2020: The World's Shanghai
(By Alexander Wan)

Delegates at the 12th China Daily CEO Roundtable share their visions on the future of Shanghai.

Richard Yorke, Chief Executive China Business, HSBC

Peter Leupp, Chairman and President, ABB China

Ken McCall, Chief Executive Officer, TNT China

Elmar Stachels, Managing Director, Greater China Country Group, Bayer China

Shane Tedjarati, President, Honeywell China

Foo Piau Phang, President, Dell China

Christian Reinaudo, Asia Pacific President, Alcatel

Nick Loup, Managing Director, Asia Pacific, Grosvenor

Andrew Wu, Chief Representative, Sony Music Entertainment, China

Richard Lee, Executive Chairman and CEO, Wo Kee Hong

Susan Chen, President, Swatch China

Wan: Is Shanghai your headquarters for China, Greater China or Asia Pacific, and since when? What were your sales or business revenues in China for 2004? What will drive your company in, and out, of Shanghai as a regional headquarter? What are your most important concerns on Shanghai as your regional headquarter or future headquarter.

Yorke: HSBC relocated its China head office from Hong Kong to Pudong, Shanghai in May 2000 and acquired floor space and naming rights to HSBC Tower at a cost of over US$33 million. This further demonstrates HSBC's commitment to the long-term development of its China business.

Stachels: Shanghai has a threefold function within the Bayer Group:

a) Shanghai is our HQ for China in all our activities, including our operating subgroups and service companies.

b) Shanghai is our HQ for the Greater China Group comprising Chinese mainland, Hong Kong and Taiwan. The Greater China Headquarter was moved there in 2003 from HK.

c) We have also allocated some regional functions for Asia Pacific to Shanghai.

Sales for Greater China in 2004 were 1.4 billion euros (US$1.81 billion).

Shanghai is a central focus for investment for our subgroup Bayer MaterialScience, at the Shanghai Chemical Industry Park site. Shanghai is a prime location in the Yangtze River Delta for reaching all relevant markets.We are keeping a close eye on cost development and tax issues. As Shanghai is our HQ for Greater China, including responsibility for Taiwan, we are strongly interested in direct cross-straits links to Taiwan (for instance direct flights).

Reinaudo: In January 2000, Alcatel established its Asia Pacific headquarters in Shanghai. We were recognized by the Shanghai government as the first multinational company to establish its regional headquarters in the city. The Ministry of Commerce also recognizes our Asia Pacific headquarters subsequently.

Alcatel's sales in Asia Pacific in 2004 were close to US$2.5 billion, and China is the largest revenue contributor.

Foo: In addition to sales/marketing, in July 2002, Dell established its Dell China Design Centre in Shanghai. Dell also established its Dell Worldwide Procurement Office in Shanghai, which procures US$12 billion annually. According to IDC Q1 2005 data, Dell holds 8.4 per cent share in China. Dell's revenue in China grew 10.5 per cent on 30.1 per cent unit growth than Q1 2004.

Leupp: Our total sales for ABB China Ltd was over US$2 billion in 2004.

Our China regional headquarters was established in 1995 in Beijing.

Wu: The core for any company in the music or entertainment industry is IPR. Shanghai is considered the most law-biding big city in China, but even the best place in the Chinese mainland still has a long way to go for being good enough.

If Shanghai can become much more IPR-friendly, there is good reason for this great city to be considered to become RHQ for our company - because (a) China is the most important potential market in Asia, (b) Shanghai can better influence China's positive development in this regard than other places in the region, and (c) currently, the strongest "Greater China" artist & repertoire base... IPR, IPR, IPR. IPR protection is not just in theory, but more importantly in practice. Shanghai is favoured by us all for its potentials - because Shanghai could become the management centre as well as a key market for legitimate music sales for the region.

Loup: For now Hong Kong is our HQ for Asia Pacific but that could change over time as we are also active in Japan. We opened an office in Shanghai at the end of 2004 with 2 staff but expect to increase the numbers as we start investing in projects over the next years. We currently have 13 people in HK and 6 in Tokyo.

McCall: Our Shanghai headquarter is for Greater China since 2004.

We take into consideration of cost efficiency, cost escalation of property, availability of skilled talents, complex licensing and business permit procedures, retention of employees.

Tedjarati: Yes, since 2004 Shanghai is the headquarters for all four of our businesses for both China and the Asia-Pacific region.

Our revenues were in excess of US$500 million.

Finding talented leaders is the issue we concern. RHQs need a lot of highly skilled leaders with great communication, teamwork, collaboration and leadership skills. These are in real shortage in Shanghai.

Secondly, taxes. As a RHQ for AP, the taxes are extremely high. Leadership, cost (infrastructure, people, taxes) and environment are equally important.

Wan: How many people do you have in Shanghai and the whole China now (or at end of 2004)? Do you plan to hire more people, how many, what functions and timeframe? What is the percentage of those to-be-hired will be in Shanghai?

