Country Entry Options

A companys success in a new country primarily depends on the mode of entry it opts for. The mode of entry affects the decisions which a company has to make, when facing challenges like those of marketing and production strategies. The mode of entry also decides the control a company has on the operations in the new market, and the way investment and the revenue is divided between the parent and the collaborated company. There are different modes through which a company can enter China; the main ones have been briefed below: Representative Office: The simplest way for a company to establish in China is through opening a representative office in China. The representative office acts as a bridge between the foreign company and its business partners in China. It gives the company a platform to conduct market research, make business contacts, manage product promotion and manage other activities for the parent company like making travelling arrangements for its company representatives. Compensation Trade: Manufacturing companies who want to outsource their production usually have a compensation trade agreement with firms in China. Usually a barter system is followed in which the parent company gives machinery to the Chinese and the Chinese produce the product for the company. This type of agreement needs compliance with the Foreign Trade Authority. Due to the rising interest of the Chinese government in attracting the foreign companies towards China, there is an array of ways a foreign company can collaborate with a Chinese company to form a joint-venture. Most widely used joint-venture modes are :

Cooperative Joint Venture:Under the CJV type of collaboration both the companies enjoy convenience and the flexibility of making their own terms and regulations. This type of a collaborated firm does not need to be a legal entity. The profit and the management control are solely decided by the two companies, the Chinese and the foreign company. The Parent or the foreign company does not need to set up a new cooperation in China, the existing resources of the Chinese partner can be used, however upon termination of the contract the assets of the venture remain entirely of the Chinese firm. Equity Joint Venture:A limited liability company is registered under the Chinese law, by submitting the JV contract and the Article of Association documents. These documents clearly define the scope of each partner and incase of conflicts these documents are used as references. In a EJV the investment, profit and risk are split in the same proportion as that of the investment made by each partner. The foreign company is bound to make a minimum investment of 25% and the rest of the investment is made according to the agreement. Wholly Foreign Owned Enterprise(WFOE): As the name suggests, a foreign company can establish its operations in China all on its own, but only for products and services which are not listed in the Catalogs for the Guidance of Investments (affecting all ventures) - the areas in which investment which is prohibited. Although the WFOE mode of entry gives the company an advantage of enjoying its protection of the know-how and blue prints, it lacks collaboration with a local (Chinese) firm hence lacking the power to influence and ease of penetrating into the local market. Apart from the modes of the entry mentioned above, there are other factors also which affect a companys success into a new market. Some of these factors are entry timing, firm size and

cultural distance. Before entering a new market the company wisely evaluates the competitive landscape, the size of the target market, the size of its competitors and the cultural differences between its home country and the new market. A feasibility study including the factors mentioned above helps the company to decide which mode of entry option to opt for.