Welcome to JLJ's e-newsletter - China Focus. With our latest articles, we hope to share with you insights and the latest China regulatory updates, trends, and other news. Each month, we bring this e-newsletter to you as part of JLJ's value-added service. |
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Identifying and Working with Suitable Partners in China - Part 2
Distribution and Franchising
 As the Chinese economy continues to outpace the recovery of the rest of the world, China presents an attractive opportunity for consumer goods producers. With an economic growth rate of 9% each year for over 10 years, an increasingly affluent population (over 477,000 High Net Worth Individuals) and a growing middle class , Chinese consumers are becoming an influential global force. China's luxury sales, for example, already constitute 11% of the global market.
As many Chinese consumers are increasingly demanding quality and safety (as opposed to just price), opportunities may exist for foreign companies to enter the China market. In some cases, utilizing a partner may be the best way to target China's consumers.
Below is an overview of a few of the necessary key steps to identify suitable distribution/franchising partners in China:
- Define clear China strategy – most important step; considerations include targeting national market or regional markets, using distribution partners or franchisees, etc.
- Understand key partner criteria – there is likely no "perfect" partner; therefore it is important to understand the KEY selection criteria for potential partners, such as history, established networks, size, current customers, marketing support provided, presence, etc.
- Scan the Market – scan the market for suitable partners utilizing the key criteria for partners, whether they are companies or individuals
- Screen potential partners – conduct necessary due diligence to narrow down qualified partners
- Prepare Agreement – it is prudent to have an official signed contract based on Chinese law; it is recommended to use a China-based lawyer familiar with the particulars and nuances of Chinese contract law
Further considerations include analysis of the pros and cons of working with partners and agreement options, e.g. national vs. regional distribution rights, exclusive distribution rights, etc.
Since utilizing partners may not be the most appropriate strategy for all companies, potential entrants must first understand the market before deciding on an entry option and China-partner strategy, and properly scan the market before deciding on a potential partner.
For more information about finding suitable industry partners in China, please email Mark Ray at mark.ray@jljgroup.com
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Representative Office Annual Report
 The new regulations governing representative offices (Rep. Offices) in Shanghai, "Regulations on the Administration of Registration of Resident Representative Offices of Foreign Enterprises", issued late last year and effective from March 1, 2011, are now obligating all Rep. Offices to submit an annual report to the Administration of Industry and Commerce (AIC) no later than June 30th of each year.
As with many changes in regulations, implementation is often determined at the local level. We have recently been provided the requirements for filing Rep. Office annual reports in Shanghai by Shanghai AIC. The requirements include the following:
- Annual inspection report
- Authenticated certificate of incorporation of parent company
- Annual audit report
- Passport photos of all representatives of the Rep. Office
- Registration certificate of Rep. Office
- Resident representative certificates
In the event that the Rep. Office's license expires this year, two sets of authenticated incorporation documents will be needed: one set for the annual report and a second set for license renewal. To avoid duplicated efforts, we recommend obtaining these authenticated documents all at once; however in order to do so, keep in mind that the Rep. Office renewal process may only begin 60 days before its expiration date and that the authenticated documents are generally valid for only 6 months.
Note, that if the annual report is not completed by June 30th, the Rep. Office license will be revoked by default.
For more information about Representative Offices tax regulations and assistance with filling the annual report, please contact vicky.xu@jljgroup.com.
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The Race for Talent in China
 In the last decade, the number of local and foreign multinational companies in China has increased significantly, while attracting and retaining the right talent has grown more challenging. The sectors that are facing the biggest challenge are sales, engineering, and accounting.
During the economic crisis of 2008-2009 many firms were forced to reduce the number of staff, particularly in their sales and marketing departments. Now, that the market has stabilized and growing again, companies are ready to increase staff count and fill these old positions.
The health-care sales sector in particular has recently become a fast growing sector. The Chinese middle class has increasing spending power and can afford having personal health care. Therefore, a major portion of the demand for sales talent is in the health care industry. The best talent for such positions are those who are bilingual and are experienced in science and medicine.
Engineering talent is also in great demand. Although China is making efforts to control the burgeoning economy, there are many infrastructure projects waiting in line. Projects such as the high-speed train lines have greatly raised the demand for engineers.
Another area which has a large demand for talent is accounting. Many international companies in China operate under the US Generally Accepted Accounting Principles (USGAAP). Therefore, candidates who have experience working with USGAAP standards are in great demand as well.
In order to attract and retain the talent needed, companies must have a sound strategy. Although offering higher salaries has been the traditional method for attracting key talent in China, this is not necessarily the best way to stay ahead of the competition in terms of talent. Multinationals should instead promote their international brand and offer personal and professional development to prospective employees.
For more information on the talent situation and how to attract the right people in the world's hottest talent market, please contact Kennie Yan at kennie.yan@jljgroup.com.
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China’s Plan to Boost Beibu Gulf Region
 The Beibu Gulf region of China, known as Guangxi Zhuang Autonomous Region, has been growing steadily for over 5 years. The Guangxi Beibu Gulf consists of four cities: Nanning, Beihai, Qinzhou and Fangchenggang, and stretches over 42,500 square kilometers. The region is part of the China-ASEAN (Association of Southeast Asian Nations) Free Trade Area (FTA) and due to its strategic location it is emerging as the trade and logistics center of Southwest China and Southeast Asia.
The China-ASEAN FTA (CAFTA) plans to focus on the Beibu Gulf and Nanning as the major regional transportation hub which will connect 1.9 billion people; 1.3 billion Chinese and 0.6 billion belonging to the ASEAN group. The area is expected to become the third largest free trade zone in the world behind NAFTA and the EU.
The zone allows for duty-free trade of goods such as vegetables, textiles, and machinery products between China and Brunei, Malaysia, Indonesia, Philippines, Singapore and Thailand; by 2015 will also include Cambodia, Laos, Myanmar, and Vietnam. This large volume of trade has made the Beibu Gulf region very attractive for businesses to invest.
China seeks to extend the growth by including the region in the 12th Five-Year Plan (2011-2015). The plan for the region includes investment of 2.6 trillion RMB for the upgrading of industries, improving transportation and logistics, and promoting the development of local tourism. Manufacturing, agriculture, and high-tech industries will be the driving forces that will lead the economic development.
Maintaining the regions natural beauty is also included in the growth plans. Nanning, the region's central city, is known as "The Green City" and will take on an environmental friendly approach during its development in order to protect the city's lush sub-tropical greenery. 45 percent of the city will remain "green" and factories will not be allowed near the city's center.
For more information about Beibu Gulf Region, please contact andrea.cristancho@jljgroup.com.
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