Yorke: Currently HSBC employs more than 1,350 people at its mainland branch network which is the largest amongst foreign banks in China, comprising 10 branches, 4 sub-branches and 2 representative offices China. Over 95 per cent of our staff were locally recruited. In 2005, we intent to further recruit at least 800 people to support our business expansion.

Stachels: In Greater China the Bayer Group currently employs more than 2,700 people, and this number is growing fast. In Shanghai, we plan to add at least 1,000 people by 2008 in line with our investment in the Shanghai Chemical Industry Park. In our subgroup Bayer HealthCare, we have 800 people with 600 in the field, with expansion planned in the future.

Reinaudo: Alcatel has more than 6,000 people in China, majority of them in Shanghai, working in Alcatel Shanghai Bell, our Chinese flagship company.

We have invested heavily and will continue to invest in Alcatel Shanghai Bell to develop it into a global R&D, service, manufacturing and sourcing centre for Alcatel. For instance, Alcatel Shanghai Bell now is responsible for 20 per cent of Alcatel's global R&D programmes.

Foo: Till now, Dell has more than 500 employees in Shanghai and will keep expanding our investment in Shanghai.

Leupp: We have 2,000 people in Shanghai, and 8,000 altogether in the whole country.

ABB plans to hire 5,000 new employees by end of 2008, mainly engineers and sales people, but also some blue collar professionals.

About 25 per cent of the new employees will be in Shanghai

Wu: We have a joint venture company with the Shanghai government already and it currently employs over 200 people, over 92 per cent of which are in Shanghai. It all depends on how fast and how well IPR protection will be improved in Shanghai and in China.

McCall: At end of 2004, we have a total of 3,000 employees. Yes, we plan to hire more people, we estimate by 2010, we will have in excess of 20,000 employees with Greater Shanghai area being at least 25 per cent of those figures.

Tedjarati: Around 1,500 people in Shanghai and 4,300 people in China.

We are always hiring and growing at double digit rates and we continue to see that for the next 5 years. Our R&D centre will have 2,500 people in 2 years when all is finished. About 20-25 per cent.

Wan: What are your most important concerns about Shanghai as your RHQ? How can the Shanghai government help your business developments in China?

Yorke: China remains at the heart of HSBC Group's long-term strategic investment. We intend to grow our business organically and through selective strategic acquisitions. HSBC's total equity investment in the Chinese mainland's financial institutions exceeds US$3.7 billion, including 8 per cent stake in Bank of Shanghai, 19.9 per cent stake in Ping An and 19.9 per cent shareholding in Bank of Communications.

We seek to be first out of the gate whenever a new area in banking is opened to foreign banks. HSBC has significant investment in Shanghai and has been keeping in close touch with the municipal government. Our Group Chairman Sir John Bond sits on the Mayor "International Business Leaders Advisory Council" as its vice-chairman. We hope to enhance communication with the Shanghai government about its policies and forward planning; and we hope to see more investment in education and higher quality of the pool of talents to meet the needs of business development in Shanghai.

Stachels: Our main concerns are investment concerns related to energy supply and energy saving.

Leupp: We are concerned with environment, infrastructure (logistics), the rising of costs, open and fair mindset for public procurement, compliant with the spirit of WTO, etc.

Reinaudo: Alcatel's core business is the innovation of communication solutions and services for national telecom operators.

The global telecom industry is fast transforming itself into a solution/service centric business. Telecom operators are expecting vendors like Alcatel to offer innovative solutions and services, in addition to cost-effective products or equipment.

Our current global strategy is to quickly build and strengthen the competencies of Alcatel Shanghai Bell to develop it into a competitive, integrated R&D and service centre for Alcatel's global business.

Lee: Shanghai government can help ensure that our companies in Shanghai face availability of enough resources (professionals and energy). The Shanghai government can help by:

1. Maintaining competitive costs in wages, housing and taxation.

2. Relaxing importation of classic cars and high-valued used cars (e.g. used sports cars).

3. Improvement of traffic, including traffic control during peak hours and education of drivers to be safer and more polite in general.

4. Building the Shanghai Stock Exchange to help foreign, joint ventures and local companies with HQ in Shanghai to raise financing.

5. Streamline red taps in applications and weed out corruptions etc.

Loup: Grosvenor is a private international property company with interests in development, investment and fund management in 4 regions of the United Kingdom, Continental Europe, Asia Pacific, Australia and the Americas. We have a keen focus on quality, innovation and believe in operating as a good corporate citizen with a sense of responsibility for the communities in which we work. We have a long history of experience in urban regeneration projects from the land holding in London which was developed from farmland 300 years ago and managed to new city centre projects such as Paradise Street in Liverpool, a city which is twinned with Shanghai.

