Fraunhofer IAO study analyzes what German companies need to do business in China
Jan 30, 2020
The Pujiang County regional government wants to establish a German-Chinese cooperation center at the industrial park in Pujiang to support small and medium-sized enterprises from Germany in their efforts to expand into China. Fraunhofer IAO therefore conducted a study among German SMEs to find out what they need from China in order to do business there.
China’s growing market offers attractive investment conditions, which is why also European companies are increasingly seeking to tap into it. However, key criteria that affect their decision, such as basic infrastructure and legal regulations, present a variety of obstacles and create high barriers to entry. In light of this situation, the regional government of Pujiang County in central western China wants to establish the “Sino-German Cooperation Center” in Pujiang County on the site of a new industrial park that is currently being built there. The center is scheduled for completion by the end of the year, at which time European companies, and especially SMEs from Germany, can set up offices there. In connection with this project, a research team from the Fraunhofer Institute for Industrial Engineering IAO conducted a study to identify the key criteria that influence German companies’ choice of location and to analyze the needs of small and medium-sized manufacturing companies. To this end, the researchers contacted 20 SMEs in Germany and interviewed representatives who play a key role in making location decisions. Fraunhofer IAO officially submitted the results of the needs analysis to the Pujiang regional government in November 2019, so they were incorporated in the planning phase for the cooperation center.
High need for political stability and centralized channels of communication with policymakers
For many European companies, the advantages of an industrial park are clear: logistical accessibility, established infrastructure and cost savings from shared use by multiple companies. However, the outcome of the needs analysis for the cooperation center provided interesting insights into the key criteria companies apply when choosing a location. “We were very surprised by the results of the interviews. Going into the study, we had suspected that financial factors such as government subsidies would be incredibly important to companies. But what was far more important – or even most important – to them was political stability, because of course that means investment security,” says Adrian Barwasser from Fraunhofer IAO. For instance, the research team identified a high need for a sort of centralized channel of communication with political and legislative bodies for legal and political advice. “For one thing, China has different laws and regulations than we do here, and for another, the legislative environment there can change within a matter of weeks. New laws are passed there much faster than here in Germany. Companies then have to respond quickly and appropriately. They would like to have support in doing this,” explains Barwasser. The availability of qualified labor, local expansion opportunities and accessibility for logistics vehicles were also cited as additional deciding factors in choosing to set up business in China.
Strengthening the entire central western region as an attractive location
Following submission of the findings, it is now up to the Pujiang County regional government to use the information gathered to create a business location that offers attractive advantages for foreign companies. To date, it has primarily been eastern coastal regions that have benefitted in China’s domestic competition for jobs and foreign investments. Particularly the regions around Shanghai, Beijing and Guangzhou have convinced investors with their ties to the national and international markets and the availability of qualified labor. Current global infrastructure projects and the efforts of the regional ministry of education to copy Germany’s education system in Chinese schools are aimed at helping the central western region catch up. “But Pujiang should take care not to squander one of its best trump cards,” says Barwasser. “Unlike in the concrete jungles of the east coast, Pujiang offers an idyllic landscape with cleaner air, lower population density and agricultural products. Good environmental conditions and access to German schools are important especially to employees hoping to work in China long term.” As Barwasser points out, German companies aren’t the only ones that would benefit from these USPs and an industrial park tailored to foreign companies. The region surrounding Pujiang County could also see an economic boom.