Although China’s 2008 Labour Contract Law seemed to make western investments less profitable at the time, the economic development of the country still generates new and attractive opportunities. According to a survey carried out by the European Chamber of Commerce and Roland Berger Strategy Consultants, 68% of the polled companies were considering new investments in the country.
To date, the vast majority of China’s economic development has ocurred in the coastal cities. Places such as Shanghai, Beijing, Guangzhou and Shenzhen are commonly known as first tier cities, according to population and GDP levels. However, rising production costs, fierce competition and the population ceiling have turned these cities into less profitable places for many companies.
Second tier cities, such as Chongqing or Heifei, whose growth rate almost doubles Shanghai’s 8.2%, began to offer better conditions after first tier cities hiked their organisational cost and struggled with energy, labour and land resources. However, China’s future development and the opportunities for those living and working in China are seen to be within its 3rd and 4th tier cities.
While local markets were not the main attraction when foreign investors started setting up near the coast, new market conditions now apply. First tier cities account for less than 10% of the total population, whereas more than 300 million Chinese live in smaller cities that are continuously growing thanks to migration from the countryside in massive numbers.
Today, approximately 160 cities have reached populations of more than one million people, and the rise of the Chinese middle class is expected to increase by 200 million in 2020. Companies are recognising this and are starting to become more interested in the local market place. Easier access to inland markets together with the Chinese government’s tax incentives and cheaper production costs have caused many companies to relocate their facilities to 3rd and 4th tier cities.
The biggest beneficiaries are likely to be the provinces of Sichuan in the South East of the country, the central provinces of Anhui, Jiangxi and Hunan, and the northern provinces of Hebei and Henan. Names of cities such as Wuxi, Changshu, Datong, Foshan, Yichang, Shantou or Jinzhou will sound much more familiar to westeners in the near future.
The business opportunities are clear, but many challenges may arise when a company decides to invest money in China’s more remote locations and many factors need to be carefully evaluated prior to making decisions.
First and even second tiered cities have already adapted to western needs making it easier for anyone living and working there. They offer a wide range of fast and comfortable transport, appropriate western houses, international schools or medical facilities, and most information is usually translated into English. The 3rd and 4th tier cities however have not yet developed their capacity for receiving international assignees so living and working there can be quite challenging.
An expatriate living and working in a more remote 3rd or 4th tier Chinese city will not only find many infrastructure-related difficulties or uninteligible languages, but also people that are not used to dealing with western counterparts. A wide number of cultural differences like hierarchy, confucian values, implicit rules, different judgments and perceptions about concepts such as safety, hygiene or corruption will surely arise and cause frustration both in the work environment and in the family sphere for the international assignee.
Statistics show that China is the leading location for assignment failure. Expatriates living and working in China often mention problems of adaptation as a result of cultural difference, inadequate job performance and a different business culture, spouse dissatisfaction, standards of living, or simply culture shock, as the main reasons for resignations.
Many companies investing in China overlook these cultural issues and underestimate the damage that can be done by not supporting assignees through the adjustment phase. Where appropriate measures were not taken to ensure that assignees understood the culture and had the skills to manage the challenges, both time and money were lost. As a result, investments in inland China can become a real risk rather than an opportunity if relocated personnel are not provided with specific support.
Intercultural training courses like Living and Working in China can provide international assignees and their families with the knowledge and tools to adjust more effectively to their new location, no matter what tier the city is. A better understanding of the local culture can be really meaningful not only to avoid frustration and low output, but also to help relationship building, credibility and independence in the new location, enabling assignees to make the most of their experience living and working in China and generate the expected benefits for them and their companies.
© Communicaid Group Ltd. 2013