ChinaSolved is proud to publish the work of China-based experts and thought leaders. This month we present an exerpt from Bruce Mitchell’s recently published 13 Steps to Manufacturing in China.
Thirteen Steps to Manufacturing in China
Step 1: Establish Project Teams
The Executive Team
Consider utilizing two teams to implement manufacturing in China. The initial team should be the Executive Team including the Company President and Chief Executive Officer, Division President, Corporate Council, Chief Financial Officer, Vice President of Marketing, the Vice President of Manufacturing and the Vice President of Engineering.
They will review potential sites for the manufacturing operation and then decide which to choose from.
Contract with well known and established consultants that operate in China to make sure you are receiving the correct advice.
Identify and hire a Chinese ex-pat as your General Manager. Having grown up in China they will understood the Chinese culture and people. Ours was born and grew up in China, was there during the Cultural Revolution but later immigrated to the U.S. and became a U.S. citizen.
Have him spend time in existing manufacturing plants in the United States to gain and understand of the equipment and manufacturing processes. He will participate in the process of locating equipment suppliers.
Top Management Involvement
Don’t under estimate the benefits of having your Company Chairman and Division President involved in all of the initial stages of the investigation so that they can make the right decisions rather than having a team report to him the results of their findings.
The Implementation Team
This team should consist of the Vice President of Engineering, the Vice President of Manufacturing, the Division Engineering Manager and his department personnel.
This team will consult with key personnel from existing manufacturing facilities in the United States. Members may include the Maintenance Manager, the General Manager and the Plant Engineer. They will provide support associated with both the relocation and the purchase of new equipment in China. They also will provide key training to the Chinese labor force in learning how to operate and maintain the equipment.
Step 2: Identify Potential Locations
You may want to have your operations close to a large port or located close to a raw material supplier.
Create a list of your requirements so that you can identify potential locations and send the team to visit and evaluate industrial zones.
Step 3 : Identify Desired Industrial Park Incentives
Meet with the local government marketing group. They will also be a valuable resource in helping through the various steps required to establish your company.
From these meetings you will learn of the various incentives, the types of industries in the parks and general background on the area.
Prior to establishing your company you should meet with and discuss your plans with the city mayor. He or she can be of great assistance in helping you obtain the items you want in the negotiations.
Step 4: Meet with Other Companies
You can learn a lot from discussions with other companies that have been through the process. These discussions can greatly facilitate the process allowing you to implement the entire project much more quickly than if you had to do it on our own.
Step 5: Learn the Environmental Regulations
There is extensive environmental documentation to be developed and approvals to be received from the local environmental bureau before you can establish your company let alone begin manufacturing. You are required to hire a consultant to develop the environmental assessment.
Step 6: Select Desired Location/Negotiate the Memorandum of Understanding
You are now ready to choose the location and negotiate the memorandum of understanding or MOU which identifies your requirements the “enticements” that the zone can provide. It is not a legally binding document but both parties will try to meet the agreed upon items included in the agreement MOU as it is sometimes called.
Step 7: Establish Your Company
To establish your company you will prepare the Application for to Register Name of Foreign Investment Enterprise, the Project Establishment Approval Form, Feasibility Study and Energy Consumption Review, the Articles of Association, the Appointment Letter for Directors of FIE, the Application Form and lastly the Environmental Assessment.
Step 8: Import Used Manufacturing Equipment
Importing used equipment into China is an involved process. It is important to make sure that you follow the procedures strictly.
Step 9: Source Chinese Equipment
Start by establishing contacts and develop relationships with Chinese who may be very willing to assist you. There can be savings purchasing equipment manufactured in China. It can be less expensive than importing new equipment.
Step 10: Select a Design Institute
You will need to identify a design institute (DI) to handle the design of your facility.
You can also choose to do the design yourself and have the DI sign off on the drawings insuring that they met the Chinese codes.
Design institutes are rated in China. Make sure that the companies you consider are certified to do the design for you in your location.
Step 11: Evaluate/Select Construction Company
The construction companies like the design institutes are rated in China with “A” being the highest rating.
Step 12: Constructing the Manufacturing Plant
You will need to obtain a building permit. You will also need to hire a Supervision Company, Design Institute, Construction Company, etc. The construction of the building takes approximately ten months from initial ground breaking.
Step 13: Hire Plant Staff
The General Manager’s first hire may be the Plant Engineer.
You will want an HR person at the start to work with local agencies to identify the candidates. You should also hire an accountant as you will need to maintain dual Accounting Books. The next hire should be a purchasing manager. This person should be carefully screened candidate that you can trust. Decide in advance as a company policy and that there will be no “under the table” payments or “red envelope” payments, the terminology used in China for payments made to someone to “reward” them for giving them your business.
After the equipment is installed the next hires would include mechanical, electrical and instrument technicians and operator begin training on the equipment. The equipment operator should have the potential for management as he is promoted to Manufacturing Manager and the plant expands.
About Guest Poster Bruce Mitchell: “Thirteen Steps” is the first book to provide the step by step procedures for establishing a manufacturing operation in China. Based on the author’s five years as Project Manager establishing a profitable manufacturing operation in China in two years. Mr. Mitchell has over 35 years engineering management experience with both Fortune 500 and private industries.