How to start and conduct business in China

In the current society scheme, information flow has become one of the most valuable commodities, its effective use at the right moment and time play a crucial part of success in any field of endeavor. Thus, this is one of the reasons why emerging markets such as the Chinese market generate day by day the opportunities to make big business transactions, offering a wide range of possibilities in an enormous trade network.

Policy makers are trying to expand these links quickly and efficiently by giving some incentives in the import and export process. While the magnitude of foreign investments in China increases, foreign investors continue to encounter different challenges and concerns when doing business or investing in China. Based on this argument, I would like to stress on two core points. First, the general information about opening companies in mainland China. Then I will provide some comments and advice on how to start a business in this marketplace.

Starting a business in China

To establish a company in China may provide small and medium size entrepreneurs with enough stability and reputation amongst their worldwide client network, but sometimes it is not so easy in terms of paperwork regulations, tax payment, access to accurate database information and investment capital (if your company size and assets capacity are not so big). Because of this, one of the best options to succeed in this task would be to hire a consultancy service company not only to simplify the procedures but also because, recently, the Chinese law has been undergoing reformation which makes establishing a business confusing for entrepreneurs.

The first step is to identify clearly the type of business you specialize in; then the quantity of shareholders and directors who want to take part and also if there are any Chinese nationals or only foreign citizens (for the future arrangement of share transfers and the establishment of responsibilities in the business license) and the possibility to hire locals. Then check for the company´s name availability (to avoid homonymy for legal purposes), the office registration address, local resident secretary service, and last but not least, choose the bank to create the corporate account.

In accordance with these points you then need to select the type of business which matches with the minimum subscribed share capital required in one of the following categories:  

RO: Representative Office

WOFE: Wholly Owned Foreign Enterprise (which can refer to Consultancy Services WFOE or Manufacture WFOE )

FICE: Foreign-Invested Commercial Enterprise

JV: Joint Venture

The time required to incorporate the new company as well as the total cost, pros and cons, the necessity of audit in situ or registration with the State Administration for Industry and Commerce (SAIC) vary in accordance with the type of company the entrepreneurs choose.

Doing business in China

Now, for the second point mentioned at the beginning of this article, what one needs to consider is that to conduct business directly in the Chinese market can be difficult due to communication and culture barriers. It is then essential for entrepreneurs to take into account several key factors which can make a big difference when doing business. For instance, dealing with manufacturers is a good option but sometimes trading companies could offer better guidance, services and facilities in terms of language communication, commitment, accurate delivery time, expertise in handling paperwork and law procedures, export documents, etc.

On the other hand, the services of trading companies imply higher costs in the final product price; loss of contact with the supplier, less control in the manufacturing stages as well as with procurement and goods shipment, etc.

In addition, it is highly recommended to adhere to quality control guidelines before placing the order, during the production phase and also after 100% of the goods are ready for the shipment (loading stage) which in other words means: Pre, during and post supervision.

This does not mean that the customer has to be present for every step of the process. There are expert companies who provide tailor made solutions in order to match the quality standards with affordable costs and advantages.

For instance, asking for specialized support for inspections, based on the sample´s requirements, factory audit and testing, the technical specifications, packing, shipping marks, consistency between the written agreement signed by the buyer and the seller can make the huge difference between a successful result for the business or dismal failure.

Another important matter to consider is logistics and transportation, it must be a priority to find a good forwarder with enough expertise and market knowledge not only in origin but also in destination because what used to happen is that customers would experience a lot of troubles and delays due to the customs clearance process when the goods arrived at the port or seaport.

Then, before shipping the goods, make some consultations with your supplier, trading company or even in your local market with several logistic agents or the Chamber of Commerce who can give you proper guidance if you are not expert in this field. Also, don´t forget to calculate the financial cost and to control the total production time as well as the final delivery and arrival of your product. This will enable you to have the clearest possible picture of your business plan.

Finally, the general recommendation is to thoroughly research everything before making any decision; take enough time to consider all the probabilities for the company and shareholders benefit, the cheapest option is not always the best. Keep in mind that at the end the main target is to reduce the risks to the minimum level with a reasonable use of financial and time resources and to maintain the balance between good product quality and good customer service and gain enough profit.