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Evaluation of production alternatives in China

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When Reac back in 2014 wanted to investigate different sites for their production, they contacted Business Sweden in Shanghai. Business Sweden was then assigned with the task of performing a pre-study, where different options were compared against each other.

Reac is a company developing, manufacturing and selling actuators and motion systems for the global power wheel chair industry. Reac wanted to evaluate China as a future base for manufacturing, where Business Sweden assisted in performing a pre-study to provide input for the decision on their establishment plan together with a local partner.

Desire to localize production to China

In 2014 Reac needed to investigate different options for localizing assembly and production into China. One existing customer and another sister company within the company group already had factories in Shanghai, but Reac needed to better understand the legal, tax and capital implications of initiating an establishment process. With the new Shanghai Pilot Free Trade Zone recently opened, this was also a geographical alternative that needed to be evaluated as part of three pre-determined locations for the potential factory setup.

In order to make a decision, a pre-study was performed regarding the scenario of setting up assembly and a factory in Shanghai. The objective was to evaluate the feasibility of using these three locations and investigate the consequences of using each of the sites. Since the locations were planned to be used for production, inspecting and evaluating the legal and practical preconditions had to be done for the individual factory locations, e.g. by visiting and contacting landlords and local authorities.

This also entailed to briefly identify the different options for entry strategies, in terms of company structure, and with whom to cooperate. Lastly the financial commitment was calculated by estimating the required registered capital for the factory setup, and for a second alternative strategy which initially would exclude in-house manufacturing and an alternative legal setup.

- The homework is done and we know how to do things now once we get to a stage of pushing the button, says Mauritz Sahlin, CEO Reac.

understanding of the broader picture

- Reac was an interesting case since they needed to understand the broader picture, including both legal and practical implications of their establishment. By evaluating the possibility of setting up own production and estimating such establishment costs, and contrasting this with the alternative of using their local partner, Reac got a better understanding of the situation and how to proceed. says Petty Shi, Project Manager at Business Sweden’s Shanghai office.

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Petty Shi

Finance Manager Shanghai Finance Manager, Shanghai
+ 86 21 6466 4920