Company Tips and Pitfalls of Producing Chinese Products
Companies by the groves are making moves to establish branches in China. The highest populated nation on Earth has been taking long strides forward in global markets making China products more desirable for both consumers and manufacturers. Products can be manufactured by the Chinese at savings that make them a go-to source for large and small companies alike to remain competitive.
However, not only are China products sought after by markets outside the country, which was the sole case a decade ago, but the middle class is increasing dramatically within the country which opens doors for China products to be sold inside the country as well.
If you are a small business that is still hesitant about moving operations to China, here are some tips and pitfalls for you to consider.
The Language and Culture Gap
One of the highest hurdles for western countries to overcome when doing business with the Chinese is the language barrier. Only a small percentage of Chinese know English and many of them only speak broken English so communication over the simplest issues can become a time-consuming nightmare.
On top of the language issue, you have major cultural differences as well. The Chinese by and large have a totally different idea of how to manage and operate business than their western counterparts which adds another thorn in the side of small businesses seeking to source out manufacturing of China products.
Small businesses have several options to use in overcoming these hurdles. You can either send a representative to your China location to oversee operations or you can hire a representative from a company within the country that specializes in operations management. Another good solution is to hire a Chinese representative, move them to your company in your country and train them on how you want things run before returning them to your Chinese branch.
Become a Wholly Foreign-owned Enterprise
Selling China products within the country is best accomplished by registering your operation as a wholly foreign-owned enterprise, or WFOE, which allows you to sell via Chinese distributors or license your products to another Chinese company to sell. The rate of small businesses that become WFOEs compared to those who utilize rep offices to find buyers is around 100 to 1 which shows the advantage of going this route.
However, becoming a WFOE isn’t a walk in the park. Legal fees upwards of $30,000-45,000 are common to set up the company, establish trademarks, and ensure proper manuals and employee contracts are in place. The Chinese government also requires a minimum capital investment starting at $15,000 and running into the millions of dollars for certain companies depending on their business type and location. This whole process can easily be out of reach for many small businesses as well as take six months or more to complete.
If in Doubt, Get Help
Other pitfalls besides language and cultural barriers and governmental red tape for small businesses exist for small businesses wishing to set up Chinese shops. For example, producing knockoffs is a common practice where Chinese partners go behind your back to sell your designs to dubious manufactures that, in turn, create similar products that are of less quality and a cheaper price.
If you have never done business with the Chinese then it is prudent to get help from someone like Asiatic Sourcing. Our years of experience working within China and with Chinese contacts means we can get you up and running with a Chinese partner to more quickly and efficiently begin manufacturing and selling China products both inside and outside the country.