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Doing Business in China

Doing Business in China. Kneppelhout & Korthals Advocaten Asia Practice Erik van der Molen 08 April 2013. Introduction. Kneppelhout & Korthals : Independent Law Firm focusing on Trade , Investment & Intellectual Property Asia Desk with a focus on China, Vietnam & Japan

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Doing Business in China

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  1. Doing Business in China Kneppelhout & Korthals AdvocatenAsia Practice Erik van der Molen 08 April 2013

  2. Introduction • Kneppelhout & Korthals: • Independent Law FirmfocusingonTrade, Investment & IntellectualProperty • Asia Desk with a focus on China, Vietnam & Japan • ServingSmall & Medium SizedCompanies

  3. Why Asia is Important 1 Share of worldpopulation: Share of world output growth:

  4. Visualising China’s growth 1 1990 2012 2030?

  5. Balance shift? Or Return to normal?

  6. Visualising China’s Growth 2 China's economy grew 7 times as fast as America's over the past decade (316% growth vs. 43%) China’s economy will surpass the US in 2025 One in five people in the world is Chinese one-fifth of the global construction industry 3 new powerplants every week 5000 new hospitals in the next 30 years 240 million cars

  7. A Growing Urban Middle Class 220 million internet shoppers 240 million cars 564 million internet users 240 millioncellphonessold in 2013 25% of world luxury product market

  8. Developments • Ongoing Economic Transformation • Fast growing urban middle class giving rise to new demands. (creative & luxury markets) • From made in China to designed in China • Chinese companies going global • Rest of Asia will grow in China’s wake: Vietnam, Laos, Cambodia, Mongolia, Myanmar, Mongolia

  9. Why go to China? • To summarize: • A focus on China / Asia is no longer an option, it is a necessity. • No China/Asia strategy means: • Losing from the competition that does have an Asia focus • Losing from the competition that will emerge from Asia itself. • Don’t underestimate the speed and scale of developments • If you wait until China is ready for your product, you are too late.

  10. The End of Cheap China? Case: AppleApple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States. In China, it took 15 days. • Production in China can still be interesting. • China is getting more expensive, but it is not only about price. (scale/flexibility) • Upcoming alternatives in the region: Vietnam, Thailand, Myanmar, Mongolia.

  11. The Other Side of the Medal ManyOpportunities in China but Challengesabound:

  12. The 4 P’s of Doing business in China • Causes of Failure: • Choosing the wrong partner • Short-term orientation • Underestimating the cultural factor • Insufficient legal protection

  13. The 4 P’s of Doing business in China

  14. Know the Market: China is a continent not a country.

  15. Business Culture • Relationships & Loyaltymake business personal, reciprocity, long term relations • Hierarchy & Faceshow respect, formality, not everybody is equal, give face • Harmonyavoid conflict.In Asia, all business is personal

  16. Business Culture: Relationship • Long term View • Building a relationship takes time • Reciprocity: Give and Take • Investing in Relationship will lead tobetter results

  17. Finding a Business Partner • Find a Business partner: • Internet • Tradeshows • Dutch Government Network • Third Parties • Join a Trademission • Important to do your Due Diligence! • Make sure your partner is a strategic match. • Personal Contact is paramount! • Beware of known frauds & scams

  18. Know who you are dealing with

  19. Sourcing / Manufacturing – The absolute basics The Key to Quality Control Understand how the Chinese organization works: management, corruption risks, worker education level. Provide detailed guidance and documentation Factory Presence and Inspection. Take a long-term view: Anticipate what will go wrong and prepare. Always carry a safety stock.

  20. Contracts in China A Common Misconception:Contracts in China are meaningless and not enforceable • A good contract: • Provide clarity about mutual expectations. • Will help prevent problems. • Will be enforced by a court if. • Things to remember: • Include Non-Disclosure/Non-Use/Non-Circumvention Clauses • In Chinese • Choose the right Governing Law • Consider Arbitration Clauses • Find a balance between a good contract and a good relationship • Negotiations will continue after contract has been signed

  21. Intellectual Property Rights • Always Register Trademarks in China. • Contractually Protect Your IPR. • It is possible to go after copycats, but is it worth it? • Protect your production processes

  22. Conclusion • The time to go toAsia is now. • Don’t rush into a relationship; knowwhoyou do business with. • Choose a partner with a long term view in mind. • Put time and effort in personalizingrelationship. • Know the culture or workwithpeoplewho do. • Don’tunderestimate the speed andscale of developments • Take basic steps toprotectyourselflegally

  23. Questions? How to set up a legal entity in China? How to secure my interests in a contract with my Chinese distributor? Which legal entity /structure is best for my business? How to protect my intellectual property in China? What to put in a sourcing contract with a Chinese supplier? How to structure my China operations financially? You can contact

  24. Questions? Contact information Erik van der Molen Tel.: +31 010 400 5100E-mail: evdm@kneppelhout.nl

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