In January 2019, the CEO and marketing director of a world-renowned PR company sought to put up a recruitment advertisement in one of the leading Chinese newspapers for their new office in the capital city of China. They would have simply sent it to one or two newspapers through email or courier service if the two were back home in New York. However, they discovered that in Beijing, things are done differently. For instance, they had to present themselves in person to four government agencies so as to get approval for the advert. By the time it was approved, they had spent almost 20 hours total.
All foreign entrepreneurs who get into the Chinese market suddenly realize that they are in an almost different business world, and the way things are done is quite different from what usually happens in North America, Europe and even Africa.
In the last few years, China has undoubtedly transitioned into a global economic powerhouse. Even though it is yet to become a member of the big boys’ club, the country is already leaving indelible imprints in nearly all industries.
All the exciting action seems to be taking place in the People’s Republic of China. It is the place to be for any company that wants a piece of the exhilarating action.
5 important factors to focus on for setting up and running a business in China
1. Find out if the government has placed restrictions on the sector of interest
The most important factor that companies must take into consideration is whether the industrial sector that they seek to venture into has any prohibitions or restrictions imposed by the government.
Government of the People’s Republic of China strictly regulates all investments made on her soil by foreign companies. For this reason, prospective investors must carefully go through the 2015 Catalog (Catalog of Sectors for Guidance of Foreign Investment) with the objective of establishing if their operations are classified as encouraged, controlled or prohibited.
A reputable recruitment agency in China can help you get good professionals who can study the 2015 Catalog.
2. Consider the option of operating from a Free Trade Zone
Recently, the Chinese government gave foreign companies liberty to establish their physical presence in an assortment of Free Trade Zones. Mainland China, for instance, has four trading zones open to foreign businesses.
3. The physical location of the company
China is, without a doubt, one of the biggest countries in the world. For this reason, it is very important to carefully choose the geographical location of your organization. For certain industries, different regions offer substantially diverse consumer markets. In the same way, there are entire cities that have been set up to provide support to certain industries.
It is vital to understand the country’s city tier system. Beijing, Shenzhen, Shanghai as well as Guangzhou are in the first tier. The capitals of provinces fall under the second tier. They include Tianjin and Xiamen, among others.
There are disadvantages and advantages of investing in each of the cities found in China. In some areas, for instance, it may be difficult to get the right employees. However, a recruitment agency can help you attract and retain some of the best talents.
Companies ought to carry out adequate market research at the preliminary stages to determine a geographic location that would best suit their goals and strategies.
4. Type of business organisation
Entrepreneurs who wish to take part in the exciting business action that is taking place in China have three major options to choose from:
- Set up a representative office
- Register a WFOE
- Establish a joint venture
The first option is ideal for companies which are still unwilling or unable to invest substantial amounts of their money and time. It can be the first significant step to grand market entry given that such an action enables an organization to carry out market research, have a better understanding of the Chinese people, establish local connections and also get to know local market practices.
Registering a WFOE (wholly- foreign-owned- enterprise) is the perfect option for companies that seek to set up a physical presence. Typically, a WFOE is under the absolute control of the holding company, and this result in efficient and effective decision making.
The third option is suitable for businesses that have already identified one or two appropriate Chinese partners, and need access to their business resources such as physical infrastructure and strong market position.
To find the right employees who can fill vacant positions in any of the three types of business organizations described above, get in touch with a highly regarded recruitment agency in China.
5. Company’s IP protection strategy
Before setting up a physical presence in the Asian country, it is vital to put in place a good IP protection strategy that is properly structured.
Even though there have been significant improvements in matters concerning Intellectual Property, foreign companies still face major risks, especially due to widespread piracy on Intellectual Property rights as well as ever-mounting anti-trust regulations in the last few years.
Companies ought to consider the option of having their patents, trademarks and other IP rights registered in China because of fears such as these. Doing this would enable businesses have sufficient legal defense against infringement of IP rights. It can be part of a well-structured IP protection plan.
Ariana Merill is enthusiastic about everything related to business and investing. A financial and business analyst, she enjoys using what she has learned from 10 years of studying business and money to help others achieve financial stability.