After
your first study visit to China, you may realize that doing business in
China requires a local presence of your firm to facilitate business
communications, or you may wish to further assess a better understanding of
the size and potential of the China market before investing committed
resources.
The next step is to consider setting a representative office, which is the
fastest and the most economical way to competitively position your firm’s
presence in China. But first of all, you need to understand if a
representative office’s structure is the most appropriate for your firm’s
China’s market entry strategy.
A representative office’s primary function is to conduct China market
research, and to coordinate parent firm’s activities in China. This includes
liaison with local contacts, contract negotiations, warranty and after sales
service, lastly import, export and distribution services.
However, a representative office is not allowed to conduct profit making
activities which includes collecting payments or issue product or service
invoices. Besides, the representative office can only represent its parent
company for its existence in China. It is important to note although there
is no with no profits, taxes to are still payable to the Chinese government.
Furthermore, recruitment of staff cannot be done directly through your
office but has to go through a local human resource agency.
Depending on your nature of business and its intended operations in China,
the location of your representative office cannot be overlooked in your
market entry process. Most representative offices are often located in major
cities like Beijing, Shanghai, Guangzhou and Shenzhen as these cities offer
higher agglomeration of the same industry players. However, 2nd or 3rd tier
cities should also be considered for an early mover advantage into China
market.
In addition, your representative office portrays your commitment and
business operation in China and therefore an above average office furnishing
will aid to leave a good impression on your Chinese partners or clients when
they visit your office for discussion.
A representative office in China not only demonstrates your firm’s
commitment to stay competitive in China, it also helps to improve
communication between partners and in turn building up the much needed “Guan
Xi” (Relationship) for more business opportunities and cooperation.
However if you are considering to set up a manufacturing or processing
facility in China, a wholly foreign owned enterprise (WFOEs) will be of a
better option, but would require a higher capital injection.
A point to note is that, even if you have set a WFOE in a city where your
manufacturing facility is based, you may want to consider having a
representative office in your target sales cities to facilitate business
operation. On the other hand, a good distribution partner with regional
coverage can help to rectify this problem.
Setting up a representative office in China primarily requires 4 stages and
this entire process can take up till 4-5 months time.
Stage 1 - Pre-approval Stage
Once you have decided to base your representative office in which city, the
next thing is to approach the local Ministry of Commerce (MOFCOM) for
contacts of a local designated foreign enterprise service company (FESCO)
who will be in charge of your representative office application process. You
should be paying approximately US$800 to $1000 to a designated FESCO for
their service of notifying you on the relevant upcoming deadlines and
administrative procedures. In addition, a signed lease agreement is one of
the pre-requisite for the approval; therefore it is vital to secure a lease
for a “grade A” office space before submitting the application.
Stage 2 - Application Stage
Generally your application approval should be done by MOFCOM, but if your
industry is specific to banking, insurance, law, accounting and media, you
may have to approach the relevant authority which has jurisdiction over your
industry sector. Once approved, you should have the Certificate of Approval
certifying your legal presence for the next 3 years which can be further
extended.
Stage 3 - Registration Stage
This stage is to register for your representative office’s business license
which must be renewed annually. It is important to note that you must
complete the registration within 30 days of your approval from stage 2. The
application together with the supporting documents is required to be
submitted to the local State Administration of Industry & Commerce (SAIC and
the process normally takes about 1-2 months time.
Stage 4 - Post Registration Procedure
Firstly, In China, it is expected for your representative office to register
the office location with the local police (Public Security Bureau) and to
register with local and national tax bureaus. Secondly, you should make
financial and corporate seals as it is a practise in China to use them on
official documents. Thirdly, opening a foreign exchange bank account will
aid to facilitate overseas fund transfer. Fourthly, to import the relevant
equipments or materials, remember to complete the relevant customs
registration. Lastly, get a FESCO to assist you in recruiting of Chinese
staff.
Once all this is done, your representative office is set to establish its
presence in China. However before getting to this stage, a good market
research study is required to ensure that your products or services are
viable in the Chinese market.
