1. Ownership: 100% ownership of the business it is highly recommended. Many experts and burned out past investors believes that any other ownership combination will not guarantee success. I strongly suggest opening a company that you have complete ownership of and staying away from joint ventures. According to a study done by China Economic Research Center, close to 70% of joint ventures has failed. The only good alternative is to establish a joint venture with a foreign company that you know and that will share the business expenses. If you have no other choice but to go with a partner, chose your partner among potential suppliers, customer, or a partner from an entire different industry.
2. Facility / Product position. Stress first class appearance and quality requirements for your facility, office and products. You will be judged by the difference (higher standard) of your local competitors. What is acceptable for a local company will not be acceptable for your foreign-owned or even JV Company. Stress physical appearance, English signs and slogans in the office and factory. Fill your company with several foreign employees. Your Chinese customers are buying your products to increase their own prestige and impress foreign and local buyers by heaving worldwide recognize equipment. Chinese manufactures love to show that they have used the same equipment as the best foreign companies. Do not lease/build office or facility above your minimum requirement. Minimize your fix cost. Bigger is not better.
3. Location, location, location. This principal is universal. Choose a location that is easy to do business and the local government is friendly to foreign businesses. Generally speaking, this means doing business in the central, southeast, southwest or south of China. Shanghai, Kunshan, Suzhou, Guangzhou those are friendly territories. Check with local cultures and opinions on which regions have a good reputation for doing business. Southerners are considered to be harder working people from the Northerners. Southerners are more business oriented. Anhui people are known for their honesty and are generally good to do business with. If you chose the right location you can, register company, built facility and start your production in several months – guarantee. The rent for an industrial facility will range from100 RMB to 400 RMB per square meter per year. The rent will depend on the size and location of the facility. The construction cost will be from 600 to 1600 RMB per square meter. If you choose to lease the facility, beware of management and maintenance fees that could be hidden in fine print. Beware of the gas, electric and water agreements. The biggest obstacle for quickly opening the facility is the Environmental Evaluation. Be careful with how you describe your operation in an environmental application. For the facility location consider employees transportation needs and labor availability for specific location.
4. Market. Do not expect 1 billion customers knocking on your door to buy your product. The Chinese market is highly competitive and much segmented. The most important question is not how much you can sale to Chinese customer, but how your Chinese operation will influence, improve or help your operation in the USA, Europe or worldwide (depending where you do your business now). After you figure out the answer to vital question mentioned above, you will have a chance in succeeding in China. Place your focus to support niche, undeserved market with less competition. Choose technology or services that are not available or easy to copy. Yes, you be copied faster than a blink of an eye. Protect you intellectual property by being very active in the market place. Try to protect your intellectual property by dividing tasks among several employees and vendors. The only way to stay competitive is to be ahead of your competitors with your product’s future and quality. Make conscious business decisions of when you would like to position yourself in China and stick to your decision. Do not assign unrealistic business goals for your Chinese operation.
5. Lost and Profit Statement Everything you hear must be divided by 2; except your cost, which needs to be multiplied by 2. Expect half true information and half of your expectations. The laws are changeable; but try to do business according to your best understanding of the laws and official policies. Do not bribe, encourage or silently approve it. Bribes are not only illegal, according to US laws, but if you give/take bribes, soon you will not be able to understand who has offered the bribes, and for what reason. You will stop trusting your employees; and, most importantly, with time you will “lose face” among your most loyal employees. Beware of the rapidly cost of manufacturing increases. Most Chinese companies stress sales volume and have ability to cut the cost / price much better than you can. Sooner or later you will run out of money, regardless of how many orders you have.
6. Name Choose a Chinese Name for your company. Honestly, I am not kidding. The brutal truth is that foreigners are guests of China and we are here because we are providing something that China needs or wants. Chinese people are one of the most entrepreneurial people in this world. The national pride will always be a prevailing motivation for purchasing and employment decisions in the future. I will always recommend choosing a nice sounding Chinese name for the company. Maybe it will be drawn back in a short time; but in the future, it will be to your advantage if your company is perceived as successful local company.
7. Employees Chose younger or retired workers. Hire younger, more energetic employees for the future growth. Hire retired workers for their specific expertise and for a specific task. You will have a relatively high turnout of the younger employees, but the older employees will bring more stability. In China, even 50 year old employees can retire from a state company. Sign a contract that includes specific times with younger employees before you send them for foreign training. Be on the lookout for English sugar lip speaking employees. They are in high demand and will most likely leave you at the first opportunity they receive that seems better to them. Treat your employees as part of your family: organize trips, celebration dinners and follow Chinese tradition. Bonuses should be paid during the Chinese New Year Holiday, not Christmas! Organize trips during the October national Holiday. Avoid perfect English speaking employees that say everything you like to hear. Your employees must be able to communicate perfectly with customers, vendors and other workers. Manage your employees by assigning a small, specific and detailed task so that they understand how to perform the task and when you expect a result. Be firm with your expectations. Do not allow a free interpretation of tasks and responsibilities. Do not speak of the future, but speak of present tasks and expectations. Leave the ‘great vision’ and ‘picture perfect future’ for your investor. Be very realistic and strict in your expectations and in what you convey to your employees. Stress studies and self improvement. Organize companywide education courses and trips for all employees. Organize work instruction with very detail description. You will be expected to pay two to three time more just because you are the foreign owned company. Benefit and insurance add 45% to basic salaries. Shop workers basic salaries 1500 to 4000 RMB per month, office workers 1500 to 3000 RMB, engineers from 2000 RMB to 10,000 RMB. Plus 45% for benefits. You are expected to provide dormitory for migrant workers and lunches for all employees. Avoid any ill perception between expat’s and local employees’ compensation level or treatment.
8. Respect Be respectful of the Chinese culture and national holidays. Respect elders, treat co-workers nicely but strict, and leave quarrels to handle by Chinese employees. Be persistent and patient with your partners, employees, vendors and the whole business world. Try to be good corporate citizen working with local government and support local orphanage.
9. Company Governance and Management Style One of the most important sources of power in the governance of the company is the control of the company stamp. No majority of ownership, no majority of the board of directors or who has the right to assign managerial positions is worth much without the control of the company stamp. Yes, sometimes a small, red, insignificant looking stamp may break or make your future in China.
Divide the company control evenly between the General Manager, Vice General Manager Manage, CFO and Chairman of the Board. Do not allow one person to hold too much control or responsibility. In the Article of Association, specify the details regarding all managerial decisions and responsibilities. Try to protect your intellectual property by dividing tasks among several employees and vendors. Be flexible in your management style most procedures are not very clear or straight forward. There always will be a surprises in running daily operation.. How you react to surprises will decide on your success. All is it up to negotiation. If you find yourself in the situation that somebody manipulates obvious facts, stop immediately any further negotiation.
10. Keep an eye on the cash Make sure you hire your own CFO and firmly control this position. Who the General Manager is important, but who is your Chief Financial Officer or Accounting Manager is just as important. All purchases above 50,000 or 100,000 RMB should be signed by the two company officers. Make sure the Chief Financial Officer or Accounting Manager has personally signed all major purchases, invoices and contracts. The most popular financial shames in any Chinese ventures are: bogus names on the payrolls, inventory and asset manipulation, and kickback for purchasing material and equipment.