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» China-Business-Articles » Reading: "Fiducia China Interview"
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| Fiducia China Interview |
By:
Fiducia Management Consultants |
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China Focus (CF): What does Fiducia's China Corporate Service department do?
Mireille Koenig (MK): We offer services on two levels. On the strategic side, we analyse our clients' investment and corporate options in China. We advise them on how to set up and optimise their business structure, whether they want to enter the Chinese market or are already established here. As a second step, we help implement this structure. To give you an example: if a client follows our analysis and decides to replace their existing Representative Office (RO) with a Wholly Foreign-Owned Entity (WFOE) we also manage the actual incorporation and closing procedures on the clients' behalf. On top of that, we help with the administration of our clients' offices and with corporate governance and employment issues.
CF: So you are giving strategic advice on corporate matters in China?
MK: That's right. Everybody who does business in China knows that there are a lot of headaches and sleepless nights. Be it the ever-changing rules and regulations, or the rising costs of doing business (due to labour cost, high staff turnover and phasing out of VAT refunds), or the matter of supplier reliability or product liability issues: our role is to analyse our clients' headaches and give them strategic advice on how to alleviate it. A client for example may entrust us with an analysis on which legal entity meets his needs or how he can organise the import and export business and what the "pros and cons" of the different options are. The value we add is strongly connected to Fiducia's 25 year-long business experience and our local expertise. Based on this knowledge, we know where and how to help.
CF: You mentioned the implementation part as well. Are you actually involved in the incorporation of legal entities?
MK: Yes, we handle the incorporation for our clients, negotiate with authorities, prepare the relevant documents, submit them to the authorities and check them when issued. We consider our services as a one-stop shop. As necessary and useful as it is to get strategic advice, companies also need someone on the ground who deals with the time-consuming incorporation procedures and the hassle of negotiations with the authorities. Usually these processes involve a considerable number of authorities and piles of paperwork. In order to set up a WFOE, for example, you might need up to 20 licenses! To sum it up, you could say our job is that of a doctor: We diagnose and cure the pains of our clients.
"Everybody who does business in China knows that there are a lot of headaches."
Mireille Koenig, Senior consultant, Fiducia
CF: Can't foreign businesses cure their aches themselves, as they would in their home countries?
MK: China is different. The rules and regulations that need to be followed are quite complex and can differ substantially from other countries. Pitfalls are waiting everywhere: an authority may refuse to accept documents that are signed by the foreign investor with a ball pen instead of an ink pen! By the time the documents are sent back abroad, signed and re-sent to China again, three weeks can pass. Apart from this and many other little annoyances that cost time and money, there are bigger issues such as knowing about the connection between registered capital and the total amount of investment, just to name one. Companies may also act against the law without intending to do so or even knowing about it. We help our clients comply with all legal requirements in regard to corporate matters and - in co-operation with our Finance & Accounting department - tax matters.
CF: But isn't it cheaper for the clients to let their Chinese staff do it?
MK: Some companies might prefer setting up their China entity by themselves. But according to my experience, foreign managers are almost always surprised at how difficult and time-consuming the whole process can be. I just had a client who told me that he managed the set-up of his RO two years ago without any outside help. Now he will not touch anything when setting up the WFOE! It was too much hassle and the whole admin staff was absorbed by this project for weeks. Also, with this kind of "do-it-yourself" approach, many problems often only surface at a later stage. Take for example the business scope of a company: foreigners may think that, within legal boundaries, they're free to conduct any business they want. Not in China. After you define your business scope and it is approved by the relevant authorities, you need to stick to it or you risk losing your business license. As usual, the repair works are more costly than doing it properly from the very beginning. This is why I tell foreign companies: get good advice, evaluate the different options carefully and once you decide to go ahead, do it the right way from the start.
CF: What are the main challenges in your work?
MK: One of the main challenges is the instability of rules and regulations. And the fact that the different authorities involved in a set-up procedure define their own requirements doesn't make life easier. Practices may even differ between districts within the same city. Hence, many things are not foreseeable. The lengthy process of a set-up is also challenging. All documents need to be submitted and picked up in person. Imagine the queues and the waste of time! But as a whole, the system works well and the authorities are usually quite helpful. Last but not least, it can be quite challenging to explain to clients that China works a little different from what they may be used to in their home country.
CF: Does your law background help with these challenges?
MK: It definitely does. Being aware of law changes or new regulations puts you in a much better position when negotiating with the authorities. My master degree in Chinese Law definitely helps me to see the whole picture. I also like to believe that my previous work as a qualified lawyer in Switzerland helps to provide a professional, efficient and reliable service.
"Some companies still think they can do business in China without coming here."
CF: What do enterprises not know about incorporation in China that you think is important for them to learn?
MK: One very Chinese characteristic that foreign managers usually aren't aware of is the meaning of company chops. Westerners usually count on personal signatures and trust that a document is only legally binding when signed. That is not the case for China: The person who keeps the chops has the power. Other companies may not know that in most cases they are required to present a valid lease agreement when submitting the documents for incorporating their company. Letterbox companies are not allowed in China anymore. Some clients think that their foreign Chief Representative of the RO does not have to pay taxes in China since they transfer his salary to a bank account abroad. He may have an unpleasant surprise if he wants to leave the country. And finally, some companies still think they can do business in China without coming here: a huge error of judgement.
CF: What is your business outlook for 2008 in China?
MK: It will be interesting to see how the new goals of the 11th five-year plan will affect the business of foreign companies. The plan does not only cover economic areas but also touches on social development and environmental issues. The main focus will not be on expansion in scale but on structural upgrading of industry production, on saving resources and building an innovation-oriented country. Foreign companies with investment plans in these areas, particularly in high-tech industries, may therefore still enjoy interesting benefits. |
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