Table of Contents:

Entering the Chinese market:

market size opportunity: 

• 1.3 billion plus people, but 900 million are in the interior of China, and are difficult to reach.   400 million consumers along the coast, and considered "consumer class" (not counting bottom of the pyramid).  But, still that 400 million is larger than the entire USA.

Examples of foreign companies entering the Chinese market:

1.  Coca-Cola

In 2008, Coca-Cola agreed to pay $2.5 billion for China's Huiyuan Juice, which makes fruit and vegetable drinks. It is the largest foreign acquisition ever of a Chinese company. Faced with sluggish sales of carbonated soft drinks at home, Coca-Cola has steadily increased its range of natural drinks.

2.  Others

For decades, breaking into the Chinese market was reserved for Fortune 500 companies and firms with deep pockets. But since China joined the World Trade Organization in 2001, more opportunities for smaller firms are starting to appear. Small and medium enterprises aren't just going to source in China; they are going to sell in China, said J.P. Faber, publisher of Miami-based China Trade magazine, which targets the next wave of firms trying to break into the world's largest consumer market. From a California firm that makes high-tech briefcases to the manufacturer of prefabricated structures in the Midwest, there are U.S. companies finding a toe-hold for their products, he said.

Although double-digit economic growth is giving bloom to a thriving Chinese middle-class of consumers, Florida's exports to China are a trickle compared to the torrent of Chinese imports. While China sent $5.1 billion in goods to Florida's ports last year, the Sunshine State sent just $230.5 million back, according to Enterprise Florida.

Wolfe Metals, a Hollywood company that buys scrap metal in the United States and Latin America and sells it to Europe and Asia, is one local firm that has made inroads in China. José Gómez, the company's vice president, traveled there for the first time in 2004 with a delegation from the Broward Alliance, but it took about a year to broker a deal. They don't just jump into business and grab it like we are used to in the U.S., he explained. You have to be reassuring and really build a relationship. But patience pays off. Now China -- the world's largest consumer of scrap metal -- represents about half of Wolfe's $30 million in annual gross sales, Gómez said.

While China is a natural destination for raw materials and high-tech wares, there is also room for retailers who know how to tap into China's brand-conscious consumers, said Joe Chi, executive director of the China-Latin America Trade Center. His Miami-based organization is working with a cigar maker and a distributor of olive oil to crack the China market.

Eric Diaz-Arguelles, manager of international economic development at the Beacon Council, Miami-Dade County's economic development agency, traveled to China recently to prepare for the council's first trade mission there later this year.

While China is a massive market, it is by no means an easy one. It's dog eat dog -- you have to compete with international companies and Chinese companies that know their own market better than anybody, he said. But there is certainly a place for those savvy enough to compete.

source: Miami Herald http://www.miamiherald.com/103/story/97473.html

Strategies for entering the Chinese Market

A Representative Office

is just a subsidiary of a foreign company in China. If your company needs a local presence to manage services or coordinate outsourcing business activities or to research the developing Chinese market, then a Representative Office is a useful and inexpensive vehicle for establishing a presence in China. Other main tasks include conducting market research, monitoring purchasing activities, marketing and administration of sales conducted between China and the parent company. Representative Offices cannot bill their clients in China for services or sales. However, it can act as liaison office in matters pertaining to ordering, shipping, collecting money and so on.

A Representative Office is a useful and relatively inexpensive first step to establish your business in China. But it is not a self-governing entity with all attached rights and responsibilities. Responsibility remains with the parent or offshore company. Since it only handles liaison and co-ordination work, its business scope is very limited. A Representative Office provides the opportunity to explore China as a market and to analyse its potential and viability for your business. As a low-cost introductory presence it's a perfect solution.

Benefits: Low set up costs. No paid up share capital is required. Easily to registered with the Chinese government. Represents the parent company. Coordinates business activities.

Disadvantages: Limited in its business scope, no trading or invoicing permitted. Must hire local staff via a government organization. Business licenses are usually issued for two to three years, but are renewable.

Still subject to taxation on its running costs at a rate of roughly 10%. Tax filing has to be submitted monthly. Annual audits. There are statutory audit requirements with respect to operational expenses as well as foreign currency bank accounts.

Joint Venture

Joint Venture is a corporate structure formed between a foreign firm and one or more local Chinese partner(s). Usually a Joint Venture is established to combine and use the market knowledge, preferential treatment, and manufacturing capability of the Chinese side with the technology, manufacturing know-how and marketing experience of the foreign partner(s).

For many years Joint Venture was the second most common method of investing in China, and investment regulations were heavily weighted in favour of the local Chinese partners. Most recently, the investment environment has changed significantly and most foreign investments are now in the form of Wholly Foreign Owned Enterprises (WFOEs). However, for some companies it’s still necessary or sensible to be set up as a Joint Venture

Benefits:

Good market access, local contacts, local knowledge. Bringing first-class workforce and facilities.

Committed to the protection of the Joint Venture Company's Intellectual Property Rights (IPR).

Disadvantages:

Lack of information about the prospective Chinese partner. Need to retain comprehensive control.

Sharing the profits of the business.

Wholly Foreign Owned Enterprise (WFOE)

These are 100% foreign owned companies, originally introduced to encourage foreign investment exclusively in the export-orientated manufacturing industry of Special Economic Zones (SEZs) in China. First they were prohibited from selling their products to the Chinese domestic market. Since a change in regulations WFOEs can trade and sell their goods within China. The capital requirements for such companies have also been dramatically reduced.

Benefits: 100% foreign ownership means total independence from a Chinese partner, complete control over the business and its direction. Full trading rights within China, including retailing or wholesaling wholly foreign manufactured goods. RMB profits can be converted into USD and remitted to the foreign parent. Intellectual Property Rights are protected. Greater efficiency in operations and management.

Disadvantages:

A foreigner with no China experience may lack the knowledge and contacts a partner would bring. In order to be successful strong relationships with the local authorities where the enterprise is located as well as along the supply chain are essential, and the cultural and administrative difficulties experienced may be quite significant.

What's involved in setting up a WFOE? To be honest, it’s a really laborious procedure that can take up to six months, many meetings and a mountain of paperwork. If you can't face all that form filling and bureaucracy we will be happy to help with any or every aspect:

Selecting a location that best suits your needs and offers the best tax incentives.

Finding the right premises.

Introducing you to the local authorities.

Preparing preliminary application.

Advising on business name regulations.

Preparing your business plan.

Preparing project proposals.

Preparing feasibility study.

Preparing formal applications.

Establishing management, production, financial, HR and sales structures.

Links from KookyPlan (similar pages)

• China
• international expansion