McCall: Our core business sectors are mail, express, logistics and freight forwarding targeted at China's key vertical markets, i.e. financial services, automotive, high technology and software, fast moving consumer goods and import/export of manufactured products in particular high-end products such as machinery, etc.

Reduce the cost structure of doing business in Shanghai; simplify the business licenses and permit procedures; improve the traffic congestion and efficiency of the road and highway network; reduce the cost of operating to and from international airports; incentivise to companies to hire more people by reducing their labour on costs; reduce taxation levels for foreign assignees as foreign experts will come from lower tax regimes; reduce cost of property for foreign experts or provide tax incentives to do so; improve business training schemes available; Shanghai logistics cost as a percentage of nominal GDP to achieve European averages of between 9 to 11 per cent; energy supply to be consistent; more international hospitalization and standards and healthcare.

Tedjarati: Our core business is 1) aerospace; 2) specialty materials and chemicals; 3) transportation systems (like turbochargers); 4) automated control solutions for commercial, private and industrial buildings?

Our key concerns are talent and cost.

Shanghai should create a special status for RHQ for AP companies to exempt part of the "regional" people's income from such high tax levels; increase the level of English communication (start with government); start implementing environmental laws before they are mandatory in China. These laws were created with a "developing" nation status in mind, but if Shanghai wants to be a world-city, then it should act like one. For example, China does not have to use non-ozone depleting HFC gases in fridges and air conditioning machines until 2040, but Europe, US and Japan are on immediate conversion path. Another example is the use of Diesel as an alternative to clean fuel in passenger cars. China is badly behind Europe in this area.

Wan: What would you like to tell your customers, employees and stakeholders about Shanghai and China?

Yorke: Many people already know that HSBC's roots are in China. Founded in Hong Kong and Shanghai in 1865, HSBC has had a continuous presence in China for 140 years. China has a significant influence in making HSBC what it is today. In fact, China is at the very heart of our strategy for the future. HSBC is the largest foreign investor in China's financial sector. Our investment of over US$3.7 billion in Chinese financial institutions testifies our confidence in the country's economic prospects and our commitment to the country.

Stachels: The Chinese authorities have placed a clear emphasis on health care, healthy nutrition and advanced technologies as the way forward for China. These goals match exactly with Bayer's core competencies, and we are confident we can provide a wide range of solutions for China's needs. Bayer considers its relationship with China to be a symbiosis: a mutually beneficial partnership that allows both entities to grow and thrive.

As such we have invested parallel with our host country's development, first in light industry, then supplying emerging key industries such as automotive, electronics and construction, and finally with an increasing focus on health care and agriculture.

Reinaudo: Shanghai is quickly developing its capability to become a regional technology service centre, in addition to its role as a high-tech manufacturing centre.

Alcatel has a long history of manufacturing out of Shanghai, at first for the China market, and now also for the global market. For instance, we are now exporting broadband products manufactured in Shanghai to most of the developed markets in the world. A vibrant metropolis, Shanghai is like a magnet attracting the best of China's talent to work here, in addition to the dynamic young people graduated from local tertiary institutions.

It makes a lot of business sense to further invest in Shanghai to develop our R&D and service capability here to support our business inside and outside China.

Foo: Shanghai is a city full of economic dynamics. It has sound infrastructure and rich talent pool. The government has been efficient in fostering the city's economic development as well.

Leupp: Shanghai is the most dynamic city in China and the flagship of China's economic reform and development, and is of critical importance to ABB's business, as we have important customers and business partners there (esp. manufacturing industries), and we have 4 companies there, with 2000 people, and important manufacturing, R&D and active sales and service network.

As a leading city in China, what we do in Shanghai have a wide spread impact for our business in other places. China is the power engine of the Asia Pacific Regional economy. It's our strategy to make steady investment in China, and to bring more technologies and production facilities here. ABB is aiming at making China its biggest country market by 2008 (currently, the USA is ABB's biggest market).

Lee: China is the greatest marketplace in the 21st century. Shanghai is the greatest metropolis of the future China and serves as the international window for both locals and foreigners.

Wu: As evidenced by many other industries, China offers great hope for the legitimate music or entertainment industry if IPR protection is improved. Shanghai has one of the largest pool of potential artistic talents in the world, and should become one of the biggest markets for legitimate entertainment.

Shanghai can decidedly play a leading role in this very important transformation of China's economy. It is a tough battle to improve IPR protection and this battle can only be won if we can work together with the Chinese Government, particularly the Shanghai government.

McCall: Shanghai should be positioned as Asian's capital for doing business measured in terms of efficiency, transparency, environmentally and openness.

Tedjarati: Shanghai is the world's most dynamic city. It gives off energy just to be here. It is becoming the centre of commerce, industry and finance in the 21st century and is about to join a handful of elite cities we term "world cities". Wherever in the world you are, you are about to be "Shanghaied".

(June 21, 2005)

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