Business Advice on Investing in China

First of all, it is very important to make it clear that for what reason you are planning to enter into the Chinese market. There are some points to be considered:

1.for using the raw materials with lower prices in China;
2.for the potential sales channels in China, or later in Asia;
3.for the lower labor costs;
4.to avoid domestic competitions;

For the detailed investment procedure we'd like to suggest you in following:

Case 1: to set up a production factory in China

In this case, you have two options. You can set up a wholly foreign-owned enterprise in China, finding out a location, like Tianjin (cause it has its own port of shipment), to start your production there. The advantages for this option are that you do not have to find a Chinese partner, therefore there exists no dispute due to uncertain background of your partner, contract cheating, intellectual property right or other problem; the whole operation of your company is totally under your control. In short, this is the easiest way to invest in China, considering the further developing of your company. While at the same time you benefit from it alone, you must also take the whole responsibilities. And they could be: to study the Chinese market in this branch, to find a location, office, to rent or transport production machines, to get registered in China, to employ your staffs, to find the raw materials with reasonable purchasing prices, … and finally to develop the sales channels in China (if necessary).

You can entrust a professional consulting agency to assist you in studying the Chinese market in this branch, finding a location, office, and getting registered in China, etc. It would be much convenient and efficient for you. After getting registered in China, you can find a China specialist in this industry on helping you for the rest of the issues.

This way would be considered as a long term perspective for the investment in China. It may cost the most among other choices, but after the first phase it would benefit you unproblematic.

Option 2 for case 1: Joint-Venture

The problem of this option is how to decide for a partner. It is quite difficult for a foreign enterprise to conduct Due Diligence on a Chinese enterprise. The possible way is to entrust one Chinese Investigative Firm. And of course the negotiation for cooperation contract could take a long, long time. By this option you must pay attention to how to protect you the whole time, like share holding, investment amount, management, esp. intellectual property protection. Do ask every contract for English version (or in your language), and let your lawyer review, before you sign it.

This option is only preferred if your company does not want to invest a lot and takes this investment for a short to middle term strategy, as a transitional period. You can benefit from sharing the present production abilities, the possessed relationships in purchasing, retail, and whole sale channel, acknowledged man power, and etc. avoiding of many bureaucratic and administrative matters.

Case 2: to develop only sales channel in China

We do think this is the accurate way for the company to start their operation in China in case that they have no idea about the competition ability of their products in China, to set up a factory therefore would have many risks. By this way, you can develop your sales channel firstly, and during this time you would have an overall impression on Chinese market based on your own experiences. We would draft you 2 models according to our past experiences:

There are of course many other models, like you can set up one representative office in Beijing, and employ some sales, who possessed already many clients.

By this way you do not need to invest a lot, but just paying salary. And this model could be terminated any time, if it is failed. Otherwise after one or two years you should know for sure what you are going to do further.

SBCS