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Could a “China Plus One” Strategy Work for Your Firm?

China remains the most popular destination for foreign industrial investment in the world, attracting almost $83 billion last year," says an article in the June 18, 2008 New York Times. "But a growing number of multinational corporations are pursuing a strategy that analysts call ‘China plus one,’ establishing or expanding Asian bases outside China, particularly in Vietnam."

According to the New York Times article, "Companies are using the China-plus-one strategy to mitigate the risks of overdependence on factories in one country."

China’s fast-growing economy is experiencing growing pains—from inflation to labor shortages to wages rising nearly 25% a year. Other emerging Asian markets are facing challenges, as well. Vietnam’s inflation rate was 25.2% in May 2008 alone.

"It’s a common misunderstanding that the labor cost in China is rock bottom," says Anita Tang, managing director of Royal Roots Global, Inc. "That’s not true; if it’s skilled labor, it’s not the cheapest—but it’s a much lower cost than in more-developed nations."

Another consideration: taxes. According to the New York Times article, "China is phasing out its practice of charging lower corporate tax rates for foreign-owned companies. By contrast, Vietnam still offers foreign investors a corporate tax rate of zero for the first four years, and half the usual rate of 10% for the next four years."

It’s been said that Vietnam is the next China. And Cambodia, with even lower wages, is being called the next Vietnam.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.