Doing Business in China

Questions and answers of establishing a China sourcing presence setting up a sourcing office in China How long biggest challenges managing sourcing operations in China

Q: When establishing a China presence, overseas companies have several options -- wholly foreign-owned enterprise, representative office, joint venture. Is there a preferred option for a China sourcing office?
A: The simplest and most common method is to establish a rep office. The setup process can take as little as a few months from start to finish. The benefits of this kind of structure are the simplicity and low cost of setting it up. For straight sourcing operations this is the most practical option.

Q: How should overseas companies handle the process of registering and setting up a sourcing office in China?

A: It's more important for foreign companies to find a company to build their operations and infrastructure than to build a corporate structure. Numerous companies offer cookie-cutter company registration services, but a corporate structure doesn't do anything without having the right infrastructure in place.

Foreign companies should look for a service provider specific to their industry that can help them set up an office, hire the right people, give them the right connections, manage the corporate structuring and report back to the foreign company on the progress. This is a total package service that not only establishes a corporate framework, but also gives life to the operations.

Q: How long should it take from the decision to open a China office until that office starts shipping product?
A: This depends on who is in charge of the sourcing operation. Someone with existing contacts in place and a focus on what they need to buy could be moving products in a matter of days. An operation which is starting from scratch will have to spend a few weeks considering potential suppliers and business service providers. Running a smooth sourcing operation requires the leadership of someone with experience and contacts in place.

Q: What are the biggest challenges in managing sourcing operations in China?
A: Details are a big deal in sourcing. From writing the purchase order to delivery, there are always problems that can arise if the details aren't worked through by the sourcing office. And certainly if something is overlooked it's important to have a good support network that can act quickly and resolve any problems.

A sacred rule for Western companies doing business in China is: do not expect anyone in China to do something the way you would expect someone in the West to do it. To be fair this isn't always a bad thing, and in many cases it's a good thing. But either way it's best to have the details laid out clearly.

Q: What simple advice can you offer in the following areas?

Licenses and other legal matters?
A: If you are working with the right people things go smoothly.

Human resources?
A: Always an issue. We're constantly looking for good people. It's important to either outsource this function or have a Chinese person who understands Western demands handle this task.

Finance and accounting?
A: As a rep office most transactions occur in overseas bank accounts. It is helpful to find a bank with good online banking.

Taxes?
A: Outsourcing this is generally the best bet.
Q: How should an overseas company assess the performance for its China sourcing operation? Is there a standard they should use?
A: Basically, it's all about the result. Are the products landing on time? Is the quality good? Are the prices competitive? The details are what the sourcing office needs to worry about. The foreign parent should only be gauging the end results.