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"Steel manufacturers are also facing a lot of challenges as the industry has witnessed a slowdown this year. There is pressure on us to control prices to boost consumption. It is a tough task as we also have to factor in adequate margins to make a profit," Laguillez says.

Though some companies have expressed similar concerns, it has in no way taken the sheen off Tianjin. "Factors like higher labor and raw material costs are natural during the process of an industrial upgrade," says Ge Shunqi, deputy head of the Institute of International Economics at the Nankai University in Tianjin.

"Labor-intense industries with low added-value is not something that is consistent with China's long-term industrial goals," he says, adding that, "in the overall cost structure, labor is not that important. Besides, many multinationals do not have that many labor-intense activities."

Ge says that where Tianjin really scores over others is its comprehensive advantages like economy of scale, industrial clusters, well-developed services sector, highly skilled talent pool, comprehensive infrastructure and an efficient administration. These advantages will more than mitigate the short-term rise in costs, he says.

"The changing global scenario has made us realize that what we need to sustain long-term growth is better productivity," Limbrunner says.

Tianjin, especially TEDA, is one of a few locations that have all these comprehensive advantages, along with universities, convenient transportation infrastructure (two airports, one harbor and a high-speed rail to Beijing), well-developed financial services and high administrative efficiency, according to European companies, such as Danfoss.

For many of these companies, the idea of having a comprehensive industrial cluster next to the unit has been the main draw.

"We've done an investigation on European companies' consideration about the location they choose. Many local governments in China offer a lot of preferential policies to investors, but for multinationals from Europe or the US, the most important things are cost and environment for long-term operations instead of preferential policies," Mei says.

"What we've been working more on is to create a favorable operating environment. If the company's suppliers and purchasers are all in the same area, it will help reduce their production costs considerably."

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About 10 to 15 minutes' drive from the new Volkswagen plant in TEDA is the facility of one of its biggest suppliers Continental Automotive System. VW's transmission plant in Dalian is one of Continental's biggest clients in China with another main customer being General Motors in Yantai, East China's Shandong province.

Commenting on the reports that VW will produce advanced transmissions in the TEDA, Limbrunner says, "I hope we will also be a part of the advanced technology being developed by VW."

He says the cluster approach also ensures more business from regular clients who want to save on logistics costs.

With an investment of $90 million Continental's TEDA plant makes automotive system products like transmission controllers, according to TEDA's statistics.

As China focuses on the development of biotechnology and the pharmaceutical industry and strives to reduce carbon emissions, Tianjin has become an important destination for foreign companies in the green energy business.

Novo Nordisk, the world's largest insulin producer, has invested $400 million to set up a durable insulin pen manufacturing unit in Tianjin with an annual capacity of 240 million units. The insulin pens, called NovoPen5, are likely to be rolled out by the middle of next year.

Yves Rannou, general manager of Alstom Hydro China (Tianjin) Co Ltd, says that the company is betting big on its Tianjin unit to enhance its R&D capabilities for clean energy solutions.

"We are not only manufacturing in Tianjin, but also developing high-level competencies and high added-value services for the global and Chinese market," he says.

For companies like Kerneos, it is steel demand in China that is helping further expansion. Kerneos is building a new R&D center in Tianjin, that is expected to start operations by the end of next year.

The new R&D center will be Kernoes' main base servicing the Chinese and global refractory markets. China is the second-largest market for Kerneos in refractory applications, accounting for 15 percent of its global turnover and profit.

With multinationals setting up more R&D centers, they also have to contend with the problem of intellectual property rights. Most companies say that China has made significant strides in IPR protection, either through legislation or by law enforcement.

"There is more and more focus on IPR protection in China. It is a sea change from the past when IPR was a detriment for foreign investment," says Lars Arnoldsen, the project vice-president of Novo Nordisk.

Mei says that though IPR cases keep surfacing, TEDA and other agencies have taken the lead to reduce friction arising from such disputes.

Earlier this year, TEDA helped Novozymes in its product infringement dispute with two Chinese companies over genetic enzymes.

"The TEDA judicial department gave Novozymes a lot of advice and was successful in getting a verdict in favor of the Danish company," Mei says.

"It is these kind of proactive steps taken by the TEDA officials and supportive policies of the Tianjin local government that is giving us the impetus to expand our presence in China," Christiansen says.

Contact the writers at yangyangs@chinadaily.com.cn and li.xiang@chinadaily.com.cn

(China Daily 12/07/2012 page16)

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