China tops the list of world nations in terms of Foreign Direct Investment (FDI). Business expansion to China is widely seen from manufacturing to service sectors from around the globe. Thorough understanding and market research are crucial before foraying into your China business expansion plans. This article guides you through four important steps: location, legal structure, business plan and implementation, all to be considered prior to entering China.
Step 1: Choosing a Business Location
China is a large country with many bustling cities and suburbs. A location for your business should be fixed based on your business needs. World renowned Chinese cities such as Shanghai, Beijing, and Guangzhou offer perks for FDIs. Free Trade Zones (FTZ) in these cities are also attractive with tax rebates and exemptions for foreign entrants.
These cities are also equipped with high quality office spaces, accessibility and other resources. Suburban areas or lesser-known cities can also be of interest to you if the offerings match your business needs. It is important to keep in mind the following 4 factors while making your decision on the location:
Last but not the least, acceptance by locals is an important element. The people in the locality, the country as a whole, their culture, values and acceptance of foreign parties has to be studied well.
- Availability of talent pool
- Accessibility to other stakeholders and partners
- Ease for logistics
- Ease to collaborate with local regulatory bodies and authorities
Step 2: Choosing a Legal Structure
You have to select a suitable legal structure for your business expansion to China. Based on financial constraints, purpose of expansion, type of product or service and scale of business, you can adopt one of the 3 common structures below:
- Wholly Foreign Owned Enterprises: Under this structure, businesses can be established by foreign companies or individuals without the direct involvement of an investor from China. If 25 to 100 percent of a company is controlled by foreign investors, then it is termed a ‘Foreign Invested Enterprise’ (FIE). Filing, registration, due diligence and approval of applications for wholly foreign owned enterprises in China goes through local authorities, state administration for industry and commerce, The Ministry of Commerce and the Ministry of National Development and Reform Commissions.
- Joint Venture (JV): Businesses expanding to China with a local investor or partner comes under this structure. It is most advised for those businesses seeking an entry into industries with strict regulations and restrictions. If your Chinese partner can be a strategic asset in terms of operations, penetrating the local market and becoming a long term asset to the organization, JV is the best pick for your China business expansion.
- Representative Office: A Representative Office (RO) acts as a liaison office, representing an existing foreign business entity in China. Though the financial constraints are minimal here, the RO structure places limitations on conducting many kinds of business. Major activities including import, export, payment collections, manufacturing and trading are not allowed under RO.
Step 3: Creating a Business Plan
Now that you have decided to expand your business to China, a separate business plan should be prepared. The plan should include description of your industry, products and services and also the following relevant aspects:
- Location of business
- Revenue estimates
- Manpower requirements
- Budget requirements
Step 4: Implementation
With all that said and done, the crucial move now is implementation. Hiring employees locally, sending your experts to on-site works, their visa-related legal formalities, authorizations, licenses, agreements, legalizations all amounts to your final stage in expanding your business to China. One smart way of getting through your paperwork hassle-free is by entrusting it to an experienced consultancy. This way, you will never miss out important information, application filing dates or deadlines.
Tips for a Hassle Free Expansion
- Learn new strategies to penetrate the local market and adapt to the culture.
- Make long term effective and strategic partnerships with all stakeholders.
- Liaise well with all relevant governmental departments, authorities, agencies and associations.
- Include experts from the local community in your team, which will have long-standing benefits.
Expanding your business to China can be a complex process. With in-depth research, market study and guidance from an experienced consulting team, you can enter this immensely attractive global market. China is definitely a growing nexus of world class businesses, and now is the right time for your business to utilize this incredible opportunity.