SPANISH FIRMS ESTABLISHED IN CHINA
GENERAL PICTURE OF THE 360 SPANISH FIRMS ESTABLISHED IN CHINA
Sector of activity
By way of a start, in what sectors are Spanish businesses operating? To answer to this question, first, a broad classification was carried out. It can be deduced that:
1. Most Spanish businesses (56%) are operating in the services sectors, such as transportation and logistics, professional services, consulting, financing, legal, quality control, advertising and other services (health, education, art, culture, etc.).
2. In the second place, we have industrial equipment and intermediate goods (26%), mostly supplies to Chinese industry (metal, machinery, equipment, raw materials, etc.).
3. In the third position, we have other consumer goods (10%), such as textiles, fashion, footwear and other consumer goods. 4. Not included in other consumer goods and in a category of its own, we find food and beverages, which occupy the fourth position with 8% of the total.
The reasons for a business to establish in a foreign country can be numerous. Normally, the most common reasons can be either related to access to resources (raw materials, intermediate goods, labour and/or technology) or access to the market. In the case of China, the access of raw materials does not play a part, simply because it is not a country with significant natural resources. In general, it can be said that there were two main reasons for setting up business in China: first, access to cheap labour and second, access to the market.
• In the past (in the 1990s, 2000s), the main reason was to manufacture low-cost products using a cheap and unqualified workforce in China. After production, the goods were normally transported back to Spain for their consumption.
• Lately, the trend has varied as to whether firms may or may not continue production in China. However, the main reason for being there is related to accessing the domestic Chinese market (the reasons are numerous). This second reason has surpassed the first in importance.
Our survey confirms this position. When asked why they set up in China, reasons included access to cheap labour, access to raw materials, access to Chinese and other Asian markets, detecting business opportunities, following competitors, or establishing in China as a mandatory requirement.
a. Access to labour
In the following sections, we analyse the importance of each of these reasons. Starting with access to cheap labour, 40% consider this factor has little or no relevance whatsoever, whilst 60% believe that it is of some or great importance.
For most companies interviewed, the cost of labour has some importance, but contrary to what is generally thought, its importance is somewhat limited. In fact, labour cost is only considered as the fifth most important reason, after market access, identification of business opportunities and so on. Only 18% of the companies considered it very relevant: as expected, this importance has a direct correlation with manufacturing businesses, where labour costs currently represent a competitive edge. In the past, the importance of labour cost was much higher, due to businesses externalizing their production to China. Nowadays, as the importance of services grows, other reasons are becoming more relevant.
b. Access to the Chinese market
Firms consider China as a market full of opportunities, which explains why 77% of the firms consider market access as either relevant or very relevant when explaining why they set up business in this country. This means that these types of businesses view China as an interesting market in which to commercialize their manufactured products (regardless of where this takes place) rather than viewing it as the world’s factory.
c. Access to other markets in Asia
Accessing markets is always a priority for businesses, the market being China itself or others in Asia. For half of the firms surveyed, accessing other Asian markets is very or quite relevant.
d.Detecting new business opportunities
The importance of looking for business opportunities is, after access to the Chinese market, the second-most selected answer. This is understandable since detecting new business opportunities is a very general reason that could be related to the growth of the economy, rising demand, specific businesses that appear at a certain moment, changes in technology, legislation, and so on.
e. Strategic move to follow competitors
The strategy of following competitors may be very relevant. It has some importance for many, which is to be expected, but it is not normally the sole reason for establishing in China.
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