Professional Documents
Culture Documents
IB China
IB China
IB China
Presented by, Dileep Bajaj 10DM-045 Kapil Sharma 10HR-016 Anoop N 10IB-016 Arif Ehsan 10IB-020 Anshul Jain 10IT-006 Areeb Ahmad 10IT-009
Conclusion
Starting a business is getting easier as a result of China s entry to WTO. But it has long way to go before reaching international standards Companies should harness the fact that China is not only a lowcost labor market, but is also a strong export and domestic market It is crucial that western companies that are doing business with China should understand that although Chinese consumers flock to international products, they remain firmly grounded in Chinese traditions and beliefs Businesses must understand that their new market customers will have a fundamentally different world view than Westerners, and products have to be placed into that world view.
General Facts
y Known as Peoples Republic of China y Single Party Government System y Population of 1.3 billion y Beijing is the National Capital
Chinese Mentality
y Patience, Respect and Politeness y Age brings increased respect and status. y Business is often based on Guanxi y Mianzi - the concept of Face
Starting a Business
East Asia & Pacific 7.8 39.0 27.1 50.6
Indicator Procedures (number) Time (days) Cost (% of income per capita) Paid-in Min. Capital (% of income per capita)
Starting a Business
Regulation is mostly national, but local innovations in implementation can make it more efficient
Starting a business: which regions are easiest, which are hardest
33 38 40 40 42 49
Central
Northwest
Southwest Northwest
Central
Northeast 14.0
Southwest 16.3
Procedures (number)
Source: Doing Business database.
Time (days)
Market Characteristics
A Huge Market
GDP: USD25,000 billion, 4th largest of the world Trade volume
USD2173.8 billion, Ranks 3rd in the world. Export USD12,180 billion, Import USD955.8 billion.
A Comparatively Mature Market
30 years of opening up The global 500 companies settled in China Strong competition
million
Regulatory Framework
y Forms of Doing Business in China y Direct Investment Forms
y Equity Joint Venture (EJV) y Contractual Joint Venture (CJV) y Wholly Foreign-Owned Enterprise (WFOE) y Investment Holding Company (CHC) y Joint Stock Company
Regulatory Framework
y
Min. asset value US$30m within 2 years, total investment within 5 years Can make strategic RMB investments into subsidiaries.
Wholly Foreign Owned Enterprise (WFOE) or Foreign Invested Commercial Enterprise (FICE):
100% shares owned by foreign parties, offshore or holding companies. Different industries have different registered capital (equity and investment requirements)
E.g. 50% equity, 80% profit. Contract can include many things, therefore flexible.
Like an overseas branch, although not allowed to conduct business, only allowed to provide sales, marketing and support services.
Registering Property
Local Reform Can Make a Big Impact
Cost (% of property value) 6.8 6.0 5.3 60 3.9 4.2 4.5 5% 7%
Tim e (Days) 80
59 54 50
40
59
4%
54
36
20 Southeast Time (Days) Source: Doing Business database. Bohai Bay Northeast Central Northw est Southw est
2%
0%
trade. y It doesn't impose levies on exports with exemption of few types of raw materials and vital resources
Getting Credit
y Firms consistently rate access to credit as among the greatest
barrier s to their operation and growth y Two sets of indicators of how well credit markets function:
y one on credit registries and y the other on legal rights of borrowers and lenders.
Getting Credit data Rank Strength of legal rights index (0-10) Depth of credit information index (06)
Enforcing Contracts
y China is rated as number 18 by World Bank y One of the best systems in the world for enforcement y Better than the United Kingdom and Japan y Far better than other developing countries like India and Brazil
Enforcing Contracts
Country No. of Procedures Time (days) Cost(% of claim) China Russia USA Brazil Japan UK India 34 37 32 45 30 28 46 406 281 300 616 360 399 1420 11.1 13.4 14.4 16.5 22.7 23.4 39.6
However
Unfortunate tendency to ignore contract terms in dealing with
foreigners
They assume that the foreigner will not sue Leads to the belief that contract terms can be violated with little risk
enforcement outside of China Such contracts are not worth the paper they are written on
Many contracts are too vague for effective action by courts
Chinese courts are good at enforcing simple, clear contracts Important to use contracts in a way that will produce a good result in court.
Enforcing a Contract
Local practices can impact cost and time to businesses
Time (days)
400
363
300
346
30.0
200
230
23.5
25.1
24.9
20.0
100
11.5
13.8
10.0
0
Southeast Bohai Bay Central Southwest Northwest Northeast
19
Labor Standards
Foreign companies + investors already there opportunities for expansion New entrants opportunities not previously available Reasons Entry into WTO + Olympic games Risks : Labor laws poor working conditions Chinese laws, politics, culture Investors, consumers : foreign companies take responsibility for working conditions. So, important issue As markets open up more foreign Cos. Easy entry & compete head to head with local Cos. Impact on Chinese economy and workers
Labor Standards
Working conditions in China Key issues: Poor living conditions, pay failing to meet the legal minimum, and long hours Migrants form a great proportion of the manufacturing workforce and face specific problems (discrimination) Way forward: Those engaging with Chinese companies must establish benchmarks on key issues to clarify the level of conditions. But, lowest level acceptable ?
Doing business - Employing workers - China
1. Time and registered number of approval of the office establishment 2. The operational situation after the establishment 3. Reasons and causes of the office cancellation The toughest and most time-consuming part is the tax audit report made by local CPA (Certified Public Accountant
Indicator Recovery rate (cents on the dollar) Time (years) Cost (% of estate)
China VS India
COUNTRY
Time (years)
Cost (% of estate)
China India
36.4 16.3
1.7 7.0
22 9
Conclusion
Starting a business is getting easier as a result of China s entry to WTO. But it has long way to go before reaching international standards Companies should harness the fact that China is not only a lowcost labor market, but is also a strong export and domestic market It is crucial that western companies that are doing business with China should understand that although Chinese consumers flock to international products, they remain firmly grounded in Chinese traditions and beliefs Businesses must understand that their new market customers will have a fundamentally different world view than Westerners, and products have to be placed into that world view.
Thank You