Setting up a shop in China is often the first of many difficult steps that a company will have to challenge in China. A lot of care must go into this process as each type of business has its own advantages and disadvantages for companies establishing their presence in China.
Representative Office:
A Representative Office is the most basic structure whereby a company is allowed to operate in China, but is not allowed to sell their service or product in China.
Often, this is the first formalized structure step used by many small to medium size as a firm may execute on a contract that was sold in their country of origin.
The benefits are mainly related to the cost of setting up the structure, and the lack of any required financial investment. But the downside is that representative offices are quite limited in staff and cannot be directly hired, invoicing must be issued offshore, and depending on the city real estate options may be limited as well
Equity Joint Ventures:
Equity joint ventures are limited liability companies with foreign ownership set up for a specific purpose such as the establishment of a new manufacturing business. In general, the foreign partner provides the capital investment, technical expertise and management skills and arranges for technology transfer. While the Chinese partner makes land building available and facilitates to smooth the operation of the joint venture.
The two parties equity contributions to the joint venture determine their share of the results. Both parties primarily benefit form the exploitation of new business opportunities.
Co-operative Joint Ventures:
Co-operative Joint Ventures are sometimes referred to as contractual joint ventures. They are similar to equity joint ventures but differ in that to the obligations of each party are obligated out in the contract. These contracts typically specify the minimum registered capital and capital contributions of each party at various levels of investment and their respective share of the results of the enterprise. A co-operative joint venture can be a legal person with limited liability, if it is so registered.
Wholly Foreign-Owned Enterprises:
Wholly Foreign-owned Enterprises are legal companies in China and are completely owned by one or more foreign investors. The Catalogue Guiding Foreign Investments identifies the industries where completely foreign-owned enterprises are not allowed.
The biggest advantage of a completely owned enterprise is that the foreign investor will be able to enjoy full autonomy in managing the company. In some cases, a foreign investor may prefer a wholly owned structure as its trade secrets are better protected.
This article was researched and produced by Posicionarte for China Trading Company , 2007
Author Bio:
Eric Castro Mattas, is chief editor of Posicionarte researching and producing articles for China Trading Company. If you need products from China please visit www.chinatrading-company.com |