Doing Business in China
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Transcript of Doing Business in China
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Doing Business in China
Kneppelhout & Korthals AdvocatenAsia Practice
Erik van der Molen08 April 2013
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Introduction
Kneppelhout & Korthals:
• Independent Law Firm focusing on Trade, Investment & Intellectual Property
• Asia Desk with a focus on China, Vietnam & Japan• Serving Small & Medium Sized Companies
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Why Asia is Important 1
Share of world population:
Share of world output growth:
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Visualising China’s growth 1
1990
2012
2030?
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Balance shift? Or Return to normal?
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Visualising China’s Growth 2
One in five people in the world is Chinese
China's economy grew 7 times as fast as America's over the past decade (316% growth vs. 43%)
China’s economy will surpass the US in 2025
3 new powerplants every week
5000 new hospitals in the next 30 years
one-fifth of the global construction industry
240 million cars
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A Growing Urban Middle Class
240 million cars
564 million internet users
220 million internet shoppers
25% of world luxury product market240 million cellphones sold in 2013
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Developments
• Ongoing Economic Transformation• Fast growing urban middle class giving rise to
new demands. (creative & luxury markets)• From made in China to designed in China• Chinese companies going global• Rest of Asia will grow in China’s wake:
Vietnam, Laos, Cambodia, Mongolia, Myanmar, Mongolia
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Why go to China?
To summarize:
• A focus on China / Asia is no longer an option, it is a necessity.
• No China/Asia strategy means:- Losing from the competition that does
have an Asia focus- Losing from the competition that will
emerge from Asia itself.
• Don’t underestimate the speed and scale of developments
• If you wait until China is ready for your product, you are too late.
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The End of Cheap China?
- Production in China can still be interesting.
- China is getting more expensive, but it is not only about price. (scale/flexibility)
- Upcoming alternatives in the region: Vietnam,
Thailand, Myanmar, Mongolia.
Manufacturing
Market
Case: Apple
Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States. In China, it took 15 days.
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The Other Side of the Medal
Many Opportunities in China but Challenges abound:
Legal
•Fraud•Corruption•Intellectual Property•Contracts
Culture
• Negotiation• Relationships• Business
Culture
•Finding the right partner•Quality Control•Knowing the market
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The 4 P’s of Doing business in China
Preparation Patience
Perseverance Prudence
Causes of Failure:
• Choosing the wrong partner• Short-term orientation• Underestimating the cultural factor• Insufficient legal protection
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The 4 P’s of Doing business in China
Invest in Relationships
-Personal Contact.-Regular Contact-Network
Know the Culture
- Negotiation Tactics- ‘Face’ and “Hierarchy”- Indirect Commucation
-Language
Know the Market
- Where is your market?- Who are the players?- How fast the market developing.- Where is the market developing.
Protect Yourself
- Know who you are doing business with- Protect your intellectual property
- Have good contract.
CHINA SUCCESS:
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Know the Market: China is a continent not a country.
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Business Culture
• Relationships & Loyaltymake business personal, reciprocity, long term relations
• Hierarchy & Faceshow respect, formality, not everybody is equal, give face
• Harmonyavoid conflict.
In Asia, all business is personal
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Business Culture: Relationship
• Long term View• Building a relationship takes time• Reciprocity: Give and Take• Investing in Relationship will lead to
better results
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Finding a Business Partner
Find a Business partner:• Internet• Tradeshows• Dutch Government Network• Third Parties• Join a Trademission
• Important to do your Due Diligence!
• Make sure your partner is a strategic match.
• Personal Contact is paramount!• Beware of known frauds & scams
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Know who you are dealing with
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1. Understand how the Chinese organization works: management, corruption risks, worker education level.
2. Provide detailed guidance and documentation
3. Factory Presence and Inspection.
4. Take a long-term view:
5. Anticipate what will go wrong and prepare.
6. Always carry a safety stock.
The Key to Quality Control
Sourcing / Manufacturing – The absolute basics
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A Common Misconception:Contracts in China are meaningless and not enforceable
A good contract:
• Provide clarity about mutual expectations.
• Will help prevent problems.
• Will be enforced by a court if.
Things to remember:
• Include Non-Disclosure/Non-Use/Non-Circumvention Clauses
• In Chinese
• Choose the right Governing Law
• Consider Arbitration Clauses
• Find a balance between a good contract and a good relationship
• Negotiations will continue after contract has been signed
Contracts in China
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Intellectual Property Rights
• Always Register Trademarks in China.• Contractually Protect Your IPR.• It is possible to go after copycats, but is it worth it?• Protect your production processes
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Conclusion
• The time to go to Asia is now.• Don’t rush into a relationship; know who you do business with.• Choose a partner with a long term view in mind.• Put time and effort in personalizing relationship.• Know the culture or work with people who do.• Don’t underestimate the speed and scale of developments• Take basic steps to protect yourself legally
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Questions?
How to structure my
China operations financially?
What to put in a sourcing contract with a Chinese
supplier?
You can contact
Which legal entity /structure is
best for my business?
How to set up a legal entity in
China?
How to secure my interests in a contract
with my Chinese distributor?
How to protect my intellectual
property in China?