Should you own bricks and mortar in China?

Last updated on July 2nd, 2019 at 09:09 pm

American businesses that decide to operate their own facilities in China must first decide whether they want to own or lease a building.
Executives for Reedsburg-based Hankscraft Inc., a small manufacturing firm with 85 employees in Wisconsin and 85 in China, decided that leasing a facility was the best option for their firm, said Mark Blume, chief financial officer for Hankscraft.
The company opened a manufacturing plant in China in 2003. There is no private land ownership in China, as the land is owned by the government. Companies that build facilities in China lease the land from the government. However, like any landlord, the government can terminate the lease and take the land back.
That makes owning a facility in China a risk, especially for a smaller firm, Blume said.
"(Renting) makes sense for companies in a similar position to us, smaller companies," Blume said. "I think the flexibility and minimizing the risk is important. We didn’t want to have capital tied up in a building that became a white elephant. As our business grows and outgrows the facility we are in, if we need something bigger, we will look at moving to a larger facility."
Larger companies may prefer to own their own facility in China, even if they can’t own the land, Blume said.
"For a big, massive company, it makes more sense to buy a facility," Blume said. "That way, you have more control (of the facility)."
Prior to opening a plant in China, Hankscraft had purchased products from Chinese companies for years. The firm uses those parts to manufacture sub-fractional motors and electronic devises for point-of-purchase displays. The cost to manufacture the parts in the United States would have been too high, Blume said.
"(Opening the China plant) has been beneficial to us in the standpoint of having control over the quality, No. 1, and the cost, No. 2," he said. "All of the parts we had been buying from someone else in China. We have not eliminated any jobs in the United States (as a result of opening the China facility). We’ve actually added engineers and sales positions as a result."

March 18, 2005, Small Business Times, Milwaukee, WI

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