An international expansion is a major move for your business. Not only do you need to have the right amount of capital secured to make such a move that will cover the upfront costs and long-term contingencies, but you also need to make sure that your product or service will perform well in a particular foreign market. That being said, international expansion could be extremely profitable when done correctly and with the right goals in mind.
If you have decided that now is the time to expand, you have many options for the location of your foreign offices. One of the most popular locations at this point in time has to be China. The opportunity to break into the markets in Asia via a China location is vastly appealing for many corporate entities, and for good reason.
There are, generally speaking, three main methods for taking your business to China. Here is a brief overview of each so that you can better decide which option would be right for you and your growing business.
1. Wholly Foreign Owned Enterprise
The Wholly Foreign Owned Enterprise, which is also referred to as a WFOE in China, is probably the most popular choice for companies seeking to do business in China. One of the reasons for this is that it gives businesses the ability to maintain total control over their operations. It also allows for a greater amount of intellectual property protection, something that might not be guaranteed under the other two options.
Setting up a WFOE can be a time-consuming and complex process. It is, after all, the establishment of a limited liability company and requires that the enterprise receive the approval of a number of governing bodies.
Nevertheless, if you are looking to create a long-term foothold for your company in China, this is the best way to do it.
2. Joint Venture
For some industries seeking to commence operations in China, a Joint Venture (JV) might be the only option. Essentially, this method requires the establishment of a relationship between your business and a partner in China. As a result, your business operations in China wouldn’t be completely under your sole control.
The process of setting up a JV can be extremely long and prone to multiple negotiations. You would, however, stand to benefit from the existing resources that belong to the individual or entity that you partner with.
3. Representative Office
A Rep Office is the cheapest and simplest option to go with if your goal is to hit the ground running as quickly and with as little overhead as possible. The biggest obstacles you will face with this method involve staffing.
All staffing for a Rep Office must be conducted and managed by a third party in China. Furthermore, the number of employees that you are permitted to have is limited as well. You will also need to enlist the services of a Chinese agency to handle all payroll transactions.