Opening business in China?! Details
According to the official statistics, a billion and three hundred million people live in China. This fact gives no peace to many manufacturers and service providers all over the world. This number of potential consumers fascinates. Certainly, actually the number of potential consumers of a particular product is much less; however, in any case, China is a huge developing market. The general growth in prosperity of population, which has been noticed recently, and the increase in the number of wealthy people make one disregard the difficulties, which a foreign businessman can face. What shall you start from if your brain and heart is possessed with a “Chinese Dream”?
Before buying a plane ticket to Beijing or Shanghai, you shall spend some time for preliminary preparation. First of all, you are not a pioneer in this market, so, do not think of yourself as Columbus and do not try to discover continents again. Many companies have already travelled along this difficult way before you. Study their experience both positive and (which is more important) negative.
It is necessary to study the market you are interested in: from the government policy to government regulation in the field and main distribution channels of key players. Generally speaking, the Chinese government promotes high technologies, alternative energy sources, and knowledge-intensive industries. It is unreasonable to focus on the sectors, which have already formed in China, and also, labor-intensive and low-technology sectors.
2. Selection of location
The location is very important when starting business in China: there are different levels of development of infrastructure, different demands of population, local laws, benefits, different salary levels and, consequently, costs depending thereon. Also, it is worth studying various industrial and high-tech areas offering special conditions for opening of business in China.
Main factors influencing the selection of location:
• Logistics and transportation costs
• The necessity of import of raw materials and goods
• Government limitations and requirements applicable to a selected location and industry.
3. Selection of a form of enterprise
You will have to select a form of your company before you register it in China. The most popular company forms for foreigners in China are joint ventures, representative offices, and wholly-foreign owned enterprises. Each form has its advantages and disadvantages.
Joint ventures imply cooperation with Chinese partners. Although it can seem the most beneficial form for entering the Chinese market, however, actually this form implies a great number of hidden pitfalls, mainly, on the part of your Chinese partner.
Representative office is the simplest and cheapest form of your business in China, although, its main disadvantage is limited capabilities. Representative offices may only literally represent your company and may not sell either goods or services.
Wholly-foreign owned enterprise (WOFE) is the most popular form among American and European investors and recently among the former USSR citizens. About 75% of investment in China is made by such companies as they provide the maximum control. We can open such company for you quite easily. We will help you obtain a government permit and clearly determine the amount and procedure for payment of the registered capital to the account with a Chinese bank.
4. Drafting a business plan
A five-year plan of your business development in the territory of China is very important, first of all, for the Chinese government. If your wholly-foreign owned enterprise decides to offer a service or goods, which are not specified in your business plan, your company may be closed by the government decision. That is why your business plan must provide room for maneuvers and must not limit your company too strictly. At the same time, your business plan must give a full description of your products or services, the number of employees, and the project budget.
5. Search for a consultant
Do not waste your time trying to study all the peculiarities of starting and running a business in China; save it for the development of your project. It is not difficult to find a consulting company or legal advisor in China. There are Chinese state agencies, the services of which cost less, but you are likely to have more troubles with them, and private foreign companies. Their services cost much more; however, you will have less trouble with them.
6. Preparation of the necessary documents
A list of documents required in order to open a business in China largely depends on a particular location: it is generally determined on the level of local authorities according to the government recommendations.
7. Registration of a trademark
The protection of intellectual property is a great problem for foreign companies in China. Many of them think that having a trademark registered in their country of origin protects them in China. However, in China the right to a trademark belongs to the one who is the first to register it. There are possible fraudulent schemes. Your trademark registered in China by other company may be sold to you; that is why you should check the availability of a trademark in advance.
8. Bank selection
For a foreign company it is very important to select a bank, which will serve it in the territory of China. We recommend you to read: main banks of China. The most attractive banks are those having representative offices in your country or cooperating with the biggest banks of your country.
9. Hiring of personnel
Hiring of personnel in China is a complex process especially with regard to senior management. If possible, it is worth inviting a selected candidate to work for some months in your company in your country to get acquainted not only with the internal activity but rather adopt your business values to get them over to other employees. Do not save money on professionals. The activity of your company in China depends on their work. Also, remember that you have to conclude a labor contract with each employee, which is regulated by Labor Code. Pay attention to the conditions of dismissal of employees to eliminate problems caused by a claim filed by an improperly dismissed employee.
10. Do not hurry up
Strange though it may seem, but in such a rapidly developing market as the Chinese one, business is built very slowly, relations and connections are formed in small steps. If you want to succeed in China, arm yourself with patience. You can not change a billion of people, rather you can adapt to the existing rates of doing business in China.