Editor's note: the United States is becoming one of the largest capital flow countries for China's foreign investment. However, Chinese entrepreneurs still have a misunderstanding: they regard the American market as a free market economy and ignore the local government relationship.
The failure cases of Sany Heavy Industry, China Power Investment and Huawei's investment in the United States show that it is very important to understand the political and business environment in the United States. Although the US government keeps lowering the threshold for Chinese capital inflow, Chinese enterprises still need to take a more comprehensive and prudent attitude towards the US market.
Today, we forward the "ten questions on American investment" written by Niu Xiaopeng, President and chief executive officer of American historical belt strategic partners group, which mainly lists the political environment factors that must be considered for investment in the United States for reference by Chinese investors.
Two weeks ago, Mr. Niu Xiaopeng had a pleasant communication with the principal leaders of the think tank on the trend of Chinese enterprises' investment in the United States and the future cooperation prospects of the two institutions.
Key points of the article
1. Running a good relationship with the local government determines the success or failure of an enterprise's development strategy in the United States. Some of the failure cases of Chinese enterprises are attributed to the difference between the decision-makers and the American government.
2. In the US business environment, tax burden is one of the most important business factors. When investing in the United States, the business development market is allowed to be inconsistent with the location of the company's headquarters, that is, the company's headquarters can be located in areas with low tax rates.
3. The landing cost of enterprises in the United States should be considered from both short-term and long-term aspects: the short-term refers to preferential measures in different regions, and the long-term also includes comprehensive consideration of energy, manpower, land, tax, insurance and other issues.
Text of the article
Wen / Niu Xiaopeng, President and chief executive officer of American historical belt strategic partners group
Recently, the seventh round of China US strategic and economic dialogue was held in Washington, USA. two way investment and financing has become one of the hottest topics in the dialogue. In fact, since the Obama administration launched the "US plan" in 2011, capital exchanges between China and the United States have entered a stage of rapid development. By the end of 2014, the two-way investment stock of China and the United States had exceeded 120 billion US dollars, and China has become one of the countries with the fastest growth in investment in the United States.
On the one hand, many companies have acquired in the United States. Such cases as Wanda's acquisition of AMC, the second largest cinema line in the United States, and Shuanghui's acquisition of Smithfield, an American pork producer, have been reported frequently. In 2014, Lenovo Group acquired IBM's x86 server business and Google's Motorola mobile, which made the ICT industry the biggest winner in its investment activities in 2014.
On the other hand, China's investment in the United States is not easy. In the five years from 2010 to 2014 alone, Huawei, China power investment, Sany Heavy Industry and other companies had more than ten major failure cases of overseas investment. Among them, there are 3 cases of investment failure in the United States. Chinese entrepreneurs need to realize that overseas investment is far from simple as carrying a purse and a project description.
Choosing the right market is the key to the success of global strategy. Although the United States is famous for its market economy and free economy, there is no doubt that a successful investment measurement standard is multi-dimensional. Before investment, enterprises may as well start from the investment environment and do in-depth research.
From the perspective of my own experience, the author puts forward ten humble opinions, which can provide some reference for those outstanding entrepreneurs with lofty mind.
One of the ten questions: running good government relations
Chinese entrepreneurs often attach great importance to the relationship with the government at home, but when they invest in the United States, they often ignore the relationship with the local government because they regard the U.S. market as a free market economy and focus on business costs.
However, the interaction between government and business is also crucial in the process of American investment. Although the US government keeps lowering the threshold for Chinese capital inflow, Chinese enterprises still need to take a more comprehensive and prudent attitude towards the US market.
Running a good relationship with the local government actually determines the success or failure of an enterprise's development strategy in the United States. In the case of Sany's failure to set up a wind power plant in the United States, the failure of the project to a large extent is due to the difference between the enterprise decision-makers and the consciousness of the U.S. government.
In my opinion, what Chinese enterprises have honed in the domestic market can be applied to the establishment and operation of local government relations in the United States.
The second of ten questions: no tossing is an important standard
A stable political environment is conducive to the development of market and the expansion of business scale. The separation of powers in the United States determines the possibility of mutual constraints in the policy environment of each state. Therefore, in the process of investment location, enterprises should strive to "not toss about" the political environment.
