Sell to China

The New York Times has an excellent article on doing business in China. The article is entitled, New Path for Trade: Selling in China, and it is replete with good advice. Except mine.

Let me explain.

The article is on selling goods within and into China and it talks of the great opportunities and how to do it well. It presents the following good advice:

  • Bilingual is not bicultural. Lou Hoffman of The Hoffman Agency notes something I am always saying: do not mistake language for culture. Someone can speak your language and still have no clue about how you want to conduct your business.
  • Let others open the door.  Ric Cabot of Cabot Hosiery Mills tells how his company “edged into the Chinese market” by testing it with a Chinese distributor. “But if it gets to the point where we see we’re leaving too much money on the table, we might consider doing something different.”
  • Don’t get knocked off.  Earl Kluft, owner of E.S. Kluft & Company talks of the knock-off problems his company had in its first foray into China and of how things are going better this time due to a better China-based partner. With that new partner, Kluft has “cautiously re-established a sales channel with minimal upfront investment.” The Chinese partner pays royalties and is able to buy Kluft’s mattresses at “a special discount.” I then chime in, advocating finding “reliable partners on the ground through people you know, and then pay for whatever due diligence is necessary to make sure you have made the right choice.” And to do all of that “before you start doing business with them.”
  • Look locally before leaping.  The article talks of how some states have government-run international trade programs that offer counsel. Samar Ali, Tennessee’s assistant commissioner of international affairs then discusses the sorts of issues his group raises with those seeking to do business with China. “We’ll help them see if there’s a need for their product in China and to think it through: Do they need to set up a WFOE? Do they need to have a presence or not? Should they go the e-commerce route? How much they should budget going forward.” This assistance includes help with business-to-business matchmaking through already vetted Chinese companies.
And then there is the one I do not like so much and it’s mine.
  • Set up shop as a WFOE. The article notes that “it is possible to scout opportunities with a China Rep Office and to do business in China by selling through distributors or by licensing products to a Chinese company, most American businesses that are serious about selling in China invest the time and money to establish themselves as a wholly foreign-owned enterprise, or what is known as a China WFOE (pronounced WOOF-ee).” It then adds this from me: “My law firm does probably 100 China WFOEs for every Rep Office,” said Dan Harris, “a lawyer with the Seattle firm Harris & Bricken who writes a blog about Chinese law and business.”

I worry that what I said will be interpreted as my saying forming a China WFOE is virtually always the best way to sell to China and I did not say that because I do not believe it. I was asked what it takes to set up a company in China and what sort of entity usually makes sense. To that, I unequivocally answered with “WFOE.”  But what I was not asked was whether one can or should consider selling to China without any entity at all, and had I been asked that, I would have unequivocally answered, “yes, that is often the best way so long as it is possible.

We are actually big believers in getting product into China via distributorships or licensing arrangements, as evidenced by the following posts:

What’s so funny about the NYTimes article coming out when it did because I received criticism of what I said in another article, Getting Your WFOE Approved In China [link no longer exists] about forming a WFOE in China:
No wonder I use words like “slog” and “excruciating” and “unending” to describe to our clients what it is going to be like as we secure their WFOE registration in China.
The New York Times article rightly discusses the difficulties in registering China WFOEs:
And think months, not weeks, to get all of the paperwork approved. “In China, you can’t do anything last minute,” said Savio S. Chan, president and chief executive of U.S. China Partners, which is based in Great Neck, N.Y., and which helped Vision Quest move its light fixtures out of regulatory limbo. “It can easily take up to six months to set up a WFOE.”
Mr. Chan has it right, which is one of many reasons why anyone looking to sell their products to China needs to consider all options, not just a China WFOE.
WFOEs, distributorships, licensing deals and yes, sometimes even a Rep Office can all make sense, depending on YOUR specific situation. When it comes to China (and just about anything else), there is no one size fits all. I just hope nobody thought I was saying otherwise.
What do you think?
Print:
EmailTweetLikeLinkedIn
Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.