If you are considering opening a company in China, the two most common business options are joint ventures (JV) and wholly foreign-owned enterprises (WFOE). So, which one do you select? Each of them comes with its benefits, and it is important to make an informed decision. In this guide, we will take a closer look at each and finally tell you the best way for company registration in China.
Things to Think about when Registering a Company in China
To be able to make your decision on whether to start a joint venture or incorporate a WFOE in China, here are some important things to think about:
- Your targeted industry. Are you targeting the manufacturing industry, hospitality, the technology market, or the retail industry?
- Growth projections. Are you thinking of growing your company in entire China only or rapidly expanding to the neighboring markets?
- Available capital. How much capital do you have for business? Are you able to raise more funds in the event of cash shortfalls in the company?
- Competition. Here, you to look ahead and establish what other operators are in the same market of interest. Then, start working on strategies to outdo them.
To compare joint ventures and WFOE, we will focus on the main attributes of business operations, ease of formation, decision making, and protection of intellectual property rights.
Ease of Company Formation in China
The process of registering a WFOEin China requires you to understand the regulations well and the type of business. For example, are you opening a service business, manufacturing company, or trading enterprise? This process can be broken down into pre-registration and post-registration phases. The pre-registration stage requires you to get a business name and scope approved and submitting the required documents, while post-registration involves dealing with different government agencies.
When it comes to a joint venture, the process can be more difficult because you will have to identify a reliable Chinese partner. Then, you need to negotiate with the partner in terms of business operations and profit-sharing. Other requirements when registering a JV include creating structures that permit response to change in line with shifting market demand.
Protection of Intellectual Property Rights
Because a WFOE is 100% owned by a foreign parent company, it implies that the mother firm fully controls all aspects of the company operations. This means it is pretty easy to protect business inventions, processes, secrets, and trademarks.
Unlike a WFOE, a JV requires you to enter into a partnership, which makes protecting intellectual property rightsa challenge. Because of the different parties involves, the risk of abuse of intellectual properties is high, especially if the relationship between partners deteriorates.
Decision Making
When it comes to making major decisions, be they about personnel to recruit or product development, you will find it pretty straightforward in a WFOE. This is so because you or the parent company has 100% control over the business operations. However, a joint venturein China requires a lot of consultations and negotiations before arriving at specific decisions. This implies you are also likely to lose opportunities that could have been seized if the decisions were made faster.
This guide has demonstrated that a WFOE is one of the best types of companies to incorporate in China. Indeed, most companies coming to China prefer to use WFOEs. Although a joint venture has its own benefits, such as being able to take advantage of the partner’s already developed business networks, the process of registration and managing the enterprise is more complex than in a WFOE. Once you decide on the preferred business formation, the best way to simplify the process of registration is by using an agency of experts. These professionals have been in the Chinese market and will help you to complete the process faster and even with crafting strategies for growth.