Many Chinese enterprises often pay more attention to some "brand states", such as Illinois, New York and California, when they first invest in site selection. However, in precisely these regions, the ruling party and the opposition party have relatively high political aspirations: in the political game, China topics are often used as "routine" to attack each other.
In the political game of the house of cards, Chinese enterprises with less land and life are more likely to become victims; on the contrary, some states in the central and western regions or in the south are "dominated by one party", and their implementation and legislation are less likely to break down each other, and the business environment is more stable, which is conducive to the sustainable development of enterprises.
The third of ten questions: don't be disturbed by the trade union
In the United States, trade unions are very active. Strong trade unions will have more radical demands on the wages and benefits provided by enterprises, which is bound to raise the labor cost of enterprises; some active trade unions even fight for consideration through strikes, which will cause a sharp rise in operating costs.
If the enterprise and the trade union are deadlocked, the trade union may take legal measures to file economic lawsuits against the enterprise, resulting in higher financial expenditure. In such a whirlpool of trade unions, the sustainable operation of enterprises will encounter greater problems. Therefore, to avoid the interference of trade union should be one of the basis of enterprise investment location.
On this issue, Chinese enterprises can refer more to some Midwest or southern regions of the United States, and some states set up labor rights and interests act. Under the protection of the act, enterprises do not have to be forced to join trade unions, which undoubtedly minimizes the interference of trade unions.
Healthy government finance
The financial situation of state governments is often ignored by Chinese entrepreneurs. In fact, a state government with surplus has an important influence on the development of enterprises in the region.
On the one hand, the government has abundant financial resources to make more and better infrastructure investment, including infrastructure construction, labor training, and even higher education. These bottom resources will help to improve the local labor level and infrastructure.
On the other hand, because the government revenue mainly depends on local tax revenue and other sources, only the state government with abundant financial resources has the strength to provide preferential policies, including tax relief and so on.
In addition, the issuance of local bonds is a common financing method in many states. In the process of issuing bonds, good government finance is an important basis for credit rating, which directly affects the cost of issuing bonds. Healthy government finance undoubtedly provides a guarantee for the virtuous cycle of local economic environment.
In order to attract enterprises to invest in the local area, Indiana has been vigorously building highways in recent years, striving to make trucks from Indiana reach 80% of the local area of the United States in one day, greatly improving the investment attraction of Indiana. This is closely related to Indiana's abundant government budget surplus as a strong support.
The fifth of ten questions: looking for customized service
At present, the overall investment climate in the United States is good. Government officials of various states in the United States are attracting Chinese investment to the United States by setting up Chinese business representative offices, introducing preferential tax policies, sending investment missions, and strengthening R & D cooperation.
South Carolina has attracted a large number of Chinese manufacturing enterprises by virtue of preferential tax policies, relatively low-cost labor and thoughtful investment promotion. In addition, many other states have also launched more customized preferential policies and services to provide good follow-up development space for Chinese enterprises.
In such a process, the good interaction between enterprises and the government is more needed, so the concept of boutique Advisory Group has gradually surfaced in the past two years.
The quality consultant team is often composed of senior experts from China and the United States who are "bilateral mainstream, cultural integration". Such a team can not only better understand the demands of Chinese enterprises, but also effectively interact with the mainstream political and business circles in the United States, so as to create a more demand-oriented external environment system for Chinese enterprises and strive for more abundant rights and interests resources. This kind of customization will undoubtedly be of great significance to Chinese enterprises in the United States The landing and adaptation of soil form a great help.
Tax is the key factor of site selection
In the business environment of the United States, tax burden is undoubtedly one of the most important business factors. In the United States, a country with complete tax system, the tax situation of each state or region directly affects the expected return of enterprise investment.
At the end of last year, the tax foundation, taxfoundation.org ）According to the state business tax climate index published in fiscal year 2015, the best 10 states are listed from the perspective of the most suitable for enterprise development.
The Midwest and the southern coastal states of Texas and Florida all entered the list, while Wyoming, South Dakota and Nevada ranked top three with lower income tax rates.
In the ranking, New York, California and Illinois, which are well-known to the Chinese, are at the top of the list. On the contrary, the high tax burden of these landmark states makes many investors worry - New York, California and New Jersey have the highest taxes in 50 states in the United States.
