--- A brief Introduction to China Business Types
You are reading this because you want to find your business solutions in China. If you business is expanding to China, Set up your new business in China, you are looking in the right Place. In this article we will discuss the types of business which you could setting up in China:
Types of Business setting up in China:
- Registration of Representative Office (Rep. Office)
- Wholly Foreign Owned Enterprise ("WFOE") Registration
- Joint Venture
- Investment by M&A in China
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:
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Source: http://www.shanghaiexpat.com/Article1103752.phtml
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