Five Issues to Consider When Setting Up a Business in China

China is captivating the business world. Everyday more and more companies from all over the world, including the United States, set up their businesses in China. Some come with the hope of capitalizing on the country’s low-cost labor and edging out the competition in cutthroat markets. Others are attracted by the vast profit potential of selling into China.

Setting up a company in China is a complex task that can be time-consuming and expensive. The initial phase is much easier for companies that research the steps, make good contacts, and prepare for setbacks. The following are just some of the issues that must be taken into consideration during the planning phase of setting up a business in China.

1. Calculating Costs

When most people think about China, the first adjective that might come to mind is cheap. However, it can be surprisingly expensive to set up a presence in China, especially for companies that are not flush with cash. The following include some initial costs to consider:

• Manager compensation package: If your company is like many others you are going to hire an American as opposed to a Chinese citizen to manage your interests. In almost all cases the compensation package for overseas employees includes a base salary, housing, travel, and school allowances, international medical coverage, and moving expenses, both at the beginning and the end of the contract. In addition, in a majority of cases, salaries are higher and other perks such as a car and driver, a personal assistant, and rest and recreation breaks are included to entice prospective employees.
• Space, furnishings, and equipment: The next big startup expense to consider is office or factory space and equipment and furnishing purchases. Rental fees vary depending on size, location, and amenities available in the premises. Equipment can be bought in China or imported from the United States. Just keep in mind that importing can be expensive due to taxes.
• Local staff salary and benefits: English-speaking employees command much higher salaries than those who only speak Chinese, and foreign companies have to pay for various costly social benefits required by local labor laws. Companies can expect to shell out almost as much money in employee benefits as in salaries.

2. Selecting a General Manager

After considering costs, the next step is to select a general manager to run your business in China. Even under normal circumstances, finding a perfect fit is difficult. Add to the mix a location thousands of miles away and the hiring process becomes much more complex. Not only does your company have to find a qualified person for the job, but the person must also be emotionally limber and able to handle the day-to-day grind of doing business in the radically different and complex Chinese culture.

3. Choosing a Location

China is a vast country. Companies must carefully choose the location of their business operations. If you are planning to sell into China, you want to be close to your market. If you decide to get into the manufacturing and exporting business, placing your operation in a port city has obvious advantages.

4. Hiring Local Staff

In some ways a bilingual office manager cum administrative assistant is the most important person your China operation will hire. Bilingual employees can help your company achieve complicated tasks such as getting a business license, opening bank accounts, finding office space, and purchasing equipment and furnishings. A major part of an office manager’s job will be to translate for the general manager. It is crucial that he or she is someone who can be trusted. Translators have been known to not pass all information to a general manager if they feel it would disadvantage them in some way, such as increasing their workload.

5. Forming Partnerships

Beware when forming partnerships with local companies. Many foreign companies have gone into joint venture arrangements only to find out too late that the partner company has misrepresented itself. Conduct thorough research on a potential partner. Remember, extravagant claims and promises that seem too good to be true usually are.