A question that may come up for many importers, “Shall I set up my office in Mainland China?” For some midsize and large importers, it can make sense, in particular when a regular flow of production and shipments are concentrated in one geographic area.
However, does it always make sense? Please refer to the following suggestions, as they will help you make a more informed decision.
The Benefits:
1. The best reason to set up in China is to take advantage of having your own person on the ground. This person can conduct: market research, business communication, contract negotiations, import/export and quality control functions.
2. Your colleague in China can search for and put you in touch with better and more direct manufacturers. This will reduce the cost compared to dealing with “middle-men”.
3. Staffing with local Chinese employees also helps to facilitate communication between partners, building up needful relationships with local manufacturers or institutions/organizations which will benefit greater business opportunities and cooperation.
Challenges:
1. High cost associated with human resources. Remuneration packages in China have been increasing over the last decade, and will continue to do so. 2. Depending on your nature of business and scope of operation in China, the location of your office cannot be overlooked. Most offices are often located in major cities or coastal areas of China such as:
- Beijing
- Shanghai
- Guangzhou
- Shenzhen
- Ningbo
- Hangzhou
- Xiamen
It is important to know that office rental in such major/coastal cities is expensive and sometimes advertisements can be misleading. A buyer from Austria once complained that although the rental cost that the real estate agent had advertised was attractive, the actual market price was normally at least 20% higher.
3. In order to obtain a legal presence in China, your local office must be legally registered. In addition, unlike 10-15 years ago the new Labor Laws have become strict. When you are employing, the labor contract and remuneration package including a monthly salary, overtime payments and employer and employee contributions to mandatory taxation and social welfare also need to be taken into account.
4. Besides the rising labor cost, it has become a challenge to find good, hard working, long-term staff. In recent years, the labor turnover has increased because of the increase in work opportunities. Professionals are constantly being headhunted and workforce stability has decreased.
All in all, it is a reasonable and an economically viable option to establish an office near a particular region which contains all the industrial and business infrastructure that your company might use. However, the financial and bureaucratic issues cannot be overlooked.
In some cases if your region of operation is fairly limited, and you only have a few similar products that you work with, having your own office in that region is a viable option. But on the other hand if you have a wide area of operation and many products, your limited work force will have high traveling cost and low efficiency level. Also your employees will not have such a wide area of expertise to deal with so many different products.
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