One of the most interesting things I do is help our clients decide how to “get into” Asia. The how to go into Asia part typically involves our helping the client decide whether it needs a business entity in Asia or whether it can service Asia from its existing home base via distributers, agents, or the internet. Setting up and operating a business entity overseas is more expensive and more difficult than most companies expect.
If having a business entity in Asia makes sense, the next steps are to determine the type of business entity and where that entity should be located. Generally, foreign companies can go it alone by setting up a subsidiary (typically called a WFOE or a Wholly Foreign Owned Enterprise), can form a partnership with a local company (typically via a joint venture entity) or “stick their toes in the water” via a Representative Office.
Many times, our client has already decided exactly where it wants to be in Asia, but oftentimes it has little idea and wants our assistance. So much more should go into this decision than merely costs. If companies were choosing their locations based solely on costs, countries like Niger and North Korea would be on the top of every company’s list, rather than nowhere at all.
I am often asked why our law firm has its lead China lawyer, Steve Dickinson, and an office in Qingdao — we also have an office in Beijing, but nobody ever asks us why Beijing? My answer is quite simple, particularly when compared to the high-level analysis many companies employ in making their location decisions. Steve is in Qingdao because we have had an excellent relationship with one of Qingdao’s best law firms for nearly a decade, and that firm was instrumental in helping us establish ourselves in China. But the fact that Steve loves Qingdao and can easily afford to live in a luxury apartment with twelve-foot-high windows overlooking the East China Sea at about half the price (and the pollution) of Shanghai or Beijing is also a huge factor. Qingdao being less than two hours from both Shanghai and Beijing and within three hours of 95 percent of the cities in which our clients typically do their China business only adds to its attraction. Steve is completely fluent in Chinese (as is our other attorney stationed there) so Qingdao’s small expat community and dearth of people who speak English is no deterrent.AsiaAs
For most companies, the decision on where to locate is of much greater complexity. We have worked with companies that have hired high-powered consultants, spent hundreds of thousands of dollars, and more than a year deciding on where to locate. We have also worked with companies that went into Shanghai “because there are already so many Americans there,” or went into another city simply because that city was where their best and most trusted contact lived. We have worked with companies that went into a particular city only because their competition did, and they assumed their competition did all the right groundwork. We have had companies locate in expensive Singapore based pretty much solely on its strong IP protections and in even more expensive Hong Kong because their people were not willing to go anywhere “more foreign.” We had a company choose Hanoi because its owner loved Vietnamese food. I could go on and on.
We generally see companies consider some or all of the following in determining the right country/city:
- Labor resources, wages and language skills
- Environmental, labor and visa laws
- Taxes and import duties
- Physical, financial and transportation infrastructure
- Political, economic, legal and crime risks
- Utility access, consistency and costs
- Cost of Living, quality of life, health care, education, and access to international schools undefined
There are few common themes in choosing an Asia location for business, beyond the big issues like cost, labor force quality, and access to markets. The factors businesses can and should use in choosing their business location in Asia are nearly limitless, and the decision itself depends mostly on the company searching out the location. In other words, choosing a location for your business in Asia should not be all that different from choosing a domestic location for your business.
Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog.
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