Real estate is about location, location and location. Same applies to international procurement offices (IPOs): the location has a big impact on people, taxation and logistics infrastructure that are critical to your IPO's success.
People
Companies pay a premium in many places for English speaking staff. This is particularly true when you get into second or third tier cities in China, for example, where English speaking talents are a scarcity. If you need a significant number of engineers, being close to a top university can be of great help. This can explain why Shanghai is the No. 1 pick for IPOs in China: It has abundant professionals and engineers; it has over 50 universities with tens of thousands of new graduates every year; and it is one of the cities in China with the highest English proficiency.
Taxation
Taxation can be significant to any IPOs. That's why Singapore is often the choice in Asia. Taxation is extremely complicated and even experienced taxation professionals have trouble to sort out. What an IPO needs to consider is not only the corporate tax, but also the personal income tax which can impact your ability in recruiting the right people. For example, for an annual income of $100K, a Hong Kong resident only needs to pay ~15% of tax but the a resident in mainland China would have to pay ~50%.
Infrastructure
Infrastructure can be a huge factor for your total landed cost. Transportation, shipping, warehousing, stability of power, Internet and phone system means a lot to your operations. This is mostly hidden cost that very few companies can accurately quantify ahead of time. Consider this: In China, logistics cost is 20% of GDP while this number is ~10% in the U.S. and Japan. This is mostly due to the insufficient infrastructure in China. Even in China, logistics cost can be significantly different from city to city, region to region. That's why MNCs usually pick coast cities as their IPO headquarters.
Sure there are a lot more to consider when selecting the right location for your IPO. Government reputation, political stability and local business culture. Singapore, Hong Kong and Shanghai are frequent picks for IPOs in Asia just because of their combined advantage in all these aspects.
About the Author
Bob Liu, C.P.M., CPIM, is Managing Director of CSCS International. He is stationed in Silicon Valley and travels frequently to Greater China to help clients build their local supply chain organizations. Bob got his MBA in supply chain management, and has been managing global supply chains for over 10 years in the U.S. and China. He can be reached at bob.liu#ChinaSCservices.com (substitute # with @).
Bob Liu, C.P.M., CPIM, is Managing Director of CSCS International. He is stationed in Silicon Valley and travels frequently to Greater China to help clients build their local supply chain organizations. Bob got his MBA in supply chain management, and has been managing global supply chains for over 10 years in the U.S. and China. He can be reached at bob.liu#ChinaSCservices.com (substitute # with @).
