|When To Expand Your Company Into China
If you're a capital-intensive [firm], you really want to have $15-$30 million in sales. It’s going to be very hard to do it if you are a 20 person firm in a capital-intensive business versus a service business; A service business you can do it with a smaller company. There’s no general rule, but you also have to be committed to have somebody who’s a Mandarin speaker working at your firm- not hired as third-party because you can't trust what you're going to get with translation.
|Bringing Intellectual Property Into China
It’s a challenge but it can be done. Picture China and use the parallel of Japan in the 50’s and 60’s. If you tried to do anything in Japan in the 50’s and 60’s there was no IP policy. They ripped everything off. Then suddenly they develop their own IP in the late 60’s and early 70’s and right now Japan is one of the toughest places for IP protection…
|The Bigger Problem With Intellectual Property
The bigger problem with Intellectual Property isn’t the IP practice, it’s how easily is your service or product reverse engineered. If you have the patent, that's one thing, but if it can easily be reverse engineered and changed, that's a bigger problem. So what I call IP is patents and trade secrets; it’s that trade secret part that I worry more about than the patents.
|Business Banking Laws In China
If you're doing a service or you're doing a contract distribution business and you sell to Chinese, as long as you have the purchase order, the Chinese government will allow the money to be taken out to pay your bill outside of China. If you’re doing business within China and your generating revenue in RMB currency, then your subsidiary would have to pay dividends to get monies out. Then you get into some questions of how to move the cash.
|Selecting Foreign Business Partners
From the top big corporations down to the little ones, they've had both good and bad experiences. Usually the partner you find over there [in China], has the same objective- he wants to make money. It's the middle management of the partner- that's where the turnover is. There's lot of opportunities and they are looking for their own thing and that's where there’s always the risk…
|Issues Of Consideration Before Doing Business In China
If you set up a liaison office, you can’t sell out of that and it’s very hard to transfer to become a sales operation. So be very careful how you do this- either you bring it in through distribution or you set up a real operation. The other thing is, if you come into China, you better be committed to stay. Because if you decide after two years you don't want to stay, you come out and try to come back in, the Chinese government keeps that in mind, makes it much tougher the second time.
|China: Third Party Importance In Distributorships And Contract Manufacturing
You don't know who you're dealing with if you're new to the country and you need to have distributorships and contract manufacturing services available. There are fraud risk groups as well as international, tax and accounting and investment banking people that are familiar with that as well. They can tell you which government groups and which cities that would be better to work in, because where you work, beside your customer base, first-tier city, second-tier city, third-tier city in China, there's a risk reward.
|Resources Available To Bring Your Company Into China
Companies going into China really do need to be working with the US government agencies and the State Department of Commerce that work there. There are industry associations.... There are people to help you meet some of the better people to help sort out what kind of companies you want to go work with and do some prescreening. There are service providers that are active in this area that can help.
About Kenneth Epstein
Ken is a principal with NewCap Partners & brings 20+years of investment banking & venture management experience, including P&L responsibility for both major business units and startups. His diverse client base includes private & family-owned businesses, strategic equity investors, large corporate venture funds, & material, high-tech & life science firms. Ken's transaction experience encompasses selling & buying companies, negotiating global marketing & production alliances & joint ventures (JVs), as well as providing advisory services for strategic planning, acquisition & valuation. With an extensive background in materials (ceramics, chemicals, metals, nanotechnology, plastics), Ken also advises clients aggressively seeking expansion opportunities into new material markets (e.g. pharmaceutical, aerospace, semiconductor, energy, etc.) on acquisition candidates as well as small companies seeking larger global partners or exit strategies.
Ken started his global, multi-functional career with the Dow Chemical Company. He spent the majority of his Dow career ( US , Singapore , Brazil ) in Dow's Corporate Venture Group working with high tech & materials global companies & technologies. He also started businesses, bought and sold small companies, & negotiated a variety of JVs & strategic alliances in North America, Europe, & Asia . Ken has a BS in Chemical Engineering from the University of Rhode Island & an MBA in International Finance from the University of Michigan.