Asia’s booming economic growth amid continued global economic uncertainty is an enticing offer for companies looking to expand outside their home markets. But given the diversity of culture, language, and legal and regulatory frameworks in the region, determining the right location for a subsidiary in Asia is a complex decision. Choosing the wrong location can be a costly mistake.
Which factors should impact location selection?
While multinational companies usually decide to set up their regional headquarters in Hong Kong, Shanghai, or Singapore (see chart below), less prominent locations may prove equally attractive. Businesses must consider:
- Cost factors: Labour and distribution costs, foreign investment incentives, access to free trade zones, e.g., RCEP.
- Business environment: Availability of skilled labour, infrastructure and logistics, distance to market.
- Risk factors: Political stability, environmental concerns, and foreign employees’ social and cultural environment.
Expanding into China: Take a regional approach
China’s first-tier cities are often favoured by foreign companies looking to expand. However, many businesses are expanding successfully in lesser-known regions. Each offers a unique set of pros and cons; the suitability of a province must be analysed against the specific needs of your business.
Special economic zones offer foreign businesses numerous benefits such as tax advantages, simplified administration and a good infrastructure.
Free trade & export processing zones are particularly attractive, with the Greater Bay Area and the Hainan Free Trade Port among the most talked-about. A detailed comparison of the tax benefits is summarised here:
China free trade zone tax comparison
|Hainan free trade port||The Greater Bay area (for 9 Guangdong cities)||Lingang free trade zone|
|CIT (Corporate income tax)||Reduced to 15%||New fixed assets, excluding real estate properties, up to RMB 5 million can be expensed||New fixed assets, excluding real estate properties, up to RMB 5 million can be expensed.Accelerated depreciation for newly purchased fixed or intangible assets above RMB 5 million|
|IIT (Individual income tax)||Maximum 15% for eligible personnel||Reduced for eligible foreign talents on the portion of actual IIT payments exceeding 15% of taxable income||No exemption (maximum 45%)|
|VAT/Custom duties/Consumption tax||Exempted for imported|
|No exemption||No exemption|
How Acclime can help your business expand into Asia
Location is one of the key success factors of your strategic expansion. We can help you to perform a location analysis based on data and benchmarks of companies with similar profiles and objectives. Most importantly, we can determine what are the boundary conditions to set and how to interpret the results.
Case study: New site due diligence and business planning
The client, a producer and distributor of electrical appliances in China, needed to relocate its factory due to increased production costs at its site in Shenzhen.
In-depth benchmarking analyses to understand the pros and cons of potential new sites based on factors such as facilities, rental costs, government incentives, labour costs and availability, and supply chain proximity. Findings were verified through detailed interviews of companies operating in these locations.
A weighted score matrix with points awarded to each location was used to project a 5-year business plan in three scenarios was drawn up to help the client derive the investment decision.
Our advisors are well-positioned to support your business expansion across Greater China and the Asia-Pacific region. If you are considering a new factory, sales subsidiary or logistics centre, please reach out to our experts to schedule an in-depth assessment of your choices.