Question

Nordic Industrial Park: bridging distance across international markets

When a resource-constrained firm enters a high-distance market, it helps greatly if it can utilise a low- distance entry point.

The lure of the Chinese market has led several Western companies to venture into a context that is unfamiliar and bewildering, especially for small and medium-sized enterprises (SMEs) lacking the deep pockets of large multinationals. It is useful for SMEs to have a ‘bridge’ into a high-distance market. One way to accomplish this is to use a foreign-owned industrial park (i.e. a space designated for industrial use).

Consider the case of the Nordic Industrial Park (NIP) that provides a physical space for offices and light-manufacturing facilities, and a range of value-added services to set up a business in China. These include legal services (e.g. registering the company and drafting contracts), human resource management (e.g. recruitment, payroll and expat relocation), accounting (e.g. financial reporting), and information and communication technology (e.g. internet access). NIP was co-founded by Ove Nodland, a Norwegian who first came to China in 1994 to manage different ventures. Nodland learnt that even though rules were set in Beijing (the national capital and political centre of China), they were implemented by local officials – and so they mattered greatly. Over the years he invested considerable energies in building close relationships with various officials, and took care to ensure that the ventures he worked for complied with local regulations and aligned themselves with local governmental priorities. Nodland’s local guanxi (network connections) grew rapidly.

After a decade’s experience in China, Nodland realised he was well placed to help European SMEs enter China more broadly. He chose to focus on what he knew best: firms from the Nordic region (Denmark, Finland, Iceland, Norway and Sweden) setting up a base in Ningbo, a port city in Zhejiang province just south of Shanghai (the commercial centre of China) and renowned for its entrepreneurialism. Thus was born the concept of NIP in 2002, which was sold to Silver Rise Hong Kong Pte Ltd, part of China’s Yinmao Group, in 2013, with Nodland staying on as consultant. In 2015, NIP was selected by the Zhejiang provincial government as one of the first designated ‘international industrial cooperative parks’ which further strengthened its local standing. Going forward, NIP has signalled its intent to attract projects from Nordic universities and achieve an output value in excess of RMB 2bn (€280m, £224m, $364m) by 2017.

From the perspective of a European SME entering NIP, there are multiple benefits:

• Process: L ower start-up costs. NIP leverages its knowledge of the Chinese business environment by hand-holding clients through the complexities associated with starting and running a business in China, thereby allowing firms to focus their time and energies on core business activities.

• Physical environment: A familiar ambience. NIP’s architecture and design mimics Scandinavian features that set it apart from standard Chinese buildings. Not only does this give expat managers a sense of the familiar, it is also a symbolic reminder to Chinese employees that they are part of a Western organisation.

• People: A like-minded community. By virtue of being part of the largest concentration of Nordic companies in China, expat managers have the opportunity to share experiences with and pick up ‘tricks of the trade’ from other managers with a similar cultural background through hallway conversations and lunchtime meetings. Of course, entering a facility like NIP comes at a cost, but offers benefits in terms of ‘reducing distance’.

Questions

1 Consider NIP’s services in light of the CAGE framework and analyse how they may help reduce distance.

2 What might be the drawbacks in being located in an industrial park?

Answer 1

1) The CAGE distance framework helps in reducing the gap in four different dimensions, namely, cultural differences, administrative differences, geographical differences and economic differences.

· Cultural gap exists due to differences in language, ethnicities, lack of trust, social networks, different religions and different values or norms. NIP has been operating in China for quite a long time, thus it knows the cultural values of the people in that market. It has been a part of the largest concentration of Nordic companies in a foreign country. Furthermore, it provides opportunities for sharing experiences with "tricks of the trade" with managers from similar cultural backgrounds through meetings and conversations. This would help managers from Western companies to reduce the cultural gap by interacting with others through NIP.

· Administrative gap takes place due to lack of connections, lack of membership in international trade organizations, corruption, political hostility and absence of common currency. NIP has been building a close relationship with various officials in China over the past years. It ensured that the project of joint ventures that it entered into abided by local rules and further aligned to the local government priorities. Besides, the Zhejiang government designated NIP as the international industrial cooperative pack. Thus, Western companies would find it easier to reduce the administrative gap by working with NIP.

· Geographical gap exists due to physical distance, different time zones, climate, environments, location, transportation, navigation and presence of borders. For reducing the geographical differences, NIP focussed on abiding by the local regulations, which led to its rapid growth of network connections. It was successful in setting up a base in Ningbo, which was situated beside Shanghai, which happens to be the commercial centre of China. This helped the Western companies to enter the market by reducing the geographical differences.

· Economic gap occurs due to differences in costs, quality, natural resources, human resources, poor and rich and access to information. NIP has been helping foreign companies to focus on their core business activities while sustaining in the Chinese market. It has advised lower start-up costs for the companies and has been exploiting its knowledge about the business environment in China for handling clients. This would be helpful for Western companies to enter the market by reducing the economic gap through NIP.

2) Some of the drawbacks of being located in an industrial park are:

· Increased level of dependency, which might be disastrous in case of depression.

· Over-specialization results in dependency, which is riskier in uncertain times. The companies might not be able to import the necessary materials or equipment.

· Dishonesty of few manufacturers might damage the reputation of others in the park.

· Labour loses its mobility, which in turn might negatively affect the health and efficiency of the workers.

· There is an increased level of competition due to the presence of a large number of firms with more or less similar products or services.

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