Scandic Sourcing paid a visit to Predire Quality Testing Technologies' test facility in the district of Jiading in northern Shanghai. Scandic Sourcing helped Predire start up their operations in China. One year later we meet and have a chat about the car industry in Jiading, and how things are going for Predire.
Predire is a family owned accredited Test Institute mainly for the automotive industry, founded in 1995 in Svängsta, Sweden. Currently, Predire has test facilities in Germany, Sweden and as of 2013 in Shanghai, China. Predire's expansion to China was assisted by Scandic Sourcing who provided start-up services by sourcing a suitable location for their test facility and also handled Predire's company registration process in China.
How was the process of setting up your test facility here in Shanghai?
"We came here empty handed with no guarantees, just my expectation to quickly acquire customers – so the whole process was at times a bit nerve wrecking. But it was a calculated risk, and it is now finally starting to pay off, as we have already received projects until next year. Many other big potential customers have also shown a lot of interest in us, so I am increasingly positive about our future here in Jiading".
Johnas Rundgren and one of his test-engineers in Predire's main test hall.
Currently, Predire have installed two big chambers in the main hall, one chamber big enough for a complete vehicle, which can simulate almost all natural conditions in the entire world, incl. aging of mechanics, car panels and installations. "Ageing means checking how well a part or system will work, look & react not now, but several years into the future", Johnas Rundgren explains. "Quite recently, almost 8 million cars had to be recalled from several automotive OEM´s due to failing airbags from a sub-supplier which had not performed adequate aging tests. Needless to say, a recall is both expensive and can have a great negative impact of a brand, something that all car manufacturers want to avoid – that's why you need firms like ours with this kind of equipment. It´s not enough for a car and all its systems only to look & work perfect directly after being delivered - It also needs to keep the quality and be safe to use for several years in the future."
Right across from Johnas office window in Jiading district in northern Shanghai, is Volvo's latest gigantic R&D facility being constructed. It is the second of its kind in the world; the first being located in Torslanda, Sweden.
Why did you choose to locate your test facility in Jiading?
"Jiading has developed into a R&D center for car manufacturers and sub suppliers. This development was partly engineered by Jiading officals who co-funded Volvo-owner Geely in return for the latter placing their R&D center in Jiading", Johnas explains. "In addition to Volvo; Volkswagen, FIAT, Autoliv, Magna Steyr, Brose and other major players have operations here", Johnas says. "Which is also what I found when doing my initial research when deciding where to locate our test facility.
I see camouflaged cars of all brands going by my window almost every week", Johnas says. "Those are new car models which have not yet been revealed which are being tested in secret around here in Jiading. For car buffs like me, that's not only cool to see, but it indicates we choose exactly the right spot".
How would you describe the process of starting up your company in China this far?
"It has been a bit of a struggle at times to get everything in place, including issues we never encountered before like bribery situations and really tough negotiating situations, but overall I feel that we have fared well and now finally everything is in place. I have been really consistent with keeping everything 100% honest and transparent. The company culture here is very different – a lot of it does not at the outset seem to make neither common nor any practical sense.
A lot of the times it has been good to have Scandic Sourcing there as a guide in those tricky negotiating situations where nothing in our own experience, nor even logic is there to guide us to a decision; I think only experience of doing business in China can help in those situations. The after-service from Scandic Sourcing has been a great support to have – a friendly voice a phone call away for some quick guidance whenever that has been needed from a knowledgeable and experienced partner. I'm happy I used Scandic Sourcing as a way to establish Predire in China".
Tina Damsgard is a Co-Founder of Little Mermaid; a Danish branch of the Danish hot-dog company “Trosborg Event”. The start-up company is currently working on establishing hot-dog shops in prime locations around Shanghai to build their brand on the Chinese market. Little Mermaid is currently using Scandic Sourcing’s Business Support Office to handle their administrative needs in the start-up process in China.
Why did you decide to go to China?
I wrote my master’s thesis about cost-efficient business solutions in China. I visited Beijing, Shanghai and Qingdao, and saw the potential of entering this booming consumer market.
Why did you choose Scandic Sourcing?
I came into contact with Per Linden (the CEO of Scandic Sourcing) during an event in Shanghai and we started talking about my company and our start-up in China. He told me about Scandic Sourcing’s Business Support Office services and it seemed like a great solution to getting started fast in China. We found that it was the most cost-efficient solution for start-ups where you could get all the fundamental things our company needed for a fair price.
What services did Scandic Sourcing offer?
We use Scandic Sourcing’s Business Support Office service for HR services, Back Office, administration, office space and recruiting.
How would you describe your experience with using Scandic Sourcing’s start-up services?
One of the best things was that when we arrived in Shanghai we immediately came to an office where there were people that we could ask about specific issues relating to China. Entering the Chinese market as a young entrepreneur can be a daunting task, and it was quite comforting to have other people around at an office to talk to and to ask questions and get advice. The expat community in Shanghai is very helpful; but you definitely need a base when you arrive to start from somewhere, and Scandic Sourcing provided that.
What is your advice to others who are thinking about going to China?
I guess you can read too much literature about China before coming here, and that can lead to making too many assumptions beforehand. I actually suffered from that a bit because I wrote my thesis about cost-efficient business solutions in China, so I studied a lot about Chinese business; also in terms of social behavior etc., so I was a little colored by my own presumptions before coming here. I think it’s good to have some basic knowledge of do’s and don’ts in China but still arrive here with an open mind and make up your own opinion rather than base it on sometimes subjective and outdated information.
Patience is also an important trait to have in China, because most things have a tendency to take a bit longer than what might be expected. It’s also important to be super clear with instructions and the use of wording; maybe words have a different significance in China than in the West – making too many assumptions and wording things abstractly could lead to misunderstandings.
