As more European and North American companies consider a move to Mainland China, it becomes important not to get caught up in the “Gold Rush” mentality. There is a current perception that if you’re not in the ballpark, you can’t get in the game. In the pell-mell rush to set up shop in China, many companies have made significant mistakes.

China is terrific location to establish a sales office, procurement operation or factory, however it is important to do your homework before jumping in with both feet. We have guided the launch of dozens of companies in China and have built a list of the “Top Six Things You Need To Consider” when creating an expansion plan for China.

1. Plan for the Long Haul
Many companies move to China to take advantage of lower manufacturing costs, proximity to transplanted customers and tax incentives. While these are important factors in the equation, the ultimate goal must be to serve the domestic market in Mainland China and Asia. In time, the emerging domestic markets may well be larger than your existing market. It’s necessary to understand the drivers in these new markets and modify your product to suit local