4 Tips for Starting a Company in China

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There are many reasons why an entrepreneur might want to start their own company in China.

The country is one that is rapidly developing, with residents having more disposable income than ever before. Combine that with a population of over 1.4 billion, and the potential to create a flourishing business is enormous.

At least, that’s assuming you know what you’re doing. You might know how to start a successful company in your home country, but it’s an entirely different ballgame when doing it in China.

There’s a reason why nearly half of foreign businesses fail within two years of setting up in China – and that stat includes large multinational corporations that have withdrawn from the country.

To ensure your company doesn’t go the same way, this guide is here to help. Below are four essential tips for starting a business in China.

4 Tips To Starting a Company in China

4 Tips for Starting a Company in China

1# Do Your Research

Any business should begin with an ample amount of research – but this is particularly pertinent when starting up in China.

Thankfully, you’re not going to be the first foreigner to attempt to crack the Chinese market. Others have failed and succeeded in their overseas venture, and you can directly learn from their experiences.

Ask them what they had to do to become a success in the country, or why the wheels came off their China-based entrepreneurial journey.

While this type of information will be a significant help for putting together a plan, your research efforts should not stop there.

Also, keep in mind that China has a guideline for the overseas businesses they want to see. As detailed on their five-year plan, the country is currently seeking high-tech organizations and those with a focus on sustainability.

2# Pick The Right Business Entity

Before government registration, you must select which business entity you want to go with for your company.

While there are various options available, most foreign businesses in China will go with one of the following three: a representative office, a joint venture, or a wholly foreign-owned enterprise (WFOE).

i. Representative office

A representative office is the easiest way to begin an operation in China. Sadly, it’s little more than a way to advertise your brand.

There’s no option to sell any products or services locally, for instance, which means you cannot generate any revenue with the RO in China.

ii. Joint venture

As the name suggests, a joint venture would involve partnering up with a Chinese entity. This has several benefits, including the ability to invest in a business that is only reserved for Chinese nationals, and you also get to benefit from the knowledge and experience of your Chinese partner.

There are, of course, negatives that come along for the ride. Along with the potential clash of opinions, simply finding a Chinese partner can be a lengthy and challenging process.

iii. Wholly foreign-owned enterprise

A WFOE is the most common entity type used by those setting up a business in China. It provides the best quality control and, in most cases, control.

However, it is a complicated process to start a WFOE. You will be waiting for an extended period to receive government approval, and a capital investment – which will differ depending on your industry – needs to be deposited into a Chinese bank.

3# Hire The Right employees

Hiring employees in China is, understandably, a complicated process. Not only do you have to try and enlist the right people for the job, but various administrative tasks have to be completed.

This is where using a Professional Employer Organization is highly recommended. For example, INS Global, an expert consultant for those looking to start a business in Asia, provides a beneficial and convenient PEO service in China .

By utilizing a PEO, they will deal with all regulatory and legal preconditions, organize payroll, hire the right staff, and more. This means you don’t have to deal with this complicated chore and risk employing the wrong people.

Furthermore, you can focus your energy on more important matters regarding your business.

4# Understand The Market

This aspect should be covered by your research, but it is a point that bears repeating you need to gain a firm understanding of the Chinese market.

If you want to know why so many foreign-owned businesses have failed in the country, look no further than this element.

Typically, they were unsuccessful in determining the social, consumer, and cultural differences of the Chinese market, which meant their branding, services, and products missed the mark.

Also, keep in mind the speed at which the market is growing. For example, the Chinese middle class has grown rapidly, and that has caused the market to develop new expectations and needs.

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Author: Abdul Mateen