For more information about Scandic Sourcing's Services: Read more about our Business Support Office here.
Shanghai. China's state council has amended the process for how companies disclose credit information via the Provisional Rules on Enterprise Information Disclosure act which took effect on October 1 this year. The new disclosure rules require all companies, foreign and domestic in the PRC to submit annual credit reports for public disclosure via the publicly available Enterprise Credit and Information Disclosure System which can be accessed on a real-time basis.
Companies are now required to submit annual reports which replace the former annual inspections. The annual reports which has to be submitted in Chinese, has to include liquidity status, equity investments, subscribed capital, among other things. Declaration of formerly required information such as work force, total assets and liabilities, operating revenue and profits is no longer mandatory under the new law, whereas in the past, companies where required to submit audited financial statements during the annual inspection. The companies themselves are responsible to submit the reports. Failure to submit these reports could lead to being put on a blacklist, which could severely restrict future business activities.
The Provisional Rules on Enterprise Information Disclosure is part of a bigger overhaul of the Company Law, which started last year when China's State Council issued the Plan on the Reform of the Registered Capital Registration System, where some of the major changes included elimination of minimum required capital requirements (with some exceptions) and other amendments aimed at liberalized capital contribution scheduling requirements. The overall goal with this latest legislation is to increase transparency and simplify public access to credit information.
- This is good news for anyone evaluating suppliers and potential business partners in China, says Per Linden, CEO of the consulting firm Scandic Sourcing, located in Shanghai, who is regularly identifying suitable suppliers for Western firms looking to outsource production to China. "One year ago, credit disclosure companies stopped getting access to tax reports, which made it difficult to make credit checks of Chinese companies. To get accurate info, we had to ask the companies themselves to disclose their annual audit reports, which they may or may not do. Now, the publicly available Credit and Information Disclosure System circumvents all that, and I think this is a big step towards simplifying credit checks in China.
Image couretsy of Reuters: Carlos Barria
During the 27th to the 29th of October, the Fourth Plenary Session of the 18th Party Congress was held in Beijing. The meeting addressed legal reform, and issued a number of policy changes in regards to strengthening the judicial system vis-à-vis local government in order to create a more predictable legal environment. Some of the plenum’s proposals included removing the influence of local power-holders over courts and moving responsibility for court funding and personnel appointments away from the local government.
Furthermore, the plenum communiqué, issued last week, vaguely hinted at greater citizen participation in policymaking and also urged for the creation of greater review- and punishment mechanisms within administrative bodies. It also detailed establishing record reporting for “leading cadres’ interference with judicial activities”. These policy shifts, aimed at increasing government transparency, can be seen as steps towards a more pro-active approach to ensure stability in China, according to Malin Oud, an expert on human rights who was previously a UN consultant and head of the Raoul Wallenberg institute. For the past 30 years, GDP growth and stability has been the main focus but recent reform signals a move to address issues such as the environment, government transparency and the legal system to deflate public discontent, rather than dealing with it after the fact, Oud concludes.
When locating specific suppliers in China, business clusters are usually a good place to start. A business cluster is defined as a geographical concentration of interrelated businesses which benefits from the co-location in a number of ways as well as a value added production chain. If you are looking for aluminum products, source in Nanhai, if you are looking for linen products, turn to Suihua in Heilongjiang, IT and circuit boards, source in Suzhou, etc. Knowing about these clusters is valuable knowledge when deciding about where to set up operations, outsource production or find suppliers in China.
Business clusters usually form spontaneously by the work of market forces, or develop out of pre-existing special economic zones, such as the information and technology clusters in Beijing and Shenzhou and the electronics and biotech clusters in Shanghai’s Pudong area. There are export driven clusters, resource-driven clusters, market driven clusters, and so forth, depending on their geographical location.
The tailors of Cixi
Regional specializations are nothing new to China. One interesting example is the tailoring center of Cixi in Ningbo which traditionally served as a major clothing manufacturer to Beijing from 1680’s to the 1930’s. When the local government looked for ways of growing their region, they looked back in history, and transformed factories producing military uniforms to instead produce more specialized garments, and gave support to local business owners. The Cixi cluster now produces around 5% of China’s total textile output.
Other notable specialized clusters are Datang in Sichuan province which produces some 6 billion pairs of socks each year, or the city of Dongguan in the Pearl River Delta which creates a third of the world’s supply of magnetic recording devices used in computer hard drives.
Differences between clusters and Special Economic Zones
Sometimes a specialized cluster develops out of China’s many Special Economic Zones (SEZs), but most of the time they do not, and a business cluster differs quite a bit from SEZs generally speaking, in that the SEZ usually receives more foreign direct investments, have stronger focus on export with closer links to the global markets, and usually have greater access to technology. Conversely, a business cluster tends to operate in more labor intense, low-tech environments where local government support isn’t quite as enthusiastic as in a SEZ.
In some cases, the local government supports the specialized cluster by establishing an industrial park, which in effect is a government entity. If you are establishing a factory in China, locating in an industrial park can offer some unique benefits, such as proximity to local officials, tax authorities, environmental inspectors, etc., who usually have offices in the industrial parks. This proximity can facilitate increased Guanxi with such officials, and offer unique advantages, as one well connected Chief Finance Officer said in an article in Asia magazine: “For other companies it will take three months to get one approval. For us, maybe three days”.
Where to look
The vast majority of China’s industrial clusters are located near China’s east coast, where infrastructure is much more developed than in the west. A survey made in 2006 of 138 foreign and domestic logistics companies by real estate firm Jones Lang LaSalle, found that over 80% of their warehouses were located in just three different regions: the Yangtze River Delta, the Pearl River Delta and Greater Bohai Bay.
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