Posted by: Michael Klibaner, Head of Research. Greater China

Chua Ming Lee from Unilever and Chu Yong Yi from Shell were very forthcoming and candid during yesterday’s session on opportunities in China’s Tier II and III Cities. What struck me was how the supply chain is such a critical factor for all types of companies operating in these markets.

Unilever, an FMCG company selling to consumers, is focused on opening up sales offices in Tier II and III cities all over the country. That means taking into consideration the logistics, speed-to-market and environmental impact of delivering the products to these markets. Every time Ming Lee talked about this, Chu would say “we are exactly the same way”. Shell, a downstream business selling things like motor oil, is also opening sales offices in these cities and has similar priorities in terms of distribution and supply chain.

Another critical factor for doing business in China is establishing good relationships with local governments. This is for a number of reasons, including the ability to negotiate incentives. For Shell, whoever their JV partner is will make the introductions and help them assess how to manage these government relationships. For Unilever, the impact on long-term decisions about manufacturing and logistics sites (15-20 year leases) is more important than decisions about sales offices when it comes to navigating regulations and incentives.

Kevin Chan from Jones Lang LaSalle added that in a number of markets there are incentives available to set up ‘run of the mill’ service functions, such as sales offices. This is because the Government is promoting the development of the services sector and there is a lot of office space being built in these cities that needs to be filled.

There were lots of questions from the audience, including the one that I get asked at every presentation – is there a housing bubble in China? But we ran out of time before we could answer that question…

Michael