Posted by Elena Luk'yanenko
Elena Luk'yanenko
Elena has more than five years of experience in international marketing providing services for the foreign com...
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on Wednesday, 14 July 2010
in Business in China

Industrial Project Management in China

The task of building a factory becomes more complex in China. It is imperative to have the right skills, knowledge, experience regarding each stage in the process of setting up a new entity in order to obtain the best possible site and agreement. Undertaking such a task in China requires an in-depth understanding of cultural differences, local regulations, negotiation processes and management strategies in addition to experience and connections in the local markets. The key to success of any industrial construction project lies in proper financial management, which should not be neglected.

This article covers the following stages of industrial project management:

  1. Picking the right site for your business
  2. Negotiations
  3. Construction
  4. Management 

Picking the right site for your business

Site location for the new factory is arguably the most important decision. Throughout China, many industrial parks compete for foreign investment. It is important to locate those with the best reputation and benefits and a need for factories in the specific industry. Choosing to locate factory as close as possible to the potential market may allow secure more favorable shipping terms, whilst allowing the company to provide efficient service at all times.

Accessibility to such transport facilities is an advantage such as high-speed railways that allow cheaper second tier cities such as Wujin to substitute first tiers. Easy access to raw materials may also be highly desirable. It is crucial that suitable workers and managers can be recruited in the area, with checks conducted into the local employment regulations and average wage costs.

The suitability of the site in terms of size, facilities and infrastructures and surrounding industry should be evaluated. The presence of successful foreign operations in the area is a positive indicator but avoid location with close potential competitors. The cooperativeness of local government in negotiating terms for financing, licenses and tax benefits is crucial. It is important to obtain necessary licenses to manufacture, and trade the given product prior to construction.

Negotiations

According to PTL Group’s experience, negotiations must take place face to face. It may be especially helpful, to hire an experienced project management company specializing in the industry. Such experienced local companies can help prevent deals from going sour and secure realistic but beneficial agreements.

The options offered should be evaluated alongside specific attributes of each plant. Options may include: buying the designated land, obtaining a leasing agreement or renting an existing plant and making necessary changes. Certain industrial parks also offer special lease agreements with a generous benefits package and the option to later purchase the plant if initial operations are deemed successful.

Construction

Plant construction must be carried out under the guidance and monitoring of local engineering companies in order for construction to comply with local regulations and standards. It is especially important to seek and gain approval for proposed plans prior to beginning production line construction. Careful beginning preparation and planning will allow for adjustments if unforeseen circumstances, perhaps the unavailability of necessary materials in China, arise.

Construction should be helmed by a skilled and experienced team, which should include a financial expert, an engineer and someone with connections to the local government. Continuous familiarity with local regulations is required, regardless of which materials or resources are used, as to avoid administrative hassles in the long term.

Management

Tight operational control and management regarding the local Chinese government and work environments is also imperative. Separating manufacturing and the sales team will allow greater control and the transference of negative influences. Distribution channel selection should be monitored tightly by professional managers to avoid exploitations from individuals inside and outside the company. Any potentially harmful and threatening issues can always be isolated with an external audit.

It is imperative to hire an experienced and capable manager, whether a foreign or a local Chinese. A foreign manager may not have the necessary experience in China and is expensive. They may however have a better understanding of the product and its needs if he has experience working for the company. A Chinese manager is cheaper and perhaps more capable in managing Chinese employees but may lack transparency. As a local, they may be better sellers to the local market. The associated risks will require greater controls and resources from company headquarters. An external service company can provide support in areas such as HR, finances and logistics, removing a substantial managerial burden and allow internal managers to focus on the manufacturing and sales.

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