Establishing a business in China for dummies: 10 things you need to know

If you’re next adventure includes opening a new business in China, and you know nothing about it, this is the right post. Heads up!: it will be like nothing you’ve ever done.

Now, let’s get to the point. I’m not an expert on doing business with China, but thanks to the EOI Business School  Business Seminar in Shanghai (march 2017), I’ve learned enough to come up with a 10 point list (for dummies style) to give context for those interested:

  1. Here’s the deal. It is not an easy thing to do. According to the World Bank Group’s Doing Business Ranking, this country holds the 78th position globally, far away from first places New Zealand and Singapore.  On the bright side, it is easier than emerging economies such as Brazil (123) and India (130) and, mainly that it is not impossible. Actually, it could be a great idea, depending on the business area you’re focusing on, and there’s the opportunity to gain great support from the Government (see point 7).
  2. Time. It will take 3 to 6 months to establish your company officially in China. This includes the registration of the capital and investment, the business license or permission to operate, the actual operations start and the post-establishment compliance.
  3. Explore. Before investing a lot of time and money on establishing your business in China, you may want to explore a strategy like the Representative Offices figure (ROs). The RO is an extension of a parent company with operations out of China, that has no specific capital requirements and can hire staff through employment agencies. With a RO you can conduct market research, do liaison activities with potential clients and receive delegates from the parent company. The bad news is you can not do direct economical activities like sales, production or service provision.
  4. Invest with a partner. Another strategy frequently used by foreign investors is the Joint Venture (JV). In order to achieve a JV, you will have to possess at least 25% of the equity of a local company. Many firms start by investing on a business with this strategy and then, end up buying the whole operation.
  5. Wholly Owned Foreign Enterprises (WFOE). According to the expert Lorenzo Riccardi, the WFOE is becoming the most common choice for new foreign investment, outing the JV’s because of the decision-making power limitations of the latter.
  6. Be very specific. When using a WFOE strategy you have to define a business scope that has to be very narrow, specific and structured. This means that you will have to detail what is the sector you’re aiming to operate in (trading, manufacturing, services, etc.) and the specific activities. The step is incredibly relevant if you take into account that in the future, you will have to ask for a new business license if your scope was not well defined.
  7. What you want to be focus on. China works with 5 year development plans (here’s a very cool and funny video that explains it) that essentially draw what the future business, social and economic trends are going to be, given the extensive Government’s influence. The current plan (13th) has as its main focus and priority the innovation and greening. Your business opportunities (Government funding!) will increment if you direct your efforts towards those areas. Remember that China wants to be the world’s manufacturer no more.
  8. Western habits. Forget about the western way of doing business for a while and go deep into the China’s way. When negotiating your JV or your first deal, don’t expect the decision maker of your Chinese counterpart to be on the table of negotiation. They believe in the collective intelligence, so they will have a group of representatives talking to you and they will take the decision together. The big chief will only appear when the time to sign the contract comes.
  9. Fast and cheap? Don’t even think about it. If your business plan includes anywhere velocity and low price products as competitive advantages, it is time to go home. China has become well-known for mastering these tricks, so you should be delivering value on what western do best, for example, post sales customer service and high quality products. Chinese people won’t wait for you to pass on the street, even if you have the green light, why would they let you compete on what they do best?
  10. Open your mind to diversity. Establishing a business is not just about money and a great idea. You need to dive into the local culture, habits, ways of doing business, signs of respect, economics, politics, etc. If you’re going to China this is a must for your business to be successful. So, try to learn about their history and you will find why are they so competitive and may appear “rude” sometimes, go on and study how they incredibly managed to turn their economy in just 30 years, try to understand that admirable planning mentality and holistic thinking,  and use everything in your favor.

 

 

 

 


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