China is facing a major challenge: moving away from being the world's manufacturing hub to an economy more efficient, sustainable and high-tech. Fortunate for the rest of the world, China has not being standing still. By moving up the value chain, the country is offering opportunities for both domestic and foreign businesses to prosper.
Nowhere is this more evident than in China's No. 1 development zone - The Tianjin Economic-Technological Development Area (TEDA). Ranked China's top National Industrial Park by the country's Ministry of Commerce for the 14th consecutive year in 2011, TEDA has been helping companies to develop new, cutting-edge solutions, such as cloud computing, to cope with China's economic restructuring.
China's cloud computing application market size is expected to top RMB 60.68 billion by the end of 2012, up from RMB 9.22 billion in 2009. This represents a compound annual growth rate of 87.4 per cent, according to market research firm CCID Consulting.
And TEDA and its tenants are already showing progress in this field.
"Cloud computing requires very special services for power supply, bandwidth and safety," said Zou Fang, Deputy Director of the TEDA Investment Promotion Bureau. "TEDA has created the Binhai Cloud Computing Park for this purpose, with all the particular power, safety and redundancy systems required."
REVENUE-BASED REASONS FOR MOVING UP THE VALUE CHAIN
The move up the value chain is partially a result of China's success over the last two decades. This has brought about rapid rises in wealth, and in turn rises in labor costs. This means China's consumers have more money to spend on high-quality products, and also that labor-intensive industries have higher costs than before as wages rise. The solution is to become more efficient, with greater sustainability and the potential to adapt to continued changes and trends.
"Labour costs have increased by 15-20 per cent per annum on average over the past four years," said Aaron Lo, Partner at KPMG China, at the launch of its report entitled 2012 Global Manufacturing Outlook: Fostering Growth through Innovation. "This, together with an appreciating Chinese currency, has meant that China is no longer a low cost manufacturing base. This in turn has forced the pace of transformation and a transition to greater levels of automation and innovation in order to drive margin growth."
In order for such shifts to occur, companies need areas where they have the opportunity to innovate, attract the best employees and interact with other market sectors as they too move up the value chain.
TEDA is well aware of that and has been differentiating itself from other industrial zones in China by looking past the traditional manufacturing concerns of price towards long-term sustainability. "TEDA is looking to not only offer the best deals and environment upon start-up, but is also looking at reducing long-term operating costs for its investors," said TEDA's Zou.
CHALLENGES
Despite the advantages of TEDA, moving up the value chain is not always easy, given the special requirements of certain new industries and the difficulties they face as they develop. These challenges come in the form of both hardware and business structure problems as well as cultural and social challenges such as attracting and retaining quality staff to push forward new and innovative firms and concepts.
TEDA faces the same problems as any other companies looking to attract investment - namely, how it can truly differentiate itself from the competition so that investors come to TEDA rather than other areas. "Just as when TEDA started out [in 1984] the main problem they face is competition," said Madeline Sturrock, Managing Director of PanCathay Consulting.
"This can be overcome in part by the fact that TEDA is located within the Binhai New Area, giving TEDA access to a range of preferential government policies and pilot programs," she added.
One such company benefiting from these preferential treatments is Home Credit. Invested solely by privately held international financial group PPF, Home Credit is the first and only fully foreign-owned company, out of a total of four outfits overall, to be given a license to operate a consumer finance company by the China Banking Regulatory Commission in China.
"You look for people who are willing to explore a new industry," said Michal Skocil, Vice Chairman of the board & GM of Home Credit Consumer Finance Company Co., Ltd. "It will benefit our development in China if we have qualified employees here, with the help of our proven track record in assessing risk and strong back-end operations. With TEDA, we met the right people who were willing to get involved in consumer finance."
"TEDA is one of the fastest developing places, and this only happens when you have the right people and the right place," Skocil said.
Catering to niche markets and the needs of innovative and specialized industries has been a challenge for TEDA as the industrial zone moves away from labor-intensive industry and traditional manufacturing. But it has learnt quickly.
"Take the biopharma sector as an example," said Sturrock. "TEDA now has incubators such as TJAB [Tianjin International Joint Academy of Biotechnology and Medicine] which are filling up quickly with pharmaceutical companies looking towards future innovations and a potential fast-track to SFDA [China's State Food and Drug Administration] approval."
"We have learned about the specific needs of businesses throughout the last 27 years of operation, and continue to innovate," TEDA's Zou said. "For example, we have technology support platforms that allow businesses to have the entire infrastructure they need at a relatively low cost, particularly for SMEs."
CULTURAL SHIFTS
Creating the right infrastructure for companies also means considering the social issues that businesses face. Without a great living environment, it will be hard for any business to attract employees, even if the business infrastructure might be great, TEDA had to overcome this challenge as a continuously developing area.
"We started in downtown Tianjin," said Skocil. "When we moved to TEDA, initially we lost some of our staff because they felt TEDA was too isolated. However, TEDA gave us the support we needed. Relocating was tough, but once in TEDA, there isn't a problem attracting the right talent."
"Over the last 27 years we have learned a lot from our multinational investors," Zou said, "We have developed a place where people can live their lives comfortably. A friend of mine said to me that TEDA is not just a place to make money, but a place to have a good life as well."
CONCLUSION
Although there are still challenges to overcome as China moves up the value chain and shifts to high-technology, innovative companies and solutions, areas such as TEDA are already showing significant progress. By putting in place the social and business infrastructure that the world's most innovative companies require to look to the future, TEDA is excellently placed to continue to offer an attractive environment for high-value businesses.
The constantly changing business environment and the unique nature of new sectors mean that there will always be a learning curve and challenges to overcome. However, TEDA's commitment to continuous learning and the support and excellence of its investors mean that together they are developing a truly innovative and high-value business environment.
