A Guide to Doing Business in China 2 - How To Set Up Your Office

So you've realized how profitable it can be for your operation to set up business in China, you've done your research and you now have a list of contacts and practical locations. Now you need to set your office up and you've got a choice of three corporate structures to do this.

A representative office, this allows you to establish a presence in China relatively quickly and cost effectively. It allows companies to engage in a number of activities through a legal entity with their company name registered in China. Activities that their representative office can engage in, include marketing, research, business liaison activities and coordinating activities but what it doesn't allow you to do is engage in direct sales. Through a representative office, you can't issue invoices in Renminbi, the local Chinese currency.

A joint venture can either be an equity joint venture, which most companies choose to use, or a contractual joint venture. A joint venture, commonly abbreviated to JV, is a limited liability company formed by a Chinese company and a foreign company; the foreign company would own a minimum 25% of the new entity. It is not a merger; it is a new entity, which is partly owned by the foreign company and the Chinese company. With a joint venture, you can choose between an equity joint venture or a contractual joint venture. An equity joint venture means the profits and looses are split according to the shares each party has in the company. With a contractual joint venture, the profits and looses are split according to what is stated in the contract.

Since 2004, companies have been able to set up foreign invested commercial enterprises (FICE), which are either wholly foreign owned enterprises (WFOE) or joint enterprises in order to establish retailing, franchising or distribution operations in China. More and more companies are choosing to invest in China through mergers and acquisitions and ultimately the merger or acquisition will either be a wholly foreign owned enterprise or a joint venture.

So which one do you go for? In some industries, such as telecoms, where restrictions on foreign investments exist, setting up a joint venture may be your only option.

With a wholly owned foreign enterprise you have a hundred percent ownership of the business which means it's much easier to install your own corporate culture, with your own systems and procedures. You also get to keep 100% of the profits and it's also much easier to protect your intellectual property. However, on the down side, you have to fund 100% of the business and you also have to establish your own sales and distribution networks.

With a joint venture your joint venture partner should provide the facilities and the work force and they should also provide sales and distribution networks, although you should carry out due diligence as you will need to check the sales and distribution networks they say they have do actually exist. On the down side of a joint venture you will have to share the profits with your joint venture partner, it's also much harder to install your own business culture, your management policies and system procedures and its harder to protect your intellectual properties.

About the Author:

The China Britain Business Council is the UK's leading organisation helping British companies do business in China. In these exclusive sets from GuruOnline, several of their senior staff offer free business advice to anyone thinking of doing business in China. Their sets cover everything from where to find the help you'll need through to the technical aspects of running your China office. www.guruonline.tv/cbbc-setting-up-and-hr