Why Do American Companies Choose China over Other Countries
The evolving world market presents a host of opportunities for the business markets and stakeholders. With a shifting tendency of many businessmen to choose emerging and developed countries for their business, some nations have successfully managed to stand out amongst the others. China is one of the countries that possess a host of opportunities for foreign businesses. Considering China, one would easily be able to tell that it is the ideal choice for business expansion, with its sound manufacturing knowledge, money stability, reliability, and domestic market development.
American companies, like other companies across the world, prefer China over other countries. The question is why?
The answer lies in a few qualities that set China apart—cheap labor, tax exemptions being a few of them. While other countries such as India, Brazil, and Mexico are also emerging markets, China outperforms them allowing to its favorable business policies, cheap labor, and logistics efficiencies. Not only that, China upholds the principles of corporate social responsibility that are a deciding factor for many firms seeking to enter a new market.
Here are all the reasons why China is the preferred choice of American companies.
Low Tax Rates:
When it comes to taxes, China presents the lowest tax rate among other countries. The corporate tax rate in China is approximately up to 25%, whereas the tax rate in other countries is much higher. In India, the corporate tax rate is 35%, Mexico 30%, and Brazil 34%. It might come as a surprise that China is 5% cheaper than in other countries. Although this 5% is not the deciding factor of whether to set up a factory in China or not, it is still one of the main factors why American companies opt to choose China over other countries.
China is a communist state; therefore a person would assume that his employees would have other rights such as collective bargaining. The China of today has labor rights which are stricter than five years back. Although salaries are increasing day by day, wages in China are cheaper than in Mexico and Brazil. Talking about labor rights, according to the International Trade Union Confederation China is at 5th on the list of 1 to 5 the world’s worst states for employees.
On the other hand, India has set a bad example, which means it is a place that cannot take place without incidents of labor violations. Mexico is at 4th place on the list of worst working place for workers and Brazil is on the 3rd. This is because Brazil has some of the toughest labor laws around. Tough labor rights that favor unions tend to be unpleasant to international capital searching for inexpensive investments as well as little drama. As opposed to these states, workers of China claim that “Anything you can do, we can do it as well; much cheaper and much faster”. This means that labor rights in China are somewhat favorable than in other countries.
Less Costly Logistics:
There are hidden charges included in doing business in all states. But nations like Brazil consist of hidden taxes which cannot be avoided. Take the example of the company’s smartphone account which, if taxed, is almost equal to the corporate tax rate. In addition to taxation, there is a logistics rate of transferring goods from one state to another and from one country to the next. Brazil is famous for being a logistical mess—it might be holding just 3 decent ports.
If we talk about the port side, China rules over it. Chinese seaports are extremely remarkable. You won’t be able to find something even near to them in India or Latin America. Cartels govern the Mexican ports, as Mexico’s President Andres Manuel Lopez Obrador currently stated regarding the existence of corruption at two of the country’s custom stations and ports. India can take benefit owing to its location, but the infrastructure of Indian port has no match with Chinese ports. Therefore, it is quite clear that logistical benefits are on the Chinese side.
China is not as corrupt as any other evolving market. Mexico, Brazil, and India are way more dangerous in the sector of corruption and crime rate. If we talk about the quality of life for expat employees, then building a workshop in such states is less safe than constructing one in China. Capitalizing on operations taking place in Rio de Janeiro and bringing down American laborers may sound tempting, but Rio is one of the most dangerous towns around the globe.
India’s dull environmental principles have made it one of the most polluted countries in the world. There is no doubt that China is polluted and consists of poor air quality as well. But at the same time, it takes this problem very seriously and keeps on figuring out ways of dealing with it. For instance, China has spent a lot of money on a high-speed rail which is very successful today. China is the biggest electric-vehicle producer in the world. In addition, the Chinese government is taxing coal utilities and producers and is trying to shrink fossil fuel consumption. Although it has a long way to go, all of this creates opportunities for American firms that wish to serve the Chinese market.
Low cost of energy:
Keeping the lights on in China is cheaper than it is in Mexico, India, and Brazil. Workers from unskilled to a skilled, stable currency, weak unions, world-class logistics, and transport network, politics and a safe place for doing business make China better than all other states. Look at the gigantic evolving markets as a probable alternative and it is clear that Mexico, India, and Brazil have to improve their infrastructure and reform their heavy taxes, for helping exporters and drastically reducing vicious crime rates. Otherwise, they will never be able to compete with China. This means that the low energy costs in China favor the American companies wishing to kick-start their business in the country.
The Last Word
Although China has a long way to go with regards to its logistics, politics, and overall business environment, it cannot be denied that it is one of the most favorable countries for American companies to extend their business. Not only that, China is known for its cheap labor, low taxation rates, and low energy costs—all of the ingredients necessary for a company to spread its operations in another country. Although the language barrier might be a bit difficult for these American companies to cross, once these companies get the gist of doing business in China, they can reap the benefits of a favorable business environment that is bound to attract global profit and revenues.