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Expansion Strategy for Main Industries into Western Regions of China

Author Munhyoung Lee et al. Date 2014.12.26 Page 256
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In recent times, China has been recently emphasizing the shift toward domestic demand led-economic growth from the existing export-oriented growth strategy while expanding investment in the western regions of China to increase domestic demand. Consequently, it is necessary for Korea to push its expansion strategy to penetrate the western inland rather than merely focusing on the existing eastern regions. The contents of this study include implications that can be practically beneficial for Korean enterprises in establishing a strategy to make inroads into the western regions of China, as well as for the Korean government to enter the market by focusing on Chongqing, Sichuan and Guizhou.
This study summarizes the following in a systematic manner: the economic situation of the 3 western regions, characteristics of the regions consumers, current status of the regions’ transportation and logistics, leading industries and major enterprises in those regions, industrial policies for individual industries, policies to attract foreign investment, current status of the Korean and foreign enterprises that have entered the markets, difficulties in penetration, promising product items and desirable policy directions.

The urbanization rate of Chongqing, Sichuan and Guizhou is low compared to other regions while their tertiary industry is underdeveloped. Thanks to the Chinese government’s full implementation of the Second Western Regions Development Plan since 2010, however, the share of primary and secondary industries is in decline, whereas the share of tertiary industry is on the increase. The three western regions feature well-developed heavy chemical industry as the regions were selected for the industry during the era of the planned economy. As the labor cost of the eastern Region has risen recently, enterprises and foreign companies there have moved their plants to Chungqing and Sichuan, which are emerging as new regions for industrial plants.

To expand the penetration of Korean enterprises into the 3 western regions in the future, the Korean government and Korean enterprises should carry out the following in advance. First, the Korean government should establish a cooperation paradigm that can lead Korean enterprises to increasingly penetrate into the market. Unlike Korea, Chinese local governments have influential authority in the regional development, taxation and legislation. Therefore, it is essential to build an official and systematic cooperation platform between the Korean government and the local governments of the three regions for Korean enterprises that lack experience in penetration into overseas markets and are thus undergoing difficulties accessing the three regions and entering their markets in an efficient manner. It is also necessary to create a win-win vision between Korea and the 3 western regions, and mutually agree upon the specific industries for initial cooperation. Korean enterprises also should prepare their expansion strategy by fully understanding the relevant laws and policies of China and selecting regions where the enterprises can create corporate profits.