Conformity Magazine - March 2009 - (Page 14) Recognizing that there are still many internal and external issues and challenges facing businesses in China, the country has never been more open and available. For instance, early on it was necessary to have a joint venture with a majority local partner. This caused innumerable companies problems as the partners turned out to be less than ideal. Establishing China Operations, Step 2: Bridge through Taiwan It is not necessary to plunge right into China, particularly if you want to examine, explore and get a little bit of footing first. Many companies have gone directly in, of course, and many companies have been very successful. Others, not so much. With a lot of funding and resources, one can probably gain/ buy/ensure the trust structure and implant oneself into the market in a big way. Witness, for example, Nokia, WalMart, Carrefour and other international corporate giants. We, on the other hand, did not have the benefit of a big balance sheet, so we took a tack through friendly Formosa, or Taiwan. The benefits of a Taiwan-based Asian entry are numerous. First, Taiwan is very business friendly, with a sophisticated regulatory structure, modern amenities, a beautifullyfunctioning economy and a long-standing and mutuallybeneficial relationship with the United States (the U.S. military provided a shield and protections from a potential invasion of the island during the bad old Cold War days). Complementing these strengths are the Chinese cultural connections. When Chiang Kai-Shek took the Guomingdong (nationalists) across the Taiwan straits in 1949, he brought a few million of his closest friends. The second generation of Chiang and his followers (mostly Han Chinese, the most populous single ethnic concentration) are now actively engaged in investment and operations on the Chinese Mainland. Our approach was to establish operations in Taipei first, then, using that as a jumping-off point, sampling the Chinese Mainland possibilities. Taiwan is an interesting case study to understand trends in China. The “Taiwan Miracle” was fueled by the Intel microprocessor and the IBM-compatible personal computer. Until the mid-1980s and the advent of the PC, Taiwan’s technology base was focused on machine tools and “lower technology” products. However, as Taiwan’s technology improved and focus was placed on the development of world-class engineering, production eventually started moving to the People’s Republic of China (PRC), such that, by the early 2000s, it was evident that R&D was one of the strongest facets of Taiwan’s economy, and mass-market production of (mostly) consumer products went to Southern China’s Pearl River Delta area. Now, Taiwan’s technology is moving towards the development of sophisticated industrial equipment and away from consumer products (although still an important sector). China, on the other hand, is now in the thick of development of world-class consumer products. Witness the emergence of Chinese brands in U.S. stores (Haier, for example). Hence, it is instructional to view Taiwan’s experience as a crucible of change and evolution, one that China is following (at least in our little corner of the sphere). Establishing China Operations, Step 3: Hong Kong as a Foundation After getting operations underway in Taiwan, it was time to develop a plan for China. We first began with getting to know a handful of trusted individuals who gave us a good footing. We basically set these folks up as representatives for our operation, which allowed us to develop a network of customers and resources. As the operation matured, it was obvious that a real live China company would be necessary. We skipped the registered office step and decided to go directly with a “wholly foreign owned enterprise” (or WFOE), which prompted the question, did we want to have a direct company in China? When we did our analysis, it was obvious that we would be best served by opening a Hong Kong company first. We looked at Hong Kong for a variety of reasons, and not just because of the cool restaurants and availability of custom suits, knock-off watches and Hong Kong Disney. Hong Kong is situated equidistant between Singapore and Beijing. Drawing a circle through those great cities with Hong Kong in the middle traces an envelope that includes almost half of the population of the planet. From there, our China company was set up as a subsidiary to the Hong Kong company. Hong Kong’s legal and regulatory system is based on British law, naturally enough, and the Chinese recognized that there was no way to scrap this and implant Chinese law when they reassumed sovereignty over the area in 1997. First, the system was working well for a century or more. Second, the Chinese legal system was still in its infancy. Third, the Chinese recognize that Hong Kong provides bedrock for business foundation seeking to develop China as a market and as a sourcing partner. Through measured steps, managing the transition of Hong Kong back to the British, China maintained a steady focus on the future of Hong Kong and recognized its importance in transitioning to “one country-two systems.” The same was done with Macau (the first and last European Colony), which was ceded to the Portuguese and returned to China in 1999. So, in all this froth (the end result of which businesses can now enjoy) is a Hong Kong that offers the following benefits for organizations that want to make money in China: 1 Conformity marCh 2009
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