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Legal considerations for doing business in China

Top Ten Rules for using Manufacturing Services in China

  1. Take time to build a sound relationship with your Chinese Counterparts.
    Absolute trust must be established, since the Chinese have limited faith in the legal/court system. It takes time to develop trust. Plan on this stage of the process taking at least six months of continuous dialog. Establish the right business structure for your relationship in China.

  2. Establish the right management structure for your relationship in China.
    The road to China is littered with companies that have tried to go at it alone and failed. There are a number of ways to do it including turn-key operations, using agents in China, using several different types of joint ventures and owning your own factory. As you proceed through this list, the savings increase, but so do the risks.

  3. Look for a Chinese partner with strong quality and process control.
    You cannot depend on certification from the ISO - the International Standardization Organization. QS Certification (used in the automotive industry) is more dependable.

    Find out whether your potential partner can be quickly qualified to manufacture to your standards. If your prospective manufacturer is too far below your required standards, the time required to get up to speed could be prohibitive.

    Conversely, if your potential partner is too large or too quality-focused, and if you would not represent a significant part of their business, you might not be able to get the attention you need. You dont want to become a "low priority" client for them.

    The best match is when you find a small manufacturer just achieving your level of quality control. Our China manufacturer database will assist you in the process.

  4. Engineering is needed on both sides.
    Examine the high tech capabilities of manufacturers. Look for their Web and CAD-Cam capabilities in particular.

  5. Plan on routine trips to China.
    You will need to go twice a year to get the "face time" that builds and maintains relationships in China, unless you are looking for a "turn-key," "hands-off," arrangement.

  6. Understand the logistics.
    If you will be shipping by sea, for instance, expect a 6-8 week allowance for delivery of products. Therefore, just in time inventory systems may not work. You will need to maintain a higher level of inventory to support your customers. It is also useful to maintain a back-up US supplier.

  7. Understand the Rules of Thumb for costs of manufacturing in China.
    For example, labor costs are typically $.50 per hour and the labor content of manufacturing costs is typically 5%. Generally, your manufacturing costs can be reduced by 30% to 50%, depending on the structure of the relationship (see paragraph number 2). Similarly, the costs of raw materials can be dramatically lower in China.

  8. Recognize the importance of family relationships in China.
    Business networks are based on familial ties (i.e. the father owns the factory and eleven relatives work in it). An entire family might be involved in the factory, which helps them diminish the impact from the sudden loss of a key employee, but might not always be the most productive organizational structure. While you might find it inefficient, its a fact of life - not a problem you can fix."

  9. Plan to participate robustly in social activities.
    Business is conducted through social interactions more in China than in many places. Dinners, drinking, tours and sightseeing are all part of a continuum of daily commerce and are important in building relationships and establishing the trust that is mandatory for doing business in China.

  10. Political connections are important to expedite the business process.
    The government offices are in control. You need their approval for almost everything including a business license. Gifts are part of the social-business mix too. Give them liberally, accept them graciously.
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