| Before anything, companies should always carry out thorough research
of the market. The habitual question amongst would-be investors is the
type of business they should seek: a Representative Office, Joint venture
or wholly foreign-owned enterprise etc. There is no right answer. Experience
suggests a widespread preference for a WFOE amongst Foreign investors
in China in recent years.
If you do need decide that a presence is necessary in the market, one
easy and cost-effective option is the www.PathToChina.com site, and some
other Consultancy companies in China, which allows you to get more information
before committing yourself. Following are the brief introduction for types
of business.
1. Representative Office
If, having decided, you do need to have a permanent presence, one option
is to set up a representative office. Representative Offices are established
by foreign companies to engage in business liaison, product promotion,
market research, exchange of technology and other permitted activities
in China.
Representative Offices could not engage in direct operational activities.
It's prohibit for Rep. Office exporting goods to overseas alone,
pay suppliers through Rep. Office's bank account etc.
If you are thinking about manufacturing or trading in China through a
legal entity, the choice is generally between setting up your own wholly
owned enterprise or setting up a joint venture or even do Mergers and
Acquisition in China.
2. Wholly Foreign Owned Enterprise [manufacturing]:
When looking at the attractions of manufacturing in China weigh up the
benefits of subcontracting, or outsourcing, in China. If your company's
manufacturing requirements can be met through an outsourcing operation,
this may be the better option. It may be possible to outsource using local
manufacturers in China. Much of the myriad of goods on sale in the West
bearing a 'Made in China' label is manufactured under contract.
In many cases it will not be possible to deal direct with a small Chinese
manufacturer; such entities do not possess the all-important license to
export the finished goods.
3. Wholly Foreign Owned Enterprise [trading]:
Normally to have a trading WFOE is the better option:
Getting an export/import license has become much easier since March, 2006.
It can be organized, and sometimes smaller manufacturers offer low-cost
production in conjunction with your Trading WFOE equipped with such a
license.
What are the disadvantages of setting up a WFOE?
A disadvantage for an inexperienced investor setting up a WFOE in China
is that much of the knowledge, administrative processes and contacts a
partner would bring has to be gained the hard way. Strong relationships
are a key factor for successful business in China, whether with the local
authorities where the enterprise is located or along the supply chain.
4. JOINT VENTUER
Why chooses a joint venture? What should you look for?
- An ideal partner who is honest, entrepreneurial, straightforward
in its dealings
- committed to the protection of the joint venture company's IPR
- with good market access and local contacts
- and bringing with them a first-class workforce and facilities.
What are the problems with going the joint venture route?
(i) Lack of information about the prospective Chinese partner. A foreign
company that locates a likely-looking company in China may have little
knowledge of the company's background. In the past it has been hard to
gain data about the commercial situation of Chinese companies or to substantiate
their descriptions of themselves and their business relationships. This
difficulty in carrying out checks to a rigour that would be usual in the
West has sometimes meant foreign investors enter into JVs reluctantly,
accepting the attendant risks.
However an increasing amount of advice is available nowadays, with Path
To China able to make checks on prospective partners and some consultancies
that specialize in this area offer comprehensive investigative services,
such investigations can provide sufficient information to warn.
(ii) The need to retain comprehensive control. A frequently-cited reason
why foreign investors are not attracted to the JV option is a wish to
retain comprehensive control over their China production - something
a WFOE can offer but not a JV. ]
5. Investment by M&A in China [Mergers and Acquisition]
As it's quite complicated but taking over a well-established existing
company cuts-out the build up phase and cuts the time to market. Please
consult our consultant for more details.
Provide by www.PathToChina.com
Simon Lee is the regional partner of PTC. He has 3 years experience in
this industry. You can reach him by simon@pathtochina.com
Contacts:
Shanghai:
Mobile: (0) 1360.168.0738
Tel: (8621) 5102.5279
Email: sales@PathToChina.com
Suite 4B, 485 HeNan Road (N.) Shanghai
200071 |
USA:
Mobile: (001) 608 467 0223
Tel: (001) 608 772 0849
Email: emily@PathToChina.com
588 River Rd., No. 16 Columbus,
WI 53925, USA |
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