China’s economy has been on a rapid upward trend for the last 20-plus years. It has become the second-largest economy in the world and is flirting with taking the first-place spot. If your company is in any way, shape or form connected to the global economy, chances are you have some connection to China.
With a growing middle class and upper class, China still finds it extremely challenging to supply itself with the kind of quality and value-added food products that these growing populations want.
This has made it enticing for a lot of U.S. food companies to create an even greater presence in China, usually in the form of establishing their own in-country food processing plant.
If you are one of these U.S. companies planning or contemplating establishing a food processing facility in China, here are some things you may want to consider with regard to designing and building the structure:
1. Choosing the project location
The location of your project will greatly influence your strategy and operations.
In China, local authorities have a lot of power in terms of how laws are interpreted and executed, and these interpretations and executions can greatly vary from place to place.
This also holds true for the types of incentives, amenities or utilities that may be available for your project. They can vary a lot.
Make no mistake about it: The central government in China is strong and powerful, and when it wants to do something, it gets done.
However, the actual day-to-day governance in China is decentralized and “bottom-up” in important respects. This is why different provinces or even areas within a province in China can function very differently from one another.
To manage this, we encourage people to consider more than one project site and to actively meet with the local government entities at each of those sites in order to get a more complete picture of the impacts of choosing one location over another.
We also recommend making a clear list of site criteria that can be the basis for a scorecard to quantify the value of each particular site. This scorecard can be a very powerful tool in communicating information to key decision makers.
Creating a detailed feasibility study and conceptual design are a must before making decisions on where to locate your new business.
2. Know the laws and standards — and the bureaus that enforce them
The local Guo Biao (GB) Codes or National Standard Codes, as well as a multitude of other guidelines, influence all aspects of design and construction in China.
In particular, the national fire code has been in a state of constant flux and has risen to the attention of the higher echelons of the Chinese government due to a series of fire-related tragedies.
Therefore, it’s important to pay attention to the ever-changing fire code and respect the increasing power of the Fire Protection Bureau. In general, it is valuable to have someone on your team that understands these laws and standards, because these rules can affect your project in a lot of ways, for better and for worse.
It is of even greater importance to get to know the bureaus that enforce these standards and build Guanxi — the type of relationship in Chinese culture that carries with it the responsibility to maintain contact and assist each other.
3. Differences in construction materials and methods
A lot of raw materials that are common in the U.S. aren’t as readily available in China, and on the flip side, some materials which are considered “premium” in the U.S. are sometimes more available (and therefore cheaper) in China.
In the U.S., labor is a driving factor in project costs, but this is not the case in China where labor is readily available and relatively inexpensive. Instead, local designers and contractors make material recommendations based on which materials cost less or require less equipment. Some examples include:
- Masonry — Brick and concrete block work is labor intensive and therefore costly in the U.S., but this is more widely used in China. You might rent a Bobcat front loader to move gravel and materials in the United States, but in China, you would use ten workers with ten wheelbarrows to complete the job because it’s a lot cheaper.
- Tile — Ceramic and stone tiles are used much more in China because the lower cost of installation makes them a more attractive solution than in the U.S.
- Insulated Metal Panels (IMP) — Alternatively, IMP panels require less labor per square foot and are therefore more common in the U.S. where the labor savings are more substantial.
Plus, required skill levels vary depending on the material. For example:
- CO2 Ammonia Cascade systems are more common in the U.S. where this technology has been used for several decades. CO2 piping requires specially trained welders and pipefitters since these are high-pressure pipes. There simply aren’t many skilled laborers with this specialization in China’s food and beverage market.
- Of course, a labor force isn’t going to be as skilled with materials that are not as commonly used. So if a customer wants to use something that is common in the U.S. such as concrete tilt-up panels or IMP panels, they should not expect the same level of quality in their installation because the workers are simply not as experienced in this installation.
Market acceptance of certain materials also plays a factor. For example, although fire sprinklers are common in China, they are still not considered a suitable replacement for “fire proof” materials like they are in the U.S.
We find that companies tend to transition better when their standards are performance-based rather than product- or method-specific, or when the companies are willing to convert their standards to such.
4. Fear of intellectual property loss
Intellectual property (IP) retention is one of the concerns that always comes up when doing business in China.
This is especially a concern during the design phase of a project since it is a legal requirement to work with a local design institute (LDI) in order to proceed with any sort of detailed design acceptable to local authorities.
This is why we recommend that a company create a non-disclosure agreement (NDA) written in Chinese and tailored for enforceability in China before any sensitive information is disclosed.
We also recommend that companies evaluate what sensitive or valuable IP needs to be protected in advance, versus information that may be passed along.
For example, there are not a lot of “secret” methods in design and construction (e.g., how a wall is painted or what material to use for a wall). However, there may be proprietary information in the process design or operations. Focusing your efforts on what is truly important results in better management of IP.
5. Food safety matters
Creating a sanitary facility that maintains food safety is always of great importance and cannot be compromised, especially in China where past food safety problems have made it a national concern.
In fact, food safety laws and the structure of the bureaus that enforce them are constantly evolving because of this. This is a great development, of course, but it can also be a challenge to keep up with fluctuating standards.
We highly recommend maintaining a team dedicated to tracking food safety requirements and changes. It is also advisable to make sure that any issues pertaining to food safety requirements are integrated into the overall project schedule as they do have a significant impact on the project’s design, construction and overall progress.
You should also establish communication with any relevant bureaus early and often as this can make for a smoother process in terms of food safety compliance.
You can also expect that some steps in your company’s standard HACCP (Hazard Analysis Critical Control Point) programs and standards that may clash with China regulations. Be prepared to spend the time to work this out with the local authorities.
6. Choosing a project management team
It is crucial to choose the right project management team or consultant to assist you on the ground in China and handle issues as they arise.
We recommended that you have a team with a good mix of U.S. and Chinese members who can help bridge the cultural gap and lend strength to one another.
Remember: Just because something is done a certain way in the U.S., doesn’t mean it can be done that way in China. Your project leader should understand these differences, have an open mind and be a “champion” of the project.
Chinese culture is very hierarchical and authority is highly regarded. Often times giving your project leader a title such as “Director of China Projects” can make them more effective because Chinese workers will respect them more — even if back home they’re simply a “project manager.”
Since he or she is the bridge between the U.S. team and the China team, your project leader must be a strong communicator and be willing to delegate work to a willing workforce.
We’ve barely scratched the surface of the complex and unique environment that is China. These are just a handful of the differences you’ll need to navigate if you’re planning to build or renovate a food processing facility there — the right partner makes all the difference.
Have questions about China’s food and beverage industry? Interested in learning more real-world examples from executing F&B projects in the Chinese market? Email me at foodforthought@stellar.net