To partner or to go it alone?
This implied green light from the government for foreign-owned logistics companies may be tempting, but many established firms in the country warn that help from inside is often needed.
By partnering with, or purchasing, a domestic forwarder, a foreign-owned company can more quickly gain a foothold in the market and leverage existing relationships and knowledge, Poulsen said. Agility, which has been involved in Chinese logistics since 1987, has taken part in the rising domestic freight market through a combination of organic and inorganic growth. Through an acquisition of a domestic freight forwarder, coupled with natural growth, Agility gained a significant domestic footprint.
However, cultural differences can create challenges, such as potential misunderstandings in customer interactions. “Local companies may be acquired to get access to the talent that exists in the organization,” he said. “But keeping hold of that talent in the face of a highly dynamic labor environment is another challenge.”
Forming partnerships is “not essential” for doing business in China, Bicil said, “but it can be very helpful.” CEVA, he said, has thrived in China by both forming partnerships and creating turn-key, standalone operations. “We have a successful joint venture, called ANJI-CEVA, for our automotive solutions, but we are independent and autonomous for our other industry solutions in air- and oceanfreight management,” he added. All this, of course, requires a lot of due diligence and a thorough vetting process for potential Chinese partners before a joint-venture is inked.
Rowlands recommended finding a business partner who has a nuanced understanding of the often-byzantine regulatory, customs and tax regimes in China. Before starting to trade, she said, companies need to establish status as a wholly foreign-owned enterprise (WFOE, see sidebar) or as a foreign-invested commercial enterprise, a process that can take months and involve hundreds of pages of supporting documentation. “There are multilayered tax and customs issues, and regulations often change or are updated, sometimes on short notice, so it is important to work with a local partner who has experience on the ground,” Rowlands said.
Poulsen said he appreciated the local partners he had made when the government established a value-added tax a couple of years ago. “While the objective itself was clear enough, the actual implementation and execution by the local tax bureaus were unclear and inconsistent,” he said. “Today these challenges still exist, and it is important for any organization – locally based as well as foreign – to appreciate the need for local talent to manage the administrative processes.”
As China has developed from an export-oriented market into one that is increasingly domestically focused, Agility has adapted its product and service offerings over the years to include domestic warehousing and distribution capability. “This knowledge of the regulatory and business environment has opened up opportunities and lowered barriers to business,” Poulsen said. “An extensive global network has also benefited our operations in China, as we have a large base of multinational customers that require support in China.”