Chapter 7: Sourcing in China/ Chapter 8 Business Structures

China is a crazy place where you will see great and wonderful things. But one of the biggest questions in business is whether you should make it or buy it. Make or buy is a fundamental question when deciding whether or not to develop key materials to your product or if you should buy these materials from other businesses. Many companies buy materials from China instead of the states, due to these materials being so cheap. There are also multiple comparative advantages in China which include, labor, location and infrastructure, and materials. I work for an American corporation, although they have multiple offices worldwide, Frog’s business headquarters and a majority of offices are in America. When I talk to a couple of co workers they tell me how their family members aren’t getting paid that much in Shanghai due to the minimum wage being so low. Overall, when deciding to do develop a business you have to decide to make or buy.

            There are multiple ways you can enter into the Chinese market. You can invest into the Chinese market, you can develop your own start up business, or you can do a WOFE. A WOFE is a wholly foreign-owned enterprise and is characterized by 100% foreign ownerships and 100% foreign control. You can also do a joint venture with a company where you make a partnership between a foreign firm and a local partner.

            Like America China has different taxes. Value-added tax is a assessed on virtually all companies providing taxable services. Sadly, nearly all commercialized activities are considered taxable. China also has Corporate Income Tax which is a around 30% and also includes a 3% local tax. The most notable tax is a tariff which brings in a lot of money for China’s government. There are multiple ways to enter the Chinese market, but you will also have to deal with taxes that can be very annoying.

Trying to find a photo for these two chapters was quite tricky. So I decided to go to my local grocery store, take a photo of a product, and figure out what type of company they are. Mars inc. is a family owned corporation and is a Foreign-Invest Commercial Enterprise. A Foreign-Invest Commercial Enterprise is a business structure for firms who do not wish to manufacture in China, but rather import, distribute, wholesale, retail, license, and franchise their product. M&M's headquarters are in New Zealand and they only distribute and sell their product in China. Surprisingly, all the ingredients on the back label are in English and there is a sticker on the back with all the ingredients in a mandarin.