More and more food companies are expanding into emerging markets such as China, capitalizing on growing middle classes and increasing popularity of westernized diets. Yet setting up a food processing facility in China – from financing and permitting to quality control and food safety – is a vastly different process than in the U.S. This month in Food for Thought, we’ll explore these topics in more depth and offer our tips and insights based on our own experience operating in China.
Four Tips for Site Selection
The stark differences can be seen at the earliest stages – in site selection. Plan for at least a three to six month process to identify, analyze and secure a site. The infrastructure, business regulations and government processes are vastly different from the U.S., so you’ll need to allow ample time, and human capital, to conduct due diligence. Keep the following four tips in mind as you’re exploring different site options:
1. Property ownership: In China, it is very difficult for a company to own property. Instead, it is often leased from the government. Lease terms are often for extended periods of time, up to 100 years.
2. Brokers and site selection firms: Brokers and site selection firms are typically state owned enterprise (SOE) firms. To find experienced, independent firms, use your existing resources back in the U.S. or reach out to American expats in China to obtain referrals for brokers.
3. Supply chain analysis: As part of the site selection process, make sure you conduct a holistic supply chain analysis. Where is your raw product coming from and where is your end user? Map out your transportation and distribution plan. Each province has different tax laws so if you’ll be operating across province boundaries, you need to understand the tax implications.
4. Infrastructure: Realize that the infrastructure – from roads to utilities to communications systems – is constantly evolving and often not what you are accustomed to in the U.S. Investigate the road system within your supply and distribution chain to ensure you’ll have adequate transportation access. Also ensure that the site you select can support your utility and communications requirements. You’ll learn more about this in next week’s post on the permitting process.
If you’d like to hear more about what we’ve learned selecting various sites in China, email me at email@example.com.