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Market Entry Options
for Foreign Firms
Licensing
Technology transfer is another initial market entry approach used
by manycompanies. It offers short-term profits but runs the risk
of creating long-term competitors.
Franchising
China is developing laws which specifically address franchising.
Virtuallyall foreign companies who operate multiple-outlet retail
venues either manage the retail operations themselves with Chinese
partners (typically with a different partner in each major city)
or sell to a master franchisee which then leases out and oversees
several franchise territories.
E-commerce
The E-commerce environment is still fairly immature due to the
lack ofdefined regulatory powers over the industry, effective Chinese
certificate authentication systems, secure and reliable on-line
settlement systems, and an efficient physical delivery system.
Trading Companies
Generally, foreign companies are not permitted to trade in China,with
the exception of the products they manufacture in China. With careful
selection, training and constant contact, U.S. firms can obtain
good market representation from a Chinese trading company, many
of which are authorized to deal in a wide range of products.
Local Agents
China is witnessing an explosion in local sales agents who handle
internaldistribution and marketing. Most of these firms do not have
import/export authorization, and must work with a licensed Chinese
importer. Although they add a link to the distribution chain, agents
offer relatively low-risk local market representation.
Representative Offices
Representative offices are the easiest type of offices forforeign
firms to set up in China, but they are limited by law to performing
Aiaison activities. They cannot sign sales contracts, directly bill
customers or supply parts and after-sales services for a fee.
Chinese Subsidiaries
A locally incorporated equity or cooperative joint venture withone
or more Chinese partners, or a wholly foreign-owned enterprise (WFOE),
avoids import restrictions-including relatively high tariffs-and
provides greater control overboth marketing and management. Successful
joint ventures require good partners, time and patience. If you
are not willing to provide constant monitoring of critical areas
such as finance, personnel and basic operations, then consider other
market entry alternatives.
Wholly Foreign Owned Enterprises
Establishing a WFOE helps retain greatermanagement control and
IPR protection. The law on WOFEs requires that firms either provide
advanced technology or be primarily export-oriented, and restricts
or prohibits them in a number of service and public utility sectors.
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