Challenges of doing business in China and what is a PEO?
For every business owner, expanding internationally is a major milestone, but it can also be a major headache. At the moment, the Chinese consumer market is growing rapidly, and there is a lot to gain from accessing China. However, opening a business in China can be especially challenging for many reasons.
To give you an idea of the issues you will face as a business owner in China, Jimmy Norin of BullMarketz.comwill walk us through the process of opening a first office in the country. On this page, he will discuss some of the greatest hurdles you’ll have to overcome and also provide advice on how to successfully make it.
Do you have a plan and are you stable enough at home?
First, you’ll have to ask yourself why you’re expanding to China in the first place. Are you really prepared for what’s to come and how do you know it will work?
The Chinese business environment is like a polar opposite to the environment in the United States, and many times your business model in the two countries will differ. You will essentially have to start a completely new business with a new approach and considering all the work you will put in, you should be confident that it will work.
In addition, you will be required to focus most of your time on the start-up and, therefore, your business back home has to be stable enough to run on its own.
Decide on your business type in China and get your papers in order
Before you continue with any of the logistics, you need to research what type of company will be best for you. Generally speaking, you have four options to choose from and they all have their perks and disadvantages.
- A joint venture requires you to have a Chinese part-owner which can be difficult, to say the least. Most often, these companies fail, and the Chinese partner ends up with the remains of your business. This type of business is not recommended unless you have Chinese contact that you really trust.
- A representative office is not really a company in China. Instead, it’s an office with the purpose of representing your American company abroad. That means your rights and opportunities in China will be limited, and you won’t be allowed to sell any products directly.
- A wholly foreign-owned venture (WFOE) is the most common business type for foreigners in China, but it’s also the most complicated to start. With a WFOE you will have almost complete control over your Chinese company, but first, you will have to be approved by the Chinese government and provide a major capital investment in a Chinese bank.
- Another option to start a business in China is by using a PEO. This is by far the easiest way to start business in China as creating a company is a lengthy process for foreigners. A professional employer organization (PEO) is a firm that provides a service under which an employer can outsourceemployee management tasks, such as employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development. The PEO does this by hiring a client company’s employees, thus becoming their employer of record for tax purposes and insurance purposes. Therefore, your company can start to operate on the Chinese market almost immediately and without establishing a legal entity. This practice is known as co-employment and is used by most PEOs in China.
Find a location in China and hire staff
Next, you have to decide where in China you will base the company. The majority of foreign companies in China operate from Shanghai, Beijing, or Guangzhou, and we recommend that you stick to one of the bigger cities. One thing that many forget to consider is to look into which cities are best connected to your headquarters.
Once this decision is made, you will have to find a realtor that can help you get an office rental agreement. Luckily, the number of English-speaking realtors in China is increasing, especially for business purposes.
Hiring staff is also different from back home. We suggest you get started with finding a good manager that can run the Chinese office and there should be two major requirements for this position. They need to speak English so that they can communicate with the rest of the company and they need enough business skills to actually run your business.
In many ways, this is one of the most critical steps in the process of opening a business in China and we really encourage you to take your time to find the perfect match. Also, don’t expect to get a great deal just because it’s China — you still have to pay for skilled labor and great managers will cost you.
However, if you opt for using a PEO to open your business, finding a location, and hiring the staff will be handled by them as part of their service.
Start the business slowly and be open-minded
At this point you should have a registered company in China, you’ve created a new business plan for the Chinese market, you got yourself an office space in a major city, and you just hired a manager. The only advice we can give you now is to take it slowly and start small scale.
Work closely with your Chinese manager and don’t rush the process. Opening a company in China is not an easy task, and it will most likely take a while for you to establish yourself.
Also, China is not America, and you need to be open-minded and accepting of the differences. In fact, most parts of running a business in China are completely different from running the same business in the United States, and to succeed you will have to constantly adapt, even to the smallest changes.
For example, a simple task like running an ad campaign in China can require the approval of not one but several government agencies, which is a frustrating process.
You will need help and support
To sum this guide up, we want to offer you one last piece of advice: Don’t be afraid to ask for help.
Expanding your business to China is a major project that will most likely fail if you don’t have the right support in place. For example, you can try to find a mentor that’s already done what you’re trying to do. However, we also advise you to contact one of the many American organizations that help people get started in China.
These organizations will make sure you get all your paperwork in order, often times they can recommend staff on the ground, and many of them have a relationship with banks and government agencies and can help you get the ball rolling quicker.
Getting help when setting up a Chinese business is not a sign of weakness but rather one of the most important decisions you’ll make.