WOFEs & JVsSetting up a manufacturing company in China is significantly more complex than it is in the US. In the past it was a virtual requirement to form a JV partnership with a Chinese company, however the Chinese government has recently discouraged these partnerships as most were prone to failure very quickly. The most common vehicle now being used by foreign investors to create a manufacturing company is the Wholly Foreign-Owned Enterprise,or WOFE.
Advantages of WOFEs
- Complete Business Control: you control the production schedule, engineering and manufacturing change management, quality, and the supply chain
- Improved Profitability: you retain the manufacturing margins that you would otherwise pay to a Contract Manufacturer
Disadvantages of WOFEs
- Significant Investment: Large direct up-front capital investment required; significant committment of management time and talent is essential. You cannot set up and operate a WOFE in one or two trips.
- Start up Costs: Government Regulation, Local laws and customs require you to retain lawyers, CPAs, Consultants, other professionals. For example, make a mistake with hiring practices and you could end up with "employees for life".
- Local learning curve: environmental concerns, utilities, communications, management and workforce availability and retention history all vary by region.
- Delay: plan at least 12-18 months before you are actually in production; the long duration between decision and profitability is daunting to all but the most committed.
Bottom Line:
Investing in your own Chinese manufacturing facility is a strategic decision that can be highly profitable and successful, however it requires significant human and financial capital from the outset. Regulation and challenge are much less daunting than they were a few years ago, but are still formidable.
Whether you are looking for an incremental way to test the waters or are comitted to a physical manufacturing presence in China, let Chinafacturing help you develop the strategy necessary to execute your initiative successfully.
To learn more about setting up your own Chinese manufacturing company please contact one of our U.S. or China business associates. They are standing by and ready to help.
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