When investing in the United States, the business development market is allowed to be inconsistent with the location of the company's headquarters, that is, the company's headquarters can be located in areas with low tax rates, while offices can be set up in other areas for operation. The lower tax of headquarters or registered place is undoubtedly more attractive to investment enterprises.
For example, Alabama is one of the few states in the United States that allow full deduction of federal enterprise income tax by paying state enterprise income tax. The actual state enterprise income tax rate is only 4.5%, and the state legislature is still considering further reducing this tax rate through legislation.
Question 7: high quality labor brings high efficiency
With the rapid development of science and technology, the level of labor plays a decisive role in the efficiency and performance of enterprises. Multinational enterprises need to make clear the special labor demand according to the industry demand, choose the labor-intensive areas that meet the industry requirements according to the local educational institutions and talent background, make full use of domestic and foreign resources, and realize the reasonable and optimal allocation of labor force.
The Silicon Valley phenomenon in the United States is a better explanation of this problem. In the United States, Silicon Valley is no longer an exclusive region of California, but has developed into an integrated concept of regional high-tech center. In fact, in addition to Silicon Valley in California, there are also Silicon Valley in the Midwest of Indiana and southern Silicon Valley in Austin, Texas.
For example, in the medical device city in northern Indiana, enterprises in the area cover a complete industrial chain related to medical devices: from suppliers to R & D, from small and medium-sized parts enterprises to sales end customers. With the improvement of the industrial chain, the region has formed a diversified and multilingual high-quality talent system provided by six universities, including Purdue University and Indiana University, which supports the investment and operation of more than 200 local Asian enterprises.
Another example is Austin, Texas, which is the headquarters of the University of Texas at Austin. It is also a high-tech talent community, attracting Facebook, Google, Samsung and other world-famous high-tech companies to land in this southern Silicon Valley. The talent highland formed in the region is undoubtedly a necessary condition for it to become a Southern Silicon Valley.
In addition, Kansas in the middle of the United States has the largest animal health industry corridor in the world. Relying on the advantages of the University of Kansas and Kansas State University, the park has made great progress in agricultural research and development and professional talent reserve.
The top 30 animal health industry enterprises in the world gather here, and at the same time, they also recruit all kinds of high and middle school talents in related fields around the world. The output value of the park accounts for 32% of the global gross output value of the industry. This kind of high-quality industrial cluster and labor-intensive layout is undoubtedly very attractive to China's related enterprises.
Eight of ten questions: comprehensive cost determines success or failure
In recent years, with the rise of the overall cost of labor and raw materials and the decline of oil and other energy prices, the cost comparative advantage of China's local manufacturing industry has been gradually weakened. At the same time, the investment behavior of enterprises in the United States must also examine the cost problem objectively and comprehensively.
In the short run, different states, cities, counties and counties in the United States have various preferential measures applicable to overseas investment enterprises and local enterprises, which will have a greater impact on the initial cost composition of enterprises. However, from the perspective of long-term operation, enterprises also need to consider the impact on the initial cost composition of enterprises The energy, manpower, land, tax, insurance and other issues in the region should be taken into consideration. For these costs, enterprises need to weigh them according to local conditions.
Just take the rent as an example. According to the data released by San Francisco in May, the median monthly rent in San Francisco has reached 4225 yuan, up 15.5% over the same period last year. The direct consequence of the rising housing cost is that a large number of technology companies, including Silicon Valley, have gone out and put an excessive burden on the operation of enterprises.
Table 2 shows the top ten cities with the fastest rent growth rate in the United States. In addition, in the states where trade unions are prevalent, enterprises are often forced by trade unions to increase the salaries of all employees by 30%, thus increasing the operating costs of enterprises. In 2014, Toyota's North America Headquarters and Tesla battery factory decided to move from California to Texas and Nevada, which became the topic of automobile industry.
California government spending is too high, income tax, shopping tax are more than 10%, at the same time, due to the strong local trade unions, the law is better than the enterprise to protect workers: for example, the law stipulates that parents can ask for a month of paid maternity leave, the cost is borne by the employer; fired employees need to observe for three months, employees can also appeal. All of the above make the cost structure of enterprises have many uncertain factors.
