Doing Business in China
Kneppelhout & Korthals Advocaten
Asia Practice
Erik van der Molen
08 April 2013
Introduction
Kneppelhout & Korthals:
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Independent Law Firm focusing on Trade, Investment & Intellectual
Property
Asia Desk with a focus on China, Vietnam & Japan
Serving Small & Medium Sized Companies
Why Asia is Important 1
Share of world population:
Share of world output growth:
Visualising China’s growth 1
1990
2012
2030?
Balance shift? Or Return to normal?
Visualising China’s Growth 2
China's economy grew 7 times as fast as America's
over the past decade (316% growth vs. 43%)
One in five people in the world is Chinese
one-fifth of the global construction
industry
3 new powerplants every
week
5000 new hospitals in the next 30
years
240 million cars
China’s economy will
surpass the US in 2025
A Growing Urban Middle Class
220 million internet shoppers
240 million cars
564 million internet users
240 million cellphones
sold in 2013
25% of world luxury product market
Developments
• Ongoing Economic Transformation
• Fast growing urban middle class giving rise to
new demands. (creative & luxury markets)
• From made in China to designed in China
• Chinese companies going global
• Rest of Asia will grow in China’s wake: Vietnam,
Laos, Cambodia, Mongolia, Myanmar, Mongolia
Why go to China?
To summarize:
• A focus on China / Asia is no longer an
option, it is a necessity.
• No China/Asia strategy means:
- Losing from the competition that does
have an Asia focus
- Losing from the competition that will
emerge from Asia itself.
• Don’t underestimate the speed and scale of
developments
• If you wait until China is ready for your
product, you are too late.
The End of Cheap China?
Case: Apple
Manufacturing
Market
- Production in China can still be interesting.
- China is getting more expensive, but it is not
only about price. (scale/flexibility)
- Upcoming alternatives in the region: Vietnam,
Thailand, Myanmar, Mongolia.
Apple’s executives had
estimated that about 8,700
industrial engineers were
needed to oversee and guide
the 200,000 assembly-line
workers eventually involved
in manufacturing iPhones.
The company’s analysts had
forecast it would take as long
as nine months to find that
many qualified engineers in
the United States. In China, it
took 15 days.
The Other Side of the Medal
Many Opportunities in China but Challenges abound:
Business
•Finding the right partner
•Quality Control
•Knowing the market
Culture
• Negotiation
• Relationships
• Business Culture
Legal
•Fraud
•Corruption
•Intellectual Property
•Contracts
The 4 P’s of Doing business in China
Preparation
Patience
Perseverance
Prudence
Causes of Failure:
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Choosing the wrong partner
Short-term orientation
Underestimating the cultural factor
Insufficient legal protection
The 4 P’s of Doing business in China
Invest in Relationships
Know the Culture
-Personal Contact.
-Regular Contact
-Network
- Negotiation Tactics
- ‘Face’ and “Hierarchy”
- Indirect Commucation
-Language
CHINA SUCCESS:
Know the Market
- Where is your market?
- Who are the players?
- How fast the market developing.
- Where is the market developing.
Protect Yourself
- Know who you are doing business with
- Protect your intellectual property
- Have good contract.
Know the Market: China is a continent not a country.
Business Culture
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Relationships & Loyalty
make business personal, reciprocity, long term relations
Hierarchy & Face
show respect, formality, not everybody is equal, give face
Harmony
avoid conflict.
In Asia, all business is personal
Business Culture: Relationship
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Long term View
Building a relationship takes time
Reciprocity: Give and Take
Investing in Relationship will lead to
better results
Finding a Business Partner
Find a Business partner:
• Internet
• Tradeshows
• Dutch Government Network
• Third Parties
• Join a Trademission
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Important to do your Due
Diligence!
Make sure your partner is a
strategic match.
Personal Contact is paramount!
Beware of known frauds & scams
Know who you are dealing with
Sourcing / Manufacturing – The absolute basics
The Key to Quality Control
1. Understand how the Chinese organization works: management,
corruption risks, worker education level.
2. Provide detailed guidance and documentation
3. Factory Presence and Inspection.
4. Take a long-term view:
5. Anticipate what will go wrong and prepare.
6. Always carry a safety stock.
Contracts in China
A Common Misconception:
Contracts in China are meaningless and not enforceable
A good contract:
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Provide clarity about mutual expectations.
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Will help prevent problems.
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Will be enforced by a court if.
Things to remember:
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Include Non-Disclosure/Non-Use/Non-Circumvention Clauses
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In Chinese
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Choose the right Governing Law
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Consider Arbitration Clauses
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Find a balance between a good contract and a good relationship
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Negotiations will continue after contract has been signed
Intellectual Property Rights
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Always Register Trademarks in China.
Contractually Protect Your IPR.
It is possible to go after copycats, but is it worth it?
Protect your production processes
Conclusion
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The time to go to Asia is now.
Don’t rush into a relationship; know who you do business with.
Choose a partner with a long term view in mind.
Put time and effort in personalizing relationship.
Know the culture or work with people who do.
Don’t underestimate the speed and scale of developments
Take basic steps to protect yourself legally
Questions?
How to set up a
legal entity in
China?
How to secure my
interests in a contract
with my Chinese
distributor?
How to protect my
intellectual
property in China?
Which legal entity
/structure is best
for my business?
How to
structure my
China
operations
financially?
What to put in a
sourcing contract
with a Chinese
supplier?
You can contact
Questions?
Contact information
Erik van der Molen
Tel.: +31 010 400 5100
E-mail: evdm@kneppelhout.nl