China Market Guide

Market Entry Options for Foreign Firms

Licensing

Technology transfer is another initial market entry approach used by manycompanies. It offers short-term profits but runs the risk of creating long-term competitors.

Franchising

China is developing laws which specifically address franchising. Virtuallyall foreign companies who operate multiple-outlet retail venues either manage the retail operations themselves with Chinese partners (typically with a different partner in each major city) or sell to a master franchisee which then leases out and oversees several franchise territories.

E-commerce

The E-commerce environment is still fairly immature due to the lack ofdefined regulatory powers over the industry, effective Chinese certificate authentication systems, secure and reliable on-line settlement systems, and an efficient physical delivery system.

Trading Companies

Generally, foreign companies are not permitted to trade in China,with the exception of the products they manufacture in China. With careful selection, training and constant contact, U.S. firms can obtain good market representation from a Chinese trading company, many of which are authorized to deal in a wide range of products.

Local Agents

China is witnessing an explosion in local sales agents who handle internaldistribution and marketing. Most of these firms do not have import/export authorization, and must work with a licensed Chinese importer. Although they add a link to the distribution chain, agents offer relatively low-risk local market representation.

Representative Offices

Representative offices are the easiest type of offices forforeign firms to set up in China, but they are limited by law to performing Aiaison activities. They cannot sign sales contracts, directly bill customers or supply parts and after-sales services for a fee.

Chinese Subsidiaries

A locally incorporated equity or cooperative joint venture withone or more Chinese partners, or a wholly foreign-owned enterprise (WFOE), avoids import restrictions-including relatively high tariffs-and provides greater control overboth marketing and management. Successful joint ventures require good partners, time and patience. If you are not willing to provide constant monitoring of critical areas such as finance, personnel and basic operations, then consider other market entry alternatives.

Wholly Foreign Owned Enterprises

Establishing a WFOE helps retain greatermanagement control and IPR protection. The law on WOFEs requires that firms either provide advanced technology or be primarily export-oriented, and restricts or prohibits them in a number of service and public utility sectors.