Navigating China Market Entry: The Nuts & Bolts

Transcription

1 Navigating China Market Entry: The Nuts & Bolts Robin Gerofsky Kaptzan, Senior Foreign Counsel Presented for VEDP s International Trade Team June 22, 2017

2 What will we cover today? 1. Chinese Culture ~ the thinking process To open a shop is easy, to keep it open is an art. Chinese Proverb 2. Market Entry Business Models ~ contract vs. physical presence 3. Challenges to Manage ~ being market savy 2

3 The essence of people are their values...

4 Is there Trust in China? Internal & External Conflict Collective Group Approach Individualist Approach 4

5 Guanxi Relationships that open doors Befriend a Straight Shooter Example: A mistake by a Chinese Association Avoid Negative Guanxi Example: JV was created as a WFOE 5

6 The Game! Behavior... Calm and in control Humble - not overly confident Patient 6 Does the thinking process affect negotiations?

7 The business model for China market entry needs to fit the business goals and bandwidth... 7

8 Cross-Border Contracts Products Relationship Types Direct Sales Distributorship Key Contract Terms Format Exclusive/Non-exclusive Intellectual Property Payment/Price Dispute Resolution 8

9 Cross-Border Contracts Services Relationship Types Consultancy & Service No Contract Immigration (Visa Type) Key Contract Terms Format Tax implications Creative Works Dispute Resolution 9

10 Physical Presence Liaison Type Office No Profit Allowed Representative Office Key purpose Registration requirements Registered Office Key purpose Filing requirements 10

11 Physical Presence Structural Options Location Operational Office Profitability Permitted Key Establishment Requirements Business Scope Feasibility Report Registered Capital Set Up Process Dissolution 11

12 Market Entry Approach INTELLECTUAL PROPERTY REGISTRATION HOMEWORK & NETWORKING DESIGN MARKET ENTRY Phase 1 Phase 2 Exit Strategy ENTER MARKET SYSTEMATICALLY & OPERATE WITH FLEXIBILITY EXIT STRATEGY Proceed with Caution!

13 Challenges in business exist everywhere... 13

14 Key Operational Challenges Employment PRC Labor Laws and Regulations Protective Documents Examples: Then. OT claims & Side Business Now. Concept Theft Foreign Exchange ~ Funding Repatriation of Funds Current Restrictions Example: Annual Distribution 14

15 Intellectual Property Rights First to File Rule Registration Generally Examples: Then. Domain Name Cyber Squatter Now. Information Theft Cyber Security Stricter Laws & Enforcement ~ for over a decade *Internet/Network Technology Law Effective June 1, 2017 You must be protected! 15

16 Is Corruption Real in China? Typical Corruption Kickbacks, Gifts & Favors (Grafting) Government (Public) Corruption ~ State officials ~ Fraudulent Entities & Embezzlement Bribes & Influence False Documents (Fapiaos) FCPA & the DOJ s role!!! 16

17 To do business in China, you MUST get the balance right! Do your homework Know the Trends Networking Know and trust your team Operate with flexibility Think outside the box! 17

18 Thank you! Robin Gerofsky Kaptzan Senior Foreign Counsel Duan & Duan Law Firm Shanghai, China Office Office: +(86-21) Mob: +(86)

19 Addendum 1: Recent Legislation Laws creating greater protections in China that are now being implemented Banking & Foreign Exchange Laws 2016 & 2017 FOREIGN INVESTMENT LAWS RELAXED NEW CATALOGUE FREE TRADE ZONE 2016 National Security law 2015 Regulation of Internet 2016 Eff. June 1, 2017 Anti-Terrorism Law December 2015

20 Addendum 2: Typical Complex Corrupt Structure US Investors - Cayman [listed in NY] US Investors - Hong Kong Other - Hong Kong.. US Investors - WFOE Other - WFOE US Investors - Domestic Co [holds licenses not not permitted by foreign companies] Other Domestic Co A- has an Agent Agreement to introduce customers to US Investors-WFOE B has a Contract for funding with US Investors-WFOE 20