Setting up a business in ChinaCase study

September 27th of 2012, Barcelona

Business internationalization:

Marcos Briseño International DirectorApplus+ LGAI Division

01. Applus+ Group Highlights

02. Chinese Market2.1 Entry Barriers2.2 Industrial Areas2.3 Selling in China2.4 Purchasing in China

03. Applus+ LGAI Case Study3.1 Applus+ LGAI in China3.2 Implementation Plan3.3 Market identification3.4 Location3.5 Legal entity3.6 Staff hiring

00 INDEX

SETTING UP A BUSINESS IN CHINA

CASE STUDY

01HIGHLIGHTS

Applus+ AT A GLANCE

Applus+ is one of the world'sleading companies in Testing,Inspection & Certification

It provides solutions forcustomers in all types ofindustries to ensure that theirassets and products meetquality, health & safety, andenvironmental standards andregulations

02 HIGHLIGHTS

1.1

Revenue: €1,208 million in 2011

14,800 staff

Present in more than 65 countries across all continents

Head office in Spain

Owned by:The Carlyle Group 70%Spanish saving banks 23%Others 7%

KEY FIGURES

02 HIGHLIGHTS

1.2

02 HIGHLIGHTS

1.3

GEOGRAPHICAL PRESENCE

02 CHINESE MARKET

MARKET ENTRY BARRIERS

01 CHINESE MARKET

SocialCulturalLanguageTrade regulation & taxesLawsLegal entitiesInvestmentIntellectual property rights

ENTRY BARRIERS

2.1

CHINA MAIN INDUSTRIAL AREAS

East Coast:

Hebei (Beijing / Tianjin)ShanghaiJiangsu (Nanjing / Suzhou)Zhejiang (Ningbo / Hangzhou)Guangdong (Guangzhou / Shenzhen)

Interior provinces:

Sichuan (Chongquing)Hubei (Wuhan)Shaanxi (Xian)

01 CHINESE MARKET

INDUSTRIAL AREAS

2.2

PROVINCE INDUSTRY

01 CHINESE MARKET

Shanghai Petrochemicals, chemicals, pharmaceutical, automotive, electronic appliances, financial

Beijing IT, communications, electronics

Guangzhou Automotive, electronic appliances, textiles, apparel, toys, petrochemicals, chemicals

Jiangsu Chemicals, textiles, communications, steel,petrochemicals, food, auto parts, biomedicine

Shenzhen IT, semiconductors, biomedicine, communications, electronics information

Zhejiang Light industry, plastics, textiles, apparel, toys, metallurgy household electrical, furniture, kitchenware

Shandong Agricultural, oil & foodstuffs, pharmaceutical

INDUSTRIAL AREAS

2.3

01 CHINESE MARKET

SELLING IN CHINA

30 – 60 daysDone by accredited labsIt allows self-certification or

certification by third partiesBased on European Standards Part of the testing could be

performed out of Europe CE Marking applies to over 3,500

certified products. (ie. for construction products it applies to over 600 products.

