PRI’s goal is for our clients' and partners’ operations in China to be profitable and successful. There are times, though, when companies need to make hard decisions about the future of their operations. In those times too, PRI’s objective is to be a trusted partner in evaluating all potential options for future success.
Taken from a recent webinar that PRI Chairman Dwight Nordstrom did with ChinaPlus Capital’s Robert Daudt, here are six critical options foreign manufacturing operations in China need to evaluate.
Options 1-3: Sale of the Business
As the world’s largest market and with a growing sphere of influence beyond its borders, China remains a critical part of the global strategy for many companies. The highly educated workforce (especially in terms of engineering talent), years of experience in manufacturing and growing incomes of the consumer class make for an attractive place to do business.
However, there are times when a sale of the business – sometimes due to external factors outside of the company’s control – is what makes the most sense. In that case, these three options are well worth pursuing.
Sale to a Third Party: This is often a preferred option. Legacy costs and potential liabilities often stay with you in a number of ways and a sale can maximize your value and minimize your liabilities.
Sale of the Business to PRI: If your business meets certain parameters, there may be an option to sell directly to PRI. Transactions can be closed on a fairly quick timetable and settled in USD. PRI has held equity in and managed nearly 30 mid-sized manufacturing companies in China and has successfully provided turn-key solutions to help over 40 international companies start-up operations.
Sale of the Business with a Supplier Agreement: Selling a business with a supply agreement can be an option if you would like to sell ownership interest in Chinese operations but keep your supply chain intact.
Option 4: Outsourcing Management of Operations
Many companies are electing to outsource the management of their operations in China. PRI’s differentiating factor is that as an equity owner ourselves, we “think like owners” when we manage operations on your behalf.
PRI has experience managing overall operations with full P&L responsibility on behalf of owners as well as managing specific outsourced business functions such as HR, strategic sourcing, sales, engineering and facility improvements.
Option 5: Shutting Down of Operations
As a last resort, exiting operations completely and liquidating assets or selling non-proprietary business units as a going concern may be an option.
A third-party mediator is often helpful in this process in China, which can take anywhere from five months to three years from start to finish. PRI’s consulting division has experience helping clients navigate this challenging process.
Option 6: Relocating Operations to Another Low-Cost Country
While the news often reports companies relocating operations from China to countries in Southeast Asia, Eastern Europe and Latin America, it may be the case that these are the exceptions rather than the rule itself.
The most successful companies in China, by far, are those with both an export market and a domestic China market. Selling, designing and manufacturing in China still hold key advantages.
It is the case, though, that US tariffs and other global geopolitical factors are causing many companies to seek a “China Plus One” strategy of setting up an operation in another low-cost country to complement their China business. PRI is also exploring these possibilities with our clients and is happy to discuss strategies and implementation together.
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