Go with the territory: where on earth is the best place for your company to set up a new branch? Camilla Berens and Ruth Prickett compare regions around the world that are trying to attract foreign business and find out what they have to offer.
| Author | Berens, Camilla |
Is there an ideal time for a business to expand abroad? The financial equation needed to entice companies into foreign territory can be complicated: currencies fluctuate, interest rates vary, politics change and economies shift accordingly. The economic forecast for western Europe may be cloudy at present, but there are exciting opportunities in China, Russia and the countries of the new Mediterranean free-trade alliance. Of course all such opportunities carry a risk, whether this is high levels of crime and corruption, or, as in the US, an enticingly rich and established market that can prove infuriatingly complex, bureaucratic and expensive for outsiders who are poorly prepared or ill-informed. There may be gold in them there hills, but you need the tools and the know-how to extract it.
Sometimes the barriers of language, culture, laws, taxes and logistics seem overwhelming. But you don't have to do it alone. Regional and national agencies exist in most countries, offering anything from advice and networking events to cash incentives and tax breaks. It's also worth checking what support your own government offers. UK firms, for example, can tap into a wealth of expertise in embassies, and regional development agencies offer seminars and networking events for those looking to expand overseas (see panel). Wherever your firm is based, it's worth considering how it reaches the rest of the world--whether it sells finished products, R&D or services. There is enormous potential to be tapped if you know where to look. If you've got thick skin and nerves of steel, now is as good a time as any.
CHINA
When the UK chancellor, Gordon Brown, visited China recently, he urged companies to view the Asian super-state's growth not as an economic threat but as a "huge market with huge opportunities". Setting up a business in China has become easier since restrictions on foreign businesses were lifted four years ago. In the past foreign companies were obliged to form joint ventures with Chinese investors. Today wholly foreign-owned enterprises account for more than 60 per cent of foreign direct investment in China.
The standard business tax is 30 per cent, but special economic zones have been created to attract new investment, often with generous incentives attached. Some zones are offering substantial concessions, including a full exemption from corporate income tax for the first two years of profitable operation, followed by a 50 per cent reduction for the following three years.
CASE STUDY
Chris Parr, commercial partner at KSB Law, has assisted western firms moving into the Korean, Japanese and Chinese marketplaces. One of his most recent assignments has been to help a US company set up a water-purification project in Shanghai. He advises western firms considering a move into China to plan a realistic timetable, because it can take as long as two years to get things up and running.
"Finding the right business partners and location takes time. It's 60 per cent preparation and 40 per cent execution," he says. "Obviously, China has the extra element of being far away from western Europe and having a very different language and culture."
Parr recommends that new arrivals tread lightly. "We had a somewhat arrogant US corporate approach and assumed that we knew best how to do everything," he recalls. "We soon found that we got further when we let our partners take the initiative when it came to negotiations on the ground."
It's also important to keep in regular contact with your business partners. "It's like a marriage," Parr says. "You need to keep working on the relationship. If you don't visit your partners regularly, the project will almost certainly fail."
A business partner may well be looking for a reciprocal agreement, according to Parr. "If you want to move into their market, they may want you to help them move into the west in return," he explains. "You need to be prepared for that and to ensure that you honour your end of the deal."
Parr says his experiences in China compare favourably with those elsewhere in East Asia. "I went to Japan expecting it to be really slick and efficient, but it was like walking through treacle, while the Koreans were aggressive in their approach to business and very hard-nosed," he says. "The Chinese genuinely wanted to do the deal with us and approached it with a very open hand."
CONTACTS
The China-Britain
Business Council
Tel: 020 7828 5176
Web: www.cbbc.org
The 48 Group Club
(a support network for
UK businesses in China)
Tel: 0161 975 2945
Web...
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