The Essential Elements of China Site Selection

For manufacturers looking to acquire land and build their new facilities in China, one of the challenges is to understand how the site-selection process should be done. To get a first-hand account of a site selection process in China, RightSite spoke with David Watts, Operations Manager at Spirax Sarco Engineering, to share his recent experiences in selecting the right location for their China headquarters.

RightSite: What does Spirax Sarco do?

Watts: Spirax Sarco is a listed company originated from the UK and we are a world leader in steam systems and services. We serve customers from a wide range of industries like pharmaceuticals, chemical, food, hospitals and hotels. The company now employs over 3000 people around the world and has 250 staff in China. We set up a representative office in China in 1993, later established a WOFE subsidiary, and now have 34 offices in this country.

RightSite: Since you've just broken ground on a new facility in Shanghai, can you tell us more about the project?

Watts: I'm managing our Flying Tiger Project, which is the construction of our new integrated production facility and China headquarters in Caohejing Pujiang High Tech Park. This facility will replace a pair of existing sites in Shanghai, combining 4,700 sqm which is too small and doesn't fully represent the company's stature as the global leader in our industry. This new site under construction has a site area of 36,000 sqm, with a total building area of 17,000 sqm, and 12,000 sqm of this is devoted to our factory. This single-story facility will combine production and distribution, with sales, a training center and administration together in a detached 3 story office block.

RightSite: When did Spirax Sparco sign the deal with Caohejing Pujiang High Tech Park?

Watts: We signed the deal in February 2008 and ground breaking was in May 2009.

RightSite: Did you receive any incentives from the local government for doing this project ?

Watts: We didn't receive any incentives from the local government. Although some parks in Suzhou or other places in Jiangsu might have been willing to give the land away in return for us agreeing to invest, for more profitable parks in Shanghai like Caohejing, not many special deals were available for investors when we signed up.

RightSite: What would you say were the top five factors in your site selection process ?

Watts: Our top five would be as follows:

Company structure

One major driver for us to locate the site in Shanghai is that we wanted to retain sales and production on one site. More distant cities like Changzhou could not provide the same convenience for our existing staff as Shanghai.

Staff retention

We also need to be somewhere close to public transport and with good roads access, which will help to reduce the chance of future staff losses due to relocation.

Company Image

Spirax is the global leader in steam systems and services. Therefore the facility and location should match our brand image as a world leader.

Recruitment

This pudong site makes it easier to hire skilled labour. Public transport and the convenience of the location will be a major factor in staff recruitment.

Logistics

The site has easy routes for inbound and outbound logistics. It is close to the port, highway, and a rail depot. The Pudong international airport is also nearby to provide air freight services for us.

RightSite: Besides these basic factors, were there any special benefits to this site that made it more appealing?

Watts: Besides meeting our primary requirements, we felt that our site in Caoheijing offered a few other benefits:

Utilities

We needed a 3000 kVA line, therefore we had to consider the cost of this connection. In remote locations, a heavy duty line can be expensive if you need to stretch it a long distance. The investor normally has to pay for having upgrading their connection to the nearest transformer, and in a more rural location, the distance to the transformer could be further and the cost higher.

Plot ratios

Some industrial parks restrict single story building to maintain a high amount of investment per sqm. Caohejing's plot ratio requirements allowed us to build a single-storey building.

Infrastructure

Roads surrounding the area are well developed. Metro Line 8 is nearby as well.

Governmental Relationships

To minimise our risk we wanted to be in a state-level industrial park. We felt that these state level parks offer more support from the high-level government, such as a clearer development plan, and reduce some risks such as having a site overtaken by a state-level project (like a new highway).

Ability to expand

The Caohejing Pujiang High Tech Park is fairly new so there is more ability to acquire additional sites nearby.

Surrounding Environment

For our China headquarters we wanted a site in the same area as other reputable companies to help underline our status as an industry leader.

RightSite: How long did the whole process take to complete?

Watts: The site selection process lasted six months. We investigated a number of locations and looked at about eight industrial parks.

Watts: We did two levels of due diligence. First, we engaged a professional law firm, Allen & Overy, in our risk assessment process.
Second, for our internal risk analysis, the following six factors were considered.

• Staff loss
• IT
• relocation of the process
• construction schedule
• continuity of supply and customer service
• Economic downturn
• Building development regulations, risks associated with change in regulation before the project completion.

Factors that should be included in manufacturers' site selection process may vary according to specific projects and business needs, however, many may still find David's experience on this matter valuable in terms of helping them to identify the best locations to build facilities in China.

David Watts is the Project Manager in charge of Spirax Sarco's Flying Tiger project to build the company's China headquarters. To find out more about Sprirax Sarco please visit http://www.spiraxsarco.com/, or you may contact David directly at DavidWatts(at)CN.SpiraxSarco.com