60 - 90 daysDone by governmental chinese

labs (only 9 accredited labs)Only Chinese entities can issue

the CCCRequires large number of tests

and related documentationThe follow-up audit should be

performed every 3, 6 or 12 monthsHigh cost CCC marking applies to 380

products, grouped in 22 categories

PRODUCTS COMPLIANCE IN CHINA

2.4

INSPECTION

CERTIFICATION

QUALITY CONTROL

01 CHINESE MARKET

PURCHASING IN CHINA

Before producingSuppliers selection, audit & homologation

During productionWitness tests, online inspection

After productionQuality control, loading supervision

Before exportingCompliance testing and certification

Customs requirementsPre-shipment inspections, certificates of conformity

MANUFACTURINGPROCESS CONTROL

SUPPLIERS

ENSURE QUALITY ACRROSS YOUR SUPPLY CHAIN

2.5

01 CHINESE MARKET

PURCHASING IN CHINA

TECHNOLOGICAL CONTRASTS: ENVIRONMENTS

Empty factories Full occupation

2.6

01 CHINESE MARKET

PURCHASING IN CHINA

TECHNOLOGICAL CONTRASTS: EQUIPMENT

Old equipment High tecnology

2.7

01 CHINESE MARKET

PURCHASING IN CHINA

TECHNOLOGICAL CONTRASTS: PROCESSES

Non-specialized production processes

Productivity oriented processes

2.8

03 APPLUS+ LGAICASE STUDY

03 CASE STUDY

Applus+ LGAI BUSINESSES IN CHINA

Productdevelopment

QualitycontrolTesting

Product & Systems

certification

Food & Agriculture

Consumer & Retails

Chemical & Farma

Construction &

Equipment

Aerospace Defense & Transport

Automotive & Auxiliaries

Renewals & Energy

Industry & Production

Electric & Electronics

IT & Telecoms

Engineering

Governments & public

bodies3.1

APPLUS+ LGAI

03 CASE STUDY

FROM HUMBLE OFFICES TO LARGE FACILITIES

2006 – 2008: Changning / Zhongshan Park, Shanghai HQ located in the city centre

2010 - Present: Nan Hui, Shanghai HQ Offices & laboratories Industrial park Proximity to local and international customers

2008 - 2010: Zhang JiangHi-Tech Park, Shanghai New and largest HQ offices Technology cluster Proximity to customers

3.2

APPLUS+ LGAI

03 CASE STUDY

EXPANDING OUR NETWORK IN CHINA

2006 : Shanghai 2007: Ningbo + Shenzhen 2008: Hangzhou + Suzhou 2009: Zhongshan + Beijing 2010: Dongguan 2011: Lanzhou

3.3

APPLUS+ LGAI

03 CASE STUDY

IMPLEMENTATION PLAN

Market identification

Location selection

Government policies and regulations

Legal entity form selection (Finances , insurances

Staff Hiring

Investment / equipment

Quality system

Operation starting

3.4

APPLUS+ LGAI

MARKET IDENTIFICATION

What kind of business will you launch in China?

Which customers are you targeting? B2B or B2C

What will be your market coverage and segmentation?

Applus+ LGAI experience:

We started working in China in 2003 to support our customer in their

operation in China (supply chain delocalization).

The 1st and 2nd years : mainly working for Spanish and

European customers

The 3rd year : starting to sale our services to domestic market

Today, over than 75% of revenue comes from Chinese market3.5

APPLUS+ LGAI

03 CASE STUDY

What is more critical for your business : proximity to customers or

to suppliers?

Will you need to ship your goods?

What kind of facilities will require your business?

Applus+ LGAI experience

We started in Shanghai: the economic capital of China

We hired qualified to highly staff to perform our services

We benefit from Copca ( ACC1Ó) information and networking

LOCATION SELECTION

3.6

APPLUS+ LGAI

03 CASE STUDY

Do you need to have a partner in China?

JV (Join Venture) Vs WFOE (wholly foreign owned enterprise)

Which size and coverage should have your company in China?

Applus+ LGAI experience

We opted for the a WFOE : easier for future investment in

equipment and laboratories .

Today, we have a WFOE in Shanghai and branch offices in different

provinces

CHOOSE THE APPROPRIATE BUSINESS STRUCTURE

3.7

APPLUS+ LGAI

03 CASE STUDY

Which personal profile do you need for your business?

How qualified and experienced must be your staff?

Do you need bilingual staff?

Which position will cover with expats and which with local staff?

Applus+ LGAI experience

At the beginning : The management team was composed by expats

who knew Applus+ services and culture.

Local employees for sales and engineering positions

Personnel turnover can be a serious issue: Many opportunities in

Shanghai labor market for bilingual and skilled workers.

STAFF HIRING

3.8

APPLUS+ LGAI

03 CASE STUDY

01HIGHLIGHTSMarcos BriseñoInternational DirectorApplus+ LGAImbriseno@appluscorp.comM: +34 686 514 280www.applus.com

THANK YOU VERY MUCH!!