to negotiate with the government officials to let me be quarantined in my hotel room, but they rejected the request.
As the officials wanted to me to go straight to the designated quarantine place, the HR head agreed to have a company employee go to my hotel, collect my bags, and deliver them to me. The officials also told me that I could not use the company car and that an ambulance was waiting for me. All this was a brand new experience for me in a country I was visiting for the first time, and that too within a few hours of landing.
The HR head tried to negotiate with the government officials to let me be quarantined in my hotel room, but they rejected the request.
I was given a mask by the ambulance team. The HR head and the government officials followed the ambulance to a small hotel near our company Industrial Area. My company had given me a mobile phone with a local sim card, and now all briefing was happening by cell phone as no one was permitted to be physically close. I was told that I would be put into one of the hotel rooms for a week. The corridor was isolated; other rooms adjacent to mine were also occupied by people who had travelled on my flight. Since any of the other passengers might be infected, I was told it would be better for me to stay put in my room. Any food or other items to be delivered to me would be placed on a table that also served as a blockade at the entrance of the corridor. The hotel was a small one — not a 5-star facility, by any means, but clean and neat.
The news appeared to have reached the top officials of JNDZ (Jiangning Economic & Technological Development Zone is the Industrial Area in which my plant was located). They had high regard for my employer and conveyed their regret about my having to undergo quarantine on the first day of my arrival in China. I was amazed that top government officials of such a large industrial area were already briefed about the situation of one of the CEOs of a foreign company and their feelings were also conveyed to me! All this happened on the same day. JNDZ officials were monitoring my situation closely. A nurse would pay a room call twice a day to take my temperature, and that was the only visitor I had during those days. Company colleagues and JNDZ officials arranged food, fruits, daily.
I was amazed that top government officials of such a large industrial area were already briefed about the situation of one of the CEOs of a foreign company and their feelings were also conveyed to me!
I received another pleasant surprise when I completed the quarantine period and was able to come out of my room. Senior-level JNDZ government officials had come out to greet me. They were very apologetic as they took pains to repeatedly explain the reasons for the abrupt quarantining. They also offered to take us out to a special dinner with their seniors once I got settled in.
And that is how my China orientation began — my first exposure to China and the Chinese way of doing things.
Case II: A company making steel drum closures, Quanjiao, China
This is an account of a Vice-President of a medium-sized Indian corporate, one of the largest manufacturers of “drum closures” in the world. Drum closures are lids used in the manufacture of 200-litre steel drums. The company is also one of the largest manufacturers and exporters of scaffolding systems in India. Both of these are products of very high-precision engineering.
We considered the availability of cheaper raw material, highly productive labour, very low logistical cost and the sizeable domestic market in China as reasons that justified investing in a factory in China.
Why did we set up in China? Business and economic considerations compelled our group to consider putting up a factory in China for producing drum closures and scaffolding for Chinese and international markets. We considered the availability of cheaper raw material, highly productive labour, very low logistical cost and the sizeable domestic market in China as reasons that justified investing in a factory in China.
We were aware of the volatility in Indo-China relations and the risk involved in operating in China. We had developed a high-quality indigenous manufacturing technology that is economical and competitive, but we had heard that the Chinese legal system tends to favour the Chinese. There was also the possibility that they might learn and copy our technology. Despite all these fears, we decided to go ahead, taking reasonable precautions. We decided not to take a Chinese partner. Apart from the fear of technology theft, we also had to contend with a Chinese law that gives veto power to any Chinese citizen who holds even a minority interest in the company. Hence, we decided to go on our own.
In my 30-years worth of experience in India, I have yet to see a factory starting within six months.
In 2008, after many discussions and considerations, we located an industrial zone, Quanjiao, which had a small town, about 50 km west of Nanjing, that met most of our requirements. After obtaining initial information about the zone, we decided to meet the zone authorities personally and to see the area. I and one of my colleagues reached the zone office in the morning at about 10.00 a.m. To our surprise, we found that the zone authorities had made elaborate arrangements to welcome us. The local party chief and few other senior officials were also present. We felt awed and nervous. We told the zone head that we were here only for a survey and did not have plans to sign any deals. The zone head informed us very politely that they were sure that we would be satisfied with the land and the conditions.
They then explained their proposals and showed us various sites across the zone. After we showed our interest in a piece of land, they made us a final offer which was substantially more attractive than the offer made in the mail earlier. We asked for a few more facilities, to which they readily agreed. And after about four hours, the deal was signed. We were amazed at their helpful and cordial approach all through the discussions and their determination to get the first foreigner to invest in their industrial zone.
Our advantages in market size, finance, land, labour, infrastructure are a huge plus but must be aligned and converted to winning parameters for display to the world.
fter signing a short MOU, we informed them that we needed to go to Nanjing and speak to a lawyer to form a company. The zone chief mentioned that if we had trust in them, they would form the company with all approvals free of cost. By this time, we had warmed to them and agreed to their proposal. They had also got a local bank manager with all the necessary forms for opening the bank account. All in a day's work!
The building was constructed in about four months. In six months, we were able to start production. In my 30-years worth of experience in India, I have yet to see a factory starting within six months. We have been in production for the last 10 years and are quite satisfied with our working in China.
When it comes to ease of doing business, can we really compare what India proposes to what China already offers? We must do better. Much better. The Americans, Europeans, Japanese, and Koreans are searching for new manufacturing locations to complement and supplement their China units. Their objective is to reduce dependence and widen the Supply Chain equation. And there is tough competition from Thailand, Vietnam, Indonesia, Bangladesh and Malaysia. Our advantages in market size, finance, land, labour, infrastructure are a huge plus but must be aligned and converted to winning parameters for display to the world. This requires plenty of work and, above all, a changed mindset. Can we do it? We must.