Joint Venture, Strategic Alliance, Representative Office, WFOE – there are a lot of different options for a market entry in China. Which one is the best for your company and why should you invest in China at all?
A few years ago, China was a target for foreign investment as it offered low labor costs and a huge, untapped market. Nowadays, labor costs are rising, legal restrictions make investing more complicated and there are a lot of domestic and international competitors. But this shift can also be beneficial for your business as the middle class and therefore a more consumption-driven society evolves. Chinese graduates are better educated and foreign experts more willing to accept a working place in one of China’s megacities.
Whether a green field investment or Joint Venture is the best path for your company’s market entry depends on various factors like your industry and your need for a fast expansion of your production capacity and existing sales channels.
A first step to the Chinese market can be to export products from your current production site to test the demand for your product as well as getting to know various sales channels and building up a customer base. With our expertise, we help you getting your products approved and managing your inventory.
To set up a representative office (RO) in China shows a deeper commitment to the Chinese market. In comparison to the cooperation with an agency or distributor, who may have limited loyalty and interest, the opening of a representative office is a logical decision for enterprises, which want to increase their involvement in the market. It is the easiest type of foreign investment but offers only limited business scope as a RO is forbidden to execute any profit-seeking activities. It can only engage in market research, display and marketing activities that are related to the company’s product or service as well as functioning as the contact point.
The establishment of a joint venture (JV) is the predominantly used entry mode for foreign enterprises, for many industries even required by the Chinese government. The advantage for the Chinese partner is the access to advanced technology, whereas the foreign partner profits from established production sites and existing sales channels, and therefore low labor and production costs. Make sure you don’t give all your corporate know-how and intellectual property away, conduct due diligence, discuss exit modes and shares. At SwissTank, we specialize on finding the right venture partner for you, whether equity or cooperative JV, overseeing and managing the process from the initial contact until the successful establishment of your joint venture.
Mergers & Acquisitions
A merger or acquisition with a Chinese company is the fastest way to enter the Chinese market. Finding the right partner is however a challenge, crucial for the success and requires in-depth research and analyses. Incompatible cultures, over-estimated synergies and clash of management styles can result in failure of the whole operation.
Wholly Foreign-Owned Enterprise
Wholly foreign owned enterprises (WFOE or WOFE) is the alternative entry mode. The involvement of Chinese investors is not required, giving the foreign company greater control over the subsidiary and protecting the intellectual know-how. In comparison to a representative office, a WFOE is able to conduct business within its approved business scope. With China’s entry into the World Trade Organization, more and more business sectors are open for WFOEs.
We at SwissTank can help your company to enter the Chinese market using the most suitable entry mode. This includes the setup of an representative office or WFOE as well as finding the right partner for your Joint Venture, conducting due diligence, explaining the Chinese business culture and seeing you through negotiations. We can help you to overcome any difficulties to set up your own production plant, research centre or other businesses in China.
Comments are closed.