Before setting up a business in China
Our years of experience working with foreign clients on managing and solving their issues have helped us formulate practical advice on doing business in China. Hence, following these recommendations will ensure a smooth flow of your business before you even know it.
1. Do your homework – 3 things you need to get right!
It can be costly and time-consuming to add anything to the business license after incorporation. So, make sure that you have everything planned out with regard to the scope of your business activities.
Be aware of the impact of the local laws and regulations, local competitors, local partners, and so on.
Always carry out a detailed analysis of your overall costs including sales revenue. Furthermore, you must define the capital injection amount accordingly.
2. Conduct due diligence.
By conducting due diligence on your prospective partners and employees, you will get rid of your trust issues. Doing business, like any other relationship, is built on trust. Without verifying the credibility and trustworthiness of your partners and people you will be working with, doing business will be much harder than it already is.
Read more: Due Diligence in China: Why & How You Should Conduct It
3. Finance your project sufficiently.
There are two reasons why you should finance your own project sufficiently and not rely too much on refinancing within China. Firstly, China’s strict control of foreign exchange limits loans coming from parent companies. Secondly, local and foreign banks require a high level of securities before lending money to a new company.
Allocate generous financing for your project but do not get caught in a cash trap.
Due to foreign exchange control in China, it will be difficult for you to repatriate your capital especially if you do not have a clear business objective.
Learn more about profit repatriation here: Dividend Distribution to Foreign Shareholders
4. Ensure stable and highly-qualified management and staff.
As a foreign company, hiring an expatriate to manage the company can be a lot easier in terms of operational control, transparency, and even trustworthiness. Foreigners in China may share the same sentiments as an outsider and that can instantly build the connection that you need for a longer period of working relationship. However, expatriate packages are often more costly. Nevertheless, more and more companies are offering local contracts to foreign employees and more foreigners are also working this way.
On the other hand, hiring a local manager may also give more advantage in terms of contacts with suppliers, customers, staff, or government agencies. Getting a highly qualified local manager would be an asset to the company.
Whether Chinese or foreign, a highly competent manager gets the same level of salaries. A person with the right combination of experience, proven ability to work with diverse cultures, and trustworthiness will be the right person for the job.
5. Dedicate plenty of time to support the local team.
The implementation of all aspects of your business needs plenty of organization which includes getting your team ready. During this critical stage, it is important to devote your time to reconciling all differences and problems that may occur within your team. In short, be 100% supportive of your local team.