Expanding to China: At What Cost?
In China, online retail sales surpassed 1.32 trillion yuan ($210.39 billion) in 2012, which is a 64.7 percent increase from the previous year.
By any measurement, China is a hot e-commerce marketing, but U.S. businesses looking to expand into this country, which has well-documented long-term issues with international trade, should proceed cautiously.
The growing number of partnerships between domestic businesses and China has ignited Jina Park, CEO and Founder of PLUSH, a baby and toddler trade and consumer show, to relay imperative advice to companies seeking business opportunities in China.
1. Domestic products are subject to be copied and even replaced by Chinese manufactures. This is currently happening in the auto industry.
2. Big brand names are just as susceptible to being copied in China. As seen in, “Welcome to China's Fake Apple Store,” which means just because a brand is big in the U.S., does not mean it cannot be copied in China.
3. Be aware of high demands and steep costs when transferring money out of China. Have a strategy to get the money made in China, out of China. The ideal scenario would be to hire a Chinese attorney to set up a business identity in China and open a business account in a Chinese bank. At the very least, a bank account in Hong Kong with an international bank that has branches in the United States should be acquired. China also has its own Internet and a near-impenetrable firewall. Therefore, any proceeds from Internet sales a company may make in China will be sent to the Bank of China for processing until that company pays the bank fees to wire their money out of the country. There is no Paypal, Ebay, or credit card processing avenues with Internet sales in China.
4. Segregate your business entity to a valid Chinese entity to avoid the double tax. Every U.S. dollar made in China can be taxed.
5. Powerful Chinese sponsors or benefactors involved within the Chinese government are crucial. If something goes awry, a trusted citizen can guide businesses through most mishaps.
6. Always consider international shipping costs. Third-party freight forwarding companies are quick and efficient but astronomically costly. Other alternatives include piggybacking, which saves money but loses time, personal shipping company may be ideal but the fees included are extensive.
7. Success in China is measured by an equation. To be successful in China, businesses must take into account the time spent traveling, working, and potentially even living in China. All of this comes as additional costs to those spent on setting up bank account, business entities, hiring lawyers, and shipping products. Setting up a business in China is all part of an equation that business owners must be willing to pay for success.