Outsourcing to China: Setting up a China sourcing office

By Smart China Sourcing

Q: When establishing a China presence, overseas companies have several options -- wholly foreign-owned enterprise, representative office, joint venture. Is there a preferred option for a China sourcing office?
A: The simplest and most common method is to establish a rep office. The setup process can take as little as a few months from start to finish. The benefits of this kind of structure are the simplicity and low cost of setting it up. For straight sourcing operations this is the most practical option.

Q: How should overseas companies handle the process of registering and setting up a sourcing office in China?
A: It's more important for foreign companies to find a company to build their operations and infrastructure than to build a corporate structure. Numerous companies offer cookie-cutter company registration services, but a corporate structure doesn't do anything without having the right infrastructure in place.

Foreign companies should look for a service provider specific to their industry that can help them set up an office, hire the right people, give them the right connections, manage the corporate structuring and report back to the foreign company on the progress. This is a total package service that not only establishes a corporate framework, but also gives life to the operations.

Q: How long should it take from the decision to open a China office until that office starts shipping product?
A: This depends on who is in charge of the sourcing operation. Someone with existing contacts in place and a focus on what they need to buy could be moving products in a matter of days. An operation which is starting from scratch will have to spend a few weeks considering potential suppliers and business service providers. Running a smooth sourcing operation requires the leadership of someone with experience and contacts in place.

Q: What are the biggest challenges in managing sourcing operations in China?
A: Details are a big deal in sourcing. From writing the purchase order to delivery, there are always problems that can arise if the details aren't worked through by the sourcing office. And certainly if something is overlooked it's important to have a good support network that can act quickly and resolve any problems.

A sacred rule for Western companies doing business in China is: do not expect anyone in China to do something the way you would expect someone in the West to do it. To be fair this isn't always a bad thing, and in many cases it's a good thing. But either way it's best to have the details laid out clearly.

Q: What simple advice can you offer in the following areas?

Taxes?
A: Outsourcing this is generally the best bet.

Q: How should an overseas company assess the performance for its China sourcing operation? Is there a standard they should use?
A: Basically, it's all about the result. Are the products landing on time? Is the quality good? Are the prices competitive? The details are what the sourcing office needs to worry about. The foreign parent should only be gauging the end results.

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Benjamin Dolgin-Gardner founded Xtatix, a US brand of consumer electronics, in 2004. To better manage the branding and supply chain of Xtatix, Ben moved to Shenzhen, China where he began Shenzhen CE and IT Ltd as an independent sourcing services company. Ben speaks six languages (English, French, Chinese, Spanish, Portuguese, and Thai) and has proven expertise in sourcing, costing, quality control and troubleshooting in China. Shenzhen CE and IT Ltd offers its clients sourcing services, OEM brand management, and turnkey sourcing office setup with a focus in consumer electronics and computer products.

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Readers have left 10 comments.

 1. manager
semere, Unregistered

Good information but you should cover small scale bussness people also.

 Posted 2008-04-11 22:29:14

 2. CEO
Uday Prabhu, Unregistered

Honestly, its a good move to educate overseas Customers with such information, so that he is fully equipped to take it further without any loss of time, thereafter.

 Posted 2008-04-12 14:40:53

 3. trader or factory
Guest User, Unregistered

Very nice, can you also do a study on how to identify if the business is a trading company or manufacturing factory?

 Posted 2008-08-04 02:48:35

 4. Re: trader or factory
Guest User, Unregistered

Very nice, can you also do a study on how to identify if the business is a trading company or manufacturing factory?

— Guest User

 Posted 2008-08-21 20:39:09

 5. Untitled
Renaud Anjoran, Unregistered

I think, before thinking of HOW to set up a presence in China, importers should wonder whether it is NECESSARY.
Hiring a good manager to oversee the operations on the ground is time-consuming and expensive. Finding experienced technicians to follow production is also difficult, and they will likely not speak/read English. All these people will know nothing about your exact needs and your market. Overall, the costs of running a local office, and all the associated taxes, probably offset any saving gained on plane tickets and hotels--except for really big companies. And I don't mention the risks of bribery (local people always dealing with the same local factories...).
I would suggest to fly technicians in China over 2-3 weeks to follow sample development and production launch. Then hire a 3rd party QC company to check on quality and schedule. Nowadays there are all kinds of engineering consultants in China... Not just sourcing agents with "contacts".
My advice is: be careful with the author's sales pitch ("Someone with existing contacts in place and a focus on what they need to buy could be moving products in a matter of days"). In my experience, it is only possible for "off-the-shelf" items. Sourcing agents generally don't add much to the process. For long-term business, better build relationships with the factory people and have your say about their operations--if you have the know-how to do it.

