Question 1.
The FIE
The Foreign Investment Enterprises (FIEs) are the foreign entities that have an independent or joint engagement directly in China which is in accordance to the Chinese Law. These are also commonly established as the companies in the limited liability. The FIEs also can build as the join stock companies including the non-legal person. These are also structured as the Chinese-foreign contractual joint ventures (CJVs); the Chinese-Foreign Equity ventures (EJVs) or the wholly foreign owned enterprises (WFOEs).
The Chinese Foreign Equity Joint Ventures (EJVs) are set up by the foreign and the Chinese entities sharing their profits. Accordingly, the losses and the risks of the given project are proportionate to their share of registered capital. The foreign party’s contribution as well should be made up of the tangible assets as the buildings, the equipments, the cash, materials or the intangible assets as the land-use rights and not the labour and the intellectual property rights. The common set up is that the Chinese is the one providing the manufacturing capability as well as the market knowledge while the foreign party is the one providing the manufacturing, the technology, the marketing expertise and the management practices. In this kind of FIE, the Chinese government chose this because it offers a high level of stability for the foreign investors.
The Chinese Foreign Contractual Joint Ventures (CJV) is the organization which had been formed for the purpose of generating profit by at least one foreign cooperator and one Chinese cooperator including the partnership, corporation, and or to the other organization. The company is also flexible wherein it can organize the business and there is a contract behind it. This is advantageous as to avoid paying heavy taxes due to the fact that the Chinese partners avoids transferring of land into equity joint venture company which in effects avoids the heavy land transfer of taxes as well. Aside form that, it also practice the obstructing the Chinese regulation whereas the foreign investors enters into the market and not directly due to the contract in the Chinese company which is in the market. Lastly, the Chinese party will own the land but there is no clear title.
The Wholly-Foreign Owned Enterprises (WFOEs) are the enterprise that had been established in the PRC with the help of the foreign investors and of course in accordance to the Chinese Law and their own capital are exclusive. There are many advantages of the WFOEs in the investment. One of these is the having no Chinese partner. In this case, the foreign investors can have to manage and operate the WFOE independently. The second advantage is that the foreign investors is entitle for all of the profits that generated in the enterprise due to their advance technology and intellectual property. Lastly, the WFOE can have a greater control in their intellectual property and to their technology that can be use in the joint venture.
The shortcomings that can be encounter by the WFOE are the lacks of the Chinese partners that need in order to develop the businesses. The foreign investors in this kind of FIE also are not able in relying to the Chinese partners so that it can provide an operational site. In short, the foreign investors need to have its land use arrangements.
Processing and Assembling
In the processing and assembling, the foreign investors is the one providing the auxiliary material, the raw materials, and the drawing and the components. On the other hand, the one that process and assembles the said materials and taking into finish products are the Chinese. These finish materials are being return into the foreign party so that it can market the products. In this scenario, the foreign party had been provides productive equipment with the aide of the Chinese and this is with or without funds and in return the Chinese will have to collects a processing fee or the cost of the production which had been purchased by the foreign partners. The foreign processing and assembling is advantageous whereas it do not require Chinese enterprise that it can be use as a scarce in the foreign exchange; it can also make a good size of investment while having costly equipment. It can also increase the pressure from the domestic exports and sales that created as the semi-finish materials and shortages as well as spare parts. It this scenario, the enterprise must obtain consent in the trade department so that it can have a proper engagement in the trade. The enterprise also should have to finish registration in the local custom. Lastly, the Chinese community does not impose quotas in the material imports.
Comparison
The two business strategies are merely important in diversifying the cosmetic in China. In the FIE it has many requirements in putting up a business. There are also many laws that supports upon the diversification. In connection to this, there a huge risks to face by the company in using this technique. There are also stages that this method will face on as the feasibility study, the project listing, the articles and registration for as business license, and the approval contract. On the other hand, at the P&A techniques there are only few risks that will be facing on. Besides, there is the assurance of high quality products to be produced. However, there is only little profit to come and it will only go to the production and imports. It had also extended its is efforts whereas the foreign investors can now have to manage and control their exports and their imports and bring their equipments and material duty free for as long as they are being engaged in the production export.
The Decision
The P&A is advisable for the cosmetic company to diverse in China due to the fact that profit can be handed fast and efficient. Aside from that there is also no need to invest additional money in order to come into the business in China. Besides part of the specialty in the China manufacturing is the packaging that is why there is an assurance that the investment and the product will have to purchase precisely. Additionally, at the midst of the modernization, the Chinese are also considered to be one of the best producers when it comes to the cosmetics and arts. This will also create a large profit due to the quality of the products that had been made in China. Aside from that competitors had been widely seen in China and therefore needs to avoid that by using the method and sell the products to the other countries where competition is not too stiff.
Question 2
There are many reason and advantages on why to put up a business in China. One of the companies that encouraged in putting its hats in the China’s business ring is the Google. Google is a multinational IT company. After putting up a business in the China, the Google had declined its business due to its local competitors in China. According to the survey, 80% used Baidu only 20% uses the Google that tells that majority of the Chinese chose to support the eBay. The reasons for not choosing Google are the poor faring on the internet. Aside form that there are also censorship issue arouse in the failure of the Google. There are also slow hiring practices that the Google did. Switching from Google to Baidu (the competitor) had been done due to the slow internet connection where the Baidu had never encountered those problems.
In this incident it had been found out that services and the products are important in the Chinese internet users. As the Google continuous to rise up in the America, it has been determine as well that in order to gain the China it must have a remedy on the English speaking market. The internet companies therefore needs to have a development on the products and the services as well as the process in the Chinese citizens directly and not to bring the work from US to China. It must also be understand by the foreign internet companies that China is about 140 million users of which are actively and precisely engage in e-commerce and they are also brings them to the total market. The China market is too big and therefore needs to consider the China market. The huge system need to put so that it can compete in the multinational Chinese internet firms. Other factor that brings down the Google in China is bringing the Baidu’s mp3 function, which is the factor that made weak performance of the Google which had been mentioned. This only means that the Google needs to have services like this so that it can have a proper competition.
The failure of the Google in China is the result of not only the censorship which was highlighted by most of the critics. The Google therefore needs to change the outdated practices so that it can continue to raise its stocks. The company needs to have a proper and right management team, localize services so that it client can relate on that, and should have a delegate authority to them. In the expansion of Google in China, it must bring right talents that produce right services. It is also advisable that the internet companies needs to develop its products, its services and the process that will target the Chinese directly and not to bring the US culture to the China. Generally, the major reason for the failure of Google in China is that the company remained too American, lacks local bandwidth whereas it cannot adapt to the Chinese environment and culture, the micromanagement to its infrastructure abroad, and the respect to the international law.
Bibliography
Foreign Investment Enterprise (2002, June 22). Asian Projects and Construction Update. Mallesons Stephen Jaques Retrieved January 24, 2008, from
http://www.mallesons.com/publications/Asian_Projects_and_Construction_Update/5964973W.htm
Foreign Investment Enterprises, Mao & McMath Legal Consultants. Retrieved January 24, 2008, from http://www.mao-mcmath.com/Fdi.html
Rein, S., Has Google Failed in China? (2007, February 5). Seeking Alpha. Retrieved January 24, 2008, from http://seekingalpha.com/article/26033-has-google-failed-in-china
Sy, G. (2005). Foreign Direct Investment in China. International Legal News, 2 (1)
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