Episode 02: Do’s and don’ts when doing business in China
Picture by Masca Yilan Yuen
Welcome to episode 2. In this episode I give you a quick list of things to do or to avoid when you are doing business in China.
Go to China in person before you make final decisions! You would maybe say that this goes without saying but it happened that I was shocked to learn how many people are willing to take business risks without actually meeting the people they are doing business with or to check the products that they ordered. I understand of course that you will not fly all the way to China when you are just ordering a small batch of products but if you are going to fill up a whole container with a total value of 10.000s euros, I would strongly advise you to at least invest in one visit to the supplier. And also do a proper due diligence: check their business license, check who’s is the legal representative, get a sense of with who you are dealing with and if he has authorization. So do go to China to explore, meet and build relationships and business bonds and don’t stay home and try to arrange all behind your computer!
I realize that this tip is not always possible due to the Covid19 situation and it is uncertain how long this situation will last. Instead, you can make use of the opportunity to build through online channels or engage people in China who you trust to check for you. Stay safe and healthy!
Register your intellectual property. For example your brand. This is to prevent that your brand will be taken by someone else and that they will instead accuse you of infringing their rights! Sometimes you find out that you were already too late. Someone already registered your name – don’t panic, get yourself some advice about the possibilities. Or get a new name if that is an option. So the do is: register your trademark in the relevant categories and don’t ignore this in the beginning as it also takes time to finish a registration.
Make a contract for your deals or cooperation. I heard often that people think it is useless to have contracts in China but that is wrong. It is absolutely useful. Not only in court but also to go through the process with your counterparty. You will both get a better view of the details of the transaction or the cooperation. Of course the contract will need to meet some requirements like properly drafted, having all the basic information in there like the choice of law and the identity of the parties, ideally it is bilingual and it should be chopped with a valid chops by the Chinese entity. So do make a contract and don’t do that yourself.
If you want to set up a business, make sure you will get informed by a reliable advisor who can tell you who to appoint for key positions and what the risks are related to those positions. Also, in which location to register and in which form to have your company. This often includes input on why forming a joint venture with your Chinese business partner is or is not a good idea. So do get proper informed and don’t trust people setting up your company with whom you are not able to have a normal communication with.
Often entrepreneurs get help from a local assistant who will later be the one who sets up the company for them. If you have that kind of help, realize that having someone who builds your company in China from scratch may feel entitled to a part of the company if the Chinese entity is a success. He or she may considers himself or herself partly owner of the business in China. That sounds maybe a bit bizar for a western person but we have seen it happen so often in China and we came to the conclusion that it is more a cultural thing. If the business is successful in China, the Chinese employee feels that he/she is entitled to a part of that success. Do evaluate the employment relationship with your employees, make sure that the relationship is in line with the legal requirements and define what the relationship will evolve in in the future and avoid that one person is getting all the decision power within the company: once that person is holding a formal position, possessing the chops, has access to the bank account and having personal relationships with key staff members, it is hard for the owner to get control back!
These are my 5 dos and don’ts when doing in business in China! It is better to avoid problems then to solve them. Good luck with your business!