 Posted 2008-11-06 01:28:01

 6. China Direct Sourcing
Matthew Fitzgerald, Unregistered

Wow, I never knew that Outsourcing to China: Setting up a China sourcing office. That’s pretty interesting...

 Posted 2008-11-14 23:03:46

 7. Sales manager
Tim, Unregistered

Dear Fellows,

It's like an interesting issues going on here.

I am Tim from China and I have been doing garment business for 10 years.

I deal with woven and knitted products as well as outdoor functional products such as motorcycle wear, skiwear, fishing wear etc.

Like you all agreed, finding experienced technician is not easy. Luckily, I have 2 of them who had been working in factory as starter and then were promoted to Quality supervisors and then joined my team. They are well familiar with H&M, Esprite and Jc penny's quality control system and we always implement AQL2.5 standard.

I am thinking of working as representative for oversea buyers and please feel free to communicate with me for further.

I built up my own company 5 years ago and now I just don't want to have too much pressure. My company website is www.bluepenguin.com.cn everything there was made by myself and the web hasn't been updated for quite long.

btw, I studied at United States for my MBA degree from 2002-2004, so I know marketing and statistics very well.

my Msn is rosesailer@hotmail.com
email: timchen75@gmail.com

Look forward to knowing you.

Best regards,
Tim

 Posted 2008-12-31 02:37:09

 8. Mr
Jacky, Unregistered

Hi all, I must admit, having set up my own company in the UK, learning more and more about establishing an entity in China is really not as easy as one thinks. Thanks to specialist consultants, like myself, who gives foreign investors advise tailored to their individual needs and industry, the complexity have been taken off them. Based on our experience, under normal circumstance, we can set up a WFOE (Wholly Foreign Owned Enterprise) within 60-90 days, including the approval of fesability study, business license registration and post-registration procedures, Under special circumstances, we can speed up the process to approx 45 days. Likewise, investors looking to enter into a Joint Venture with a chinese local company, similar timescale would apply. As mentioned above, the option of setting up a representative office benefits from an somewhat easier and hence more swift registration process, however, this is offset by local chinese legislation preventing the Rep office getting directly involved with the parent company's business activities in PRC. For more info&advise, email jacky@1onlysolution.com

 Posted 2009-03-16 15:07:24

 9. Untitled
Andy, Unregistered

Since the Chinese opening and reforming policy in 1980s, it makes a great developement. Though there would be some obstacles to set up a China sourcing office, it happens on any other international enterprices setting up office in different countries. If you have been to China, i'm sure the amazing huge market will attract you to overcome any issues. Additionally, Chinese Gov would like to help foreign companies to set up office here, offer convenience, Tax-free, etc.

 Posted 2009-11-10 15:55:02

 10. traslochi a milano
traslochi a milano, Unregistered

Great post.It really contains valuable information.Thanks for sharing.

 Posted 2009-12-11 18:31:06

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Comment(s) :	[quote=Jacky]Hi all, I must admit, having set up my own company in the UK, learning more and more about establishing an entity in China is really not as easy as one thinks. Thanks to specialist consultants, like myself, who gives foreign investors advise tailored to their individual needs and industry, the complexity have been taken off them. Based on our experience, under normal circumstance, we can set up a WFOE (Wholly Foreign Owned Enterprise) within 60-90 days, including the approval of fesability study, business license registration and post-registration procedures, Under special circumstances, we can speed up the process to approx 45 days. Likewise, investors looking to enter into a Joint Venture with a chinese local company, similar timescale would apply. As mentioned above, the option of setting up a representative office benefits from an somewhat easier and hence more swift registration process, however, this is offset by local chinese legislation preventing the Rep office getting directly involved with the parent company's business activities in PRC. For more info&advise, email jacky@1onlysolution.com [/quote]
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