Conformity Magazine - March 2009 - (Page 16) As an initial step, one might consider setting up a Representative Office. This can be a formal or informal arrangement with an individual or company in China. A representative can market and represent your product or service, but is not allowed to sign contracts or collect money. This, however, is not a bad way to start until the viability of the business is established. Still, there are nitty-gritty problems that continue to pester our operations. For example, the arcane banking system makes you rethink cash flow. Presently, because the Chinese central government chooses it to be this way, the transfer of money out of the country must have approval of the government. Hence, normal 30 or 45 day receivables cycles get extended for quite a measure longer. This problem is solved by invoicing in RMB (renmibi— ”peoples money”) and collecting the cash locally, but to issue an RMB invoice requires a legal presence or a WFOE. The next-highest form of formal operations is the establishment of a Registered Office. This is a formal arrangement and requires a business license. While a Registered Office is not allowed to issue invoices in RMB, it also does not require much in the way of foreign direct investment or capitalization. If your organization can invoice in dollars and wire transfer fees and receivable delays don’t hinder your operation, a Registered Office might be all that is necessary. The establishment of a WFOE is the ultimate objective for long-term engagement. For most industries (and more are being added as the WTO obligations are increasingly met), 100% foreign ownership is allowed. Some industries, including banking and product certification, are some of the last dominoes to topple. To get a WFOE going, bring money. While an individual can start a company with $1 of capitalization in the U.S., the requirements for setting up shop in China are quite different. One goal of Chinese policy makers is to bring cash into the country. One effective way to do this is to require foreign companies to invest a minimum amount of cash to fund operations (registered capital), which makes sense. This approach limits the number of new companies to those that are serious about establishing a long-term presence there. The amount of required registered capital depends on the type of company and where the company will be operating. For example, Beijing or Shanghai are fairly expensive places to do business, compare to, for example, Chengdu. The amount of investment should reflect the local business realities. Registered capital can be used for start-up expenses and ordinary business operations, and may include cash or real property (machinery, furniture and fixtures). The lowest point of entry for a WFOE is a service-oriented business that does not require physical capital (like machinery and equipment). The highest levels of investment are for manufacturers and retailers. To bring in machinery, the investor is also required to pay import duty, further increasing the upfront cash requirement. Marketing in China, Step 5 and Beyond: How Do You Sell Your Products or Services? China is a vast, but highly competitive, market. Imagine a U.S. company situated on the same street, along with other competitors, many hawking plumbing hardware accoutrements, silk fabrics or any assortments of products or services, day in and day out. Frightening, but this is how most businesses are situated in China, as well as in Taiwan although in a smaller scale. As a result, price is for the most part, the only competitive edge. Well, perhaps not, since there are always other tools whenever humans interact. For us, being a service-based company, we saw it fit to enter the Chinese market by giving seminars, sometimes free or paid to recover expenses only. Our focus was to create brand awareness through training. Remember, we first created a “beachhead” in Taiwan where we first “cut our teeth” so to speak and gained invaluable experience with our trusted Taiwanese team. Speaking about trusted employees, we believe in a management style that hires good people, entrusts them, gives them the tools to execute their task, and measures them by what they achieve. We implemented the usual marketing “dos,” calling clients and potential clients, follow-ups and client tending (servicing their needs as best as possible). Understanding one’s products and services as it relates to any market is an important task, and it is especially true in China where price wars among competitors are legendary. As is customary with any market entry due to unfamiliarity, comprehension of the market terrain, implementation of marketing strategy, and a step-wise approach that manages your company’s resources and risks are crucial elements to be successful in China. The rest, you make as you go along! Mike Violette is president of Washington Laboratories and director of AmericanTCB, and has traveled to Asia extensively for the past 15 years. He can be reached at mikev@wll.com. The author would like to thank Desmond Fraser, co-Founder of ATCB, who provided a thorough review and suggestions for this article. Readers may also be interested in the 2007 documentary film “Developing Business in China,” available at iGotoVideo. com/china. The film features interviews, first-hand dealings with China business and government officials, and practical advice for small and medium sized enterprises who wish to enter the Chinese market. FAST Link www.conformity.com/2730 1 Conformity marCh 2009 http://www.conformity.com/2730
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.