ESTABLISHING BUSINESS IN CHINA 4
EstablishingBusiness in China
EstablishingBusiness in China
Everybusiness operator conducts ‘due diligence’ to examine theenvironment as well as factors that influence business outcomes. Theprocess helps in determining the risks, opportunities, anduncertainties within a given business environment (Nair, 2014). Theinformation generated is necessary to elucidate the viability of thetarget market. Over time, China has been accused by American firmsfor providing limited information about their business environment,including the legal framework. Research indicates most Chinesecompanies keep a set of books leading to distrust among the potentialinvestors. Their evaluation criteria often differ from theinternationally accepted standards. Doing business in China hasopportunities and challenges especially for foreign investors. TheChinese market is advanced priding itself with massive market baseand low labor costs. Nonetheless, the ease of doing business isjeopardized by the licensing requirements and timelines during theapproval process.
Ordinarily,firms use the information available publicly as well as from thecommercial databases to ascertain the risk and potential factors. Theinformation mined from these platforms include credit history, assetinformation, directors profile, and governance issues, among others.Major business deals and transactions may require the parties tooffer detailed information that may not be available publicly. Theinformation acquired is helpful in decision-making processes andbusiness negotiations. Due diligence is an important process inChina. The Chinese business operators appreciate the importance ofdue diligence to avoid getting into shady business deals. Often,firms use corporate lawyers to assess and access business informationfrom the interested companies. It is recommended that multinationalcorporations take appropriate measures to investigate companyinformation to eliminate incidences of fraud (Nair, 2014).
Accordingto (Henry, 2014), business licensing is sometimes complex andbureaucratic resulting to delays. Moreover, the delay is accompaniedby extra costs and loss in revenue. Several agencies doadministrative licensing in China at the three levels of government.Many American investors continue to raise the concern especially ondisclosure requirements, expert reviews, legal framework, andtransparency. The information provided by the Chinese firms islargely insufficient or incomplete. The scenario leads to delays asthe investors have to seek more information from other sources orconduct a primary ground check. At times, the potential investorsundertake to contract government officials to help in gatheringvaluable information hence adding labor costs (Henry, 2014). Anotherchallenge emanates from the differences in legal parameters by thevarious levels of government and agencies. As such, there emergedifferences and inconsistencies in the interpretation of policieshence causing delays in the licensing process. The timelines forreviews by the government are different from the three levels.
Moreover,Chinese firms and government have a habit of protecting their localmarket hence generating mistrust. Suspicion and fear of competitionadd up to the delays. Companies wishing to join the Chinese marketare required to provide detailed information about their products orservices. In providing the information, experts have to conduct areview that may result in recommendations for changes. The move maynot prove appropriate for the interested investors. Further, theprocess may put the sensitive intellectual property at risk. Henry(2014) notes that Chinese approval process is unclear compared to theAmerican counterparts. In conclusion, foreign firms seeking toestablish in the Chinese market need to create strong relationshipswith the local government agencies to eliminate challenges inbusiness licensing. The move may also help in reducing the disclosurerequirements as well as boost transparency.
Henry,S. (2014). Licensingin China: Challenges and Best Practices.Retrieved on February 19, 2016, fromhttp://www.Chinabusinessreview.com/licensing-in-China-challenges-and-best-practices/
Nair,P. (2014). Dealingin the Dark.Retrieved February 19, 2016, fromhttp://www.Chinabusinessreview.com/dealing-in-the-dark/