Brand owners diversify in China

12 April 2012

BEIJING: Major companies such as Unilever, Continental and Foxconn are moving into emerging cities in China, where they can gain access to untapped consumer markets and lower costs.

Unilever, the FMCG giant, has shifted seven plants from Shanghai to Hefei, which saw economic growth of 15% last year, versus 9.2% for China as a whole. According to the firm, between 200m and 300m people also live within 500km of Hefei.

"Cities in central China and even some in the west are becoming a new driving force for China's economy," said Zeng Xiwen, Unilever's VP, North told Bloomberg.

"Hefei's got all the attributes investors need: land, energy and labour resources, rich education, ports nearby, talented workers and a huge consumer market on its doorstep."

This year, Hefei is anticipated to enjoy growth of 15%, while Chongqing expects to see a 13.5% expansion, a total pegged at a minimum of 12% for Changsha, Chengdu and Zhengzhou.

"Forget about national GDP," Ben Simpfendorfer, founder of Silk Road Associates, the consultancy, said. "It's time to focus on the inland city clusters that will drive China's future growth."

Foxconn, which manufactures components for high-tech products like Apple's iPod and iPhone, opened a factory in Zhengzhou in 2010, and plans to spend $330m on additional new sites, such as one based in Chengdu.

As part of this process, the local authorities in Zhengzhou have committed to helping Foxconn hire 100,000 staff, indicating the benefits that can follow on from fostering close relations with officials.

"Whatever you do in these cities, you get the attention of the leaders, and leaders' attention does matter in China," said Joerg Wuttke, the chief representative in China for BASF.

Continental Tires had a similar experience, having met with members of Hefei city government prior to building a factory in the city, where a subway, airport and several flyovers have been constructed in the last five years.

Tobias Kerle, general manager of Continental's Hefei plant, said: "The number one strength of Hefei was its government. They were really trying to understand what we need ... and help us understand the local government and navigate through the regulatory process."

JA Solar, the world's biggest solar cell manufacturer, has also moved into Hefei, where labour and utility costs are around 20% lower than more established cities. "We'll be OK here for the next five years," said Yang Ming, a vice president at the company.

Data sourced from Bloomberg; additional content by Warc staff