Tips to Set Up a Representative Office in China

After your first study visit to China, you may realize that doing business in China requires a local presence of your firm to facilitate business communications, or you may wish to further assess a better understanding of the size and potential of the China market before investing committed resources.

The next step is to consider setting a representative office, which is the fastest and the most economical way to competitively position your firm’s presence in China. But first of all, you need to understand if a representative office’s structure is the most appropriate for your firm’s China’s market entry strategy.

A representative office’s primary function is to conduct China market research, and to coordinate parent firm’s activities in China. This includes liaison with local contacts, contract negotiations, warranty and after sales service, lastly import, export and distribution services.

However, a representative office is not allowed to conduct profit making activities which includes collecting payments or issue product or service invoices. Besides, the representative office can only represent its parent company for its existence in China. It is important to note although there is no with no profits, taxes to are still payable to the Chinese government. Furthermore, recruitment of staff cannot be done directly through your office but has to go through a local human resource agency.

Depending on your nature of business and its intended operations in China, the location of your representative office cannot be overlooked in your market entry process. Most representative offices are often located in major cities like Beijing, Shanghai, Guangzhou and Shenzhen as these cities offer higher agglomeration of the same industry players. However, 2nd or 3rd tier cities should also be considered for an early mover advantage into China market.

In addition, your representative office portrays your commitment and business operation in China and therefore an above average office furnishing will aid to leave a good impression on your Chinese partners or clients when they visit your office for discussion.

A representative office in China not only demonstrates your firm’s commitment to stay competitive in China, it also helps to improve communication between partners and in turn building up the much needed “Guan Xi” (Relationship) for more business opportunities and cooperation.

However if you are considering to set up a manufacturing or processing facility in China, a wholly foreign owned enterprise (WFOEs) will be of a better option, but would require a higher capital injection.

A point to note is that, even if you have set a WFOE in a city where your manufacturing facility is based, you may want to consider having a representative office in your target sales cities to facilitate business operation. On the other hand, a good distribution partner with regional coverage can help to rectify this problem.

Last but not least, it will be beneficial for your firm to engage a good Chinese market research firm to assist you to perform the necessary market research, setting up your representative office, arranging your China business trips, interpretation services and lastly market entry into China.