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How to Start a Business in China with a PEO
As the second biggest economy in the world, China is attracting many companies worldwide in starting or expanding their respective businesses in the country. However, this endeavor would prove quite challenging. The reasons abound, including the following obstacles:
- Human Resource (HR) impediments, eg talent hiring and retention
- Administrative licensing and regulations
- Language barrier
- Labor costs and inflation
- Cultural differences
- Costs involved in putting up a business/subsidiary in China (especially for startups and small/medium-sized companies)
- Lack of local legal knowledge on HR and administrative matters, eg payroll, taxation, insurance, etc.
- Lengthy time involved in permit/license processing
- Competition with local businesses
- Compliance issues
The solution to all these difficulties in doing business in China is now available – a PEO. PEO stands for Professional Employer Organization. It is an entity that can be likened to a ready-made HR department already established in China.
New Horizons Global Partners(NHGlobalPartners) offers this solution for you.NHGlobalPartners is a Global PEO with a strong presence in China, besides Germany and France. Its extensive experience in delivering PEO services to foreign investors in China will negate all the concerns foreign investors have when deciding to extend their businesses in the country. NHGlobalPartners can customize its services for you depending on your actual needs.
A foreign company interested in doing business in China simply has to acquire a PEO’s services and instantly, it can start operating as a legitimate company in the country. There is no need to put up a new subsidiary, which can prove costly and takes time to be operational.
How to Start a Business in China
The best way to appreciate the benefits brought about by a PEO is to first understand how to do business in China. There are four forms of business vehicles foreign companies make use of when expanding in China. These are the following:
- Wholly Foreign-Owned Enterprise (WFOE)
- Joint Venture (JV)
- Representative Office (RO)
- Sales Office or Labor Dispatch
As the name suggests, WFOE are entities owned entirely by the foreign investor while a JV is jointly owned by a Chinese company and the foreign investor. Both are forms of businesses that can prove quite costly to put up in China and the registrations and permits required takes time to accomplish, ie 6 to 18 months. Applications and registrations of these types of companies in China go through various government agencies and approval is not guaranteed.
An RO, on the other hand, is quicker (2 months) and less costly to establish and operate. However, it is not an advisable choice when doing business in China unless the purpose is simply to learn and understand the Chinese market, promote or market the business, and/or serve as the company’s customer service arm. Otherwise, an RO comes with numerous operational limitations, including the following:
- Prohibited from performing such trading operations, eg import/export;
- May not profit or accept payment;
- May not execute contracts; and,
- Prohibited from manufacturing products or offering services.
The disadvantages in putting up these three forms of companies in China may outweigh the advantages. This is particularly true for startups and small to medium-sized companies. Most of these entities want to start business immediately but do not have adequate capital to sustain the delays and all related costs.
Moreover, with the stringent labor laws and regulations, as well as the prescribed standards and compliance reporting required by the government on foreign companies, the risks of doing business in China may prove to be too much of a challenge for a startup.
Sales Office or Labor Dispatch in China
As regards a Sales Office (SO) or a Labor Dispatch in China, the way it operates is representative of the PEO business model. Understanding it will give you an idea of how a PEO can work for you.
The SO or Dispatch Labor involves the outsourcing of the administrative and legal management of the representative office of the foreign company to an entity located in China. This entity is readily available and can immediately operate if a foreign company decides to hire its services. This entity becomes the SO or the Labor Dispatch. This approach is how a PEO works.
While there are several benefits as to the use of SOs through labor dispatch in China, there are also disadvantages. A labor dispatch or SO has limitations, e.g., it is not allowed to process payments or issue receipts referred to as Fapiao. Moreover, the administration of the funds in China for the SO will be under the control of the administrative partner, which may not be very acceptable to the foreign investor.
The good news is, regardless of what type of business entity a foreign investor intends to form in China, a PEO could solve all the pressing issues and challenges that come with them.
How to Use a PEO in China
PEOs are fully licensed entities and are certified in China to perform various legal, HR, administrative, and fiscal requirements which includes, among others, the following:
- Employee benefits services
- Worker’s compensation administration
- Tax compliance
- Payroll processing solutions
- Visa facilitation
- Expense management
- Health insurance administration, etc.
A PEO offers any foreign company that wants to do business in China the aforementioned services without the need to go through the rigorous process and legal challenges of forming a new subsidiary.
The PEO also serves as the “employer of record,” making it legally liable for the employees it recruits in China. They effectively implement employment laws, best practices and compliance in relation to recruitment, management, termination, and other HR legal matters. This considerably decreases the foreign company’s legal risks and liabilities, leaving it free to focus on the business and in making profit.
Through a PEO, the delays, costs, and complexities involved in forming a business structure in China are greatly minimized or thoroughly eliminated. In short, a PEO is the quickest, most efficient and cost-effective means of expanding a business in China.