China Law Blog

Sounds like your client got taken for a ride. All market research/market entry strategies studies should include an understanding of the legality of the business activities; especially if you are laying down 250k.

It may not always be practical to work out the legality of your activities before developing an entry strategy as your business model in your home country may need to be dramatically adjusted to fit local market requirements and so determining the legality of your parent company’s activities would be a moot point. In other words: the best way is the most viable market entry strategy that is legal.

Tim

Tim,

Not necessarily. The company (they never really became a client) that did the big marketing study may have simply hired someone to check on whether there is a market for this service and there definitely is such a market in China.

Take the internet space in China. Technically, foreign companies are not allowed to secure the proper license for, let's say, an online store that sells products to Chinese in China. Yet there are various ways around this. Many companies get marketing studies done on the viability of their doing online marketing in China and my sense is that very few of these studies mention that going in as a WFOE and just doing this is illegal, yet at the same time, I would not fault those studies for not delving into the legalities.

You are absolutely right though that in many instances, the question isn't whether it is legal or not, but rather, how can it be done legally.

Dan,

Point taken. However, that is the difference between a market research study and a market entry strategy. If you are simply looking for a snapshot of the market that is very different than an entry strategy, which should include the feasibility of conducting the intended activities – including at least an awareness of the legal implications and structures available. It really wouldn’t be viable if there is not a certain level of legality.

Tim

Great points Dan + Tim,

One of the issues that I've found in being a fledgling entrepreneur is the massive amounts of information out there. It would be amazing if there was a 'China Primer'. If this happens to exist, I'd love pointers to it.

Dan, your comment re: WOFE was very interesting. Although this is something that might be obvious to those in your field, it really is a bit surprising to well, me, at least. :)

Some of the smaller cash strapped brands (hey! I resemble that remark!) end up being a bit inundated with information + the process of sorting through it all is a bit overwhelming when faced with the daily tasks of running a business, etc.

And then when working with attorney's the fee structure can get a bit...hefty.

Thanks a bunch for the great articles, I really enjoy reading them + learning more about China law.

What never ceases to amaze me is that upon entering China so many Western businessmen check their common-sense at the port of entry. Would the company in question have placed a $250K bet in the US without first checking if the business was legal?

I am an Asia-based entrepreneur, managing a fairly diverse range of business for more than 10 years in Korea, Hong Kong, and more recently China. Maybe it is due to the field I'm in, but the vast majority of my entrepreneur contacts are running internet/web based businesses. From what I have been reading in this Forum, licensing and regulations make it nearly impossible for foreigners and WFOEs to run internet businesses in mainland China, which is unfortunate given that internet businesses are one of the easiest ways for entrepreneurs to get started.

Here's my question: If someone sets up an offshore info-portal site, blog site, or any other kind of website that can generate enough traffic to sell ads, would a local company (not a WFOE) with an Advertising License be able to sell ads on that website to local companies in mainland China? I.e. the website would be located overseas, but a local company would be selling ads via a local sales office. If "yes", it would seem that there is indeed a way for Silicon Valley-like entrepreneurs to set up shop in China and launch ad-driven web based businesses.