The power of example
In addition to the cost problem, the choice of investment location also needs to know the past international investment cooperation experience in the region, especially the investment precedents of Asian and even Chinese enterprises.
For example, companies that focus on the auto industry tend to still look to Detroit, Michigan's old auto city. In recent years, Detroit has gradually stepped out of bankruptcy, and the economic environment has rebounded to a certain extent. It is beyond reproach for cross-border investment enterprises to participate in the investment in the region. However, enterprises should also see that the automobile industry in Indiana, the second largest automobile state in the United States, is in the ascendant, especially in attracting mature domestic and foreign capital.
For example, the three major auto companies in Japan have settled in, while the major American auto manufacturers and the world's most important auto parts enterprises have landed in the state, and the related enterprises cover the whole industry chain of the auto industry; Indiana holds Indy 500 rally events all the year round, which provides a very attractive benign brand and technology competition stage for local auto companies.
In recent years, Indiana has been able to form a unique ecological environment in the automotive field, which is closely related to its unique regional advantages and good performance of hard indicators of political and business environment. In this benign interaction, Indiana has become an important base for more excellent automobile enterprises to invest in the United States.
Ten questions: the evaluation of American native land
According to the report on the corporate friendliness of 50 States released by the small and medium enterprises Council of the United States, after comprehensively measuring 42 indicators such as individual, company, employee unemployment insurance tax rate, energy cost, government expenditure and debt, Nevada, Florida and Texas are ranked in the top five, while New York, New Jersey and California, which are the most Chinese intensive, are unfortunately at the bottom.
Despite the remarkable economic achievements of New York and California, many local enterprises are faced with a dilemma because of their heavy tax burden and higher requirements for social welfare. This is reflected in the business environment rankings of many independent media in the United States. In addition, the political environment in these regions is more complex, which also affects the investment enthusiasm of enterprises.
Correspondingly, Delaware, one of the smallest states in the United States, has rapidly become one of the most popular places of company registration in the United States in recent years due to its rich tax preferential policies and superior judicial system (especially the effective protection of enterprise rights and interests through law).
More than half of the Fortune 500 companies have their offices or branches in Delaware, and one third of the companies listed on the New York Stock Exchange have their offices or branches in Delaware.
In addition, because Delaware does not strictly require registered companies to operate in the state, most of the registered companies only symbolically set up offices in Delaware and pay taxes to the Delaware government during the filing season. This also provides a lot of convenience for registered enterprises.
conclusion
In the context of globalization, the growth and competitiveness of enterprises require enterprises to go out and develop in the context of internationalization. The United States plays an important role in the strategy of enterprise globalization. Investment in the United States can be regarded as the beginning of the trial of enterprise globalization.
Enterprises should learn to plan strategies with a global vision and a market-oriented touch: learn to correctly evaluate the investment environment according to their own business model, strategic objectives and industry needs; deeply understand the political, legal, cultural and ecological environment of the country where they are located, and combine the operation mode and business model with the local actual situation, so as to expand their competitiveness.
The purpose of the ten questions on investment that I have drafted is still to make a clear understanding of the fit between business environment and self-development in the process of site selection, and to actively seek the two-way identification with the local government and service institutions in the mainstream values and the tolerance of cultural connotation, so as to make a smart choice and let the enterprise win at the starting point.
Source: caixin.com
About the author
Niu Xiaopeng, President and chief executive officer of U.S. strap strategic partners group, senior managing director of strap global financial group, and chief supervisor of strap Property Insurance China Limited.
He once held an important leading position in three famous investment and insurance companies in Europe, America and Asia. His responsibilities directly cover developing countries and developed countries with excellent performance. He has served as chief marketing officer of Dutch international group, American retirement services group, and executive vice president and chief growth officer of American insurance group.
Organization Profile
As a global insurance, financial services and multinational investment institution, the American historical belt financial consortium is one of the earliest foreign-funded institutions in China. It is the founding company, parent company and largest single shareholder of American International Group (AIG).
Shidai is committed to meeting the investment, joint venture, risk management and strategic needs of enterprises, funds and individuals from China and other developing countries when doing business in developed countries, and helping American companies and local governments to introduce international capital and strategic cooperation.