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Navigating Land Acquisition for Factory Setup

October 16, 2023

 by David Collins III

empty factory floor with heavy duty machinery

Land acquisition for factory setup can be a challenging task in one's own country, let alone in foreign countries like China, Taiwan, or Vietnam, which all have different laws, rules, and structures. How can a smaller organization manage it?

This blog will walk through the basic structure to find the right location for a factory setup. The structure here is applicable in a company’s home country and a foreign country though there are some special considerations.

6 Key Questions to Address Before Land Acquisition

First, a company needs to understand what its specific needs are for the new or located manufacturing facility. Start with these 6 key questions:

  1. How much do we plan to produce?

  2. What, if any, transportation assets are needed?

  3. What are the labor requirements?

  4. How quickly does the facility need to be set up?

  5. Do we have a floor plan for the new factory? 

  6. Do we need any special licenses or certifications?

If you do not have answers to these questions, then you are not ready to acquire land for a new facility. Your team or a 3rd party you hired should answer these questions before suggesting a location. 


3 Tips for Navigating Land Acquisition for Factory Setup

  1. Look Beyond the Cost: Considerations for Factory Setup

    Never start with just the setup cost. Always begin by finding locations that fit your needs. Then, narrow it down to the best location with cost as a factor (perhaps even the largest factor). Considering the cost as the only driver, whether it be labor, land, taxes, or utility costs, will lead to bad decisions.

    The Consequences of Prioritizing Cost in Factory Setup

    MTG/CMC worked with a factory that moved from Shenzhen to a cheaper city further in China. The wages and leasing costs were lower, but the factory struggled to find enough qualified workers. Workers from Shenzhen did not want to move, and there were no local suppliers to meet the needs of the factory. Quality and productivity suffered considerably, and the factory cost was much more than what it saved in wages and leasing costs.

  2. Minimizing Factory Setup Challenges with Outsourced Expertise

    Consider hiring professional assistance for any move, especially to another country. The consideration rests on if your company has the time, expertise, and resources to engage in this move. Most companies do not have all or any of these available. It is not uncommon for a company to have one of these, but all three are difficult to have. For that reason, outsourcing to a 3rd party is the most logical decision.

    How MTG/CMC Aided Cyden's Factory Setup in China

    MTG/CMC assisted Cyden with a similar project. Cyden understood its product and market but did not have the resources or the expertise to set up a manufacturing facility in China that met its needs. CMC took its needs and investigated 16 sites in the Yangtze River area. Each of these sites was personally vetted and coordinated with the local government. We led the medical license process, recommended headhunters for the local manufacturing team, and set up bank accounts, as well as a slew of other services required to successfully run manufacturing operations in China.

    Cyden might have been able to manage this themselves, but likely not as efficiently or economically. CMC estimates that Cyden would have taken at least twice as long to accomplish the same result. It also would not have been able to secure a tax refund of $80M RMB ($11M) or a government subsidy of $40M RMB ($5.5M).

  3. The Importance of Engaging With Local Governments

    Engage the local government. Working with the local government can help prevent problems before they result in financial and material benefits (as seen from the Cyden example). Local governments can speed the process along and help with factory setup. Depending on the product, local governments all over the world are very interested in helping with new manufacturing investments. 


Successful Land Acquisition for Factory Setup is Hard, but Not Impossible

Setting up a new manufacturing facility, especially in foreign countries, requires careful planning, clear understanding of specific needs, and strategic considerations beyond just cost. Successful planning and bringing the right resources to bear will lower overall factory costs, raise long-term EBITDA and ensure that land acquisition for manufacturing will go as smoothly as possible. Prioritizing suitability, operational efficiency, and engaging with local expertise and governments are crucial steps. The experiences of companies like Cyden, assisted by MTG/CMC, highlight the benefits of professional guidance and the importance of local collaboration. 

In the future, we will cover the economics of factory relocation and how site selection impacts costs, as well as how to understand site development costs for factory setup


Do you have any questions about new factory setups? We'd be delighted to hear from you!

New Factory Setup in China

Topics: New Factory Setup

David Collins III

David Collins III

David was a Senior Strategy Consultant for Deloitte, served in Iraq as a Special Operations Civil Affairs soldier, and as a Governance Advisor to the Afghan Government with the Department of State. At CMC, David advises clients on strategy and investments.

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