To: Tom L. Jones, CEO TLJ Engineering
Subject: Progress on Expanding TLJ Engineering into China
Per your request we have explored the feasibility of opening a TJL Engineering regional office in China. We have concluded our exploratory phase and feel we have sufficient data to make a recommendation.
We have been extremely busy since the submission of our research proposal on February 8, 2013. Our most essential task was to gather reliable information that was not only recent but also relevant to the success of our goal. We began researching the following three primary questions posed in our research proposal:
1. What are TLJ Engineering’s minimum requirements from the Chinese government?
2. What are TLJ Engineering’s minimum requirements from the Chinese economy?
3. What type of workforce will TLJ Engineering (China) require?
We immediately realized that independently researching each of the primary questions along with the secondary questions would result in a duplication of effort. As a result we decided to take a round table approach, and engage each primary and secondary question as a group. This approach allowed the group to brainstorm and eliminated interruptions that often occur when conducting research from ones desk. In addition this approach forced the group to stay on task and focused team efforts to meet each of the established daily goals.
There were intense discussions and in depth research on the best type of business structure (See Table 1). Choosing the correct business structure is the cornerstone on establishing a successful regional office in China. Therefore, we needed to ensure we didn’t leave any stone unturned and that our research was correct at all levels. Our recommendation will not be discussed in this progress report, but will be presented in the final report. Our initial investment of forty (40) hours paid huge dividends in the amount of information we were able to obtain. This information has been analyzed to ensure we have addressed every question and organized it in such a way to facilitate the development of the draft report. It was determined at this point that our schedule would have to be revised to add additional time to complete the draft report and visual aids. The draft report and visual aids have been accomplished and will be available tomorrow per the revised schedule (See Table 2).
Choosing your China Structure
Type of Structure Legal Status Common Purpose(s) Pros Cons
Office (RO) No legal personality • Market research
• Planning longer-term ventures
• Liaison with home country companies • Inexpensive to set up
• Allows exploration of the market and liaison activity • Cannot invoice locally in RMB
• Must hire staff from local agency
Joint Venture (JV) Limited liability legal personality (in most cases) • When restrictions require a local partner
• When a local partner can offer e.g. sales and tangible benefits distributions channels • Use of existing facilities and workforce
• Use of existing sales/ distribution channels • Management can be awkward, inheriting staff liabilities
• Overinflation of assets or sales by the Chinese partner during JV setup and negotiation
• Technology transfer/ IP/
• management risks, split profits
(WFOE) Limited liability legal personality • Most manufacturing businesses (for China sales or export)
• Service businesses • 100% ownership and control • More flexible business scope
• Security of technology/ IP, development of own infrastructure
• Insertion of existing company culture
• Allowed to convert RMB into foreign currency for profit repatriation • Need to fund total investment capital requirement • Development of China sales operations on your own
Foreign-Invested Commercial Enterprise (FICE) Limited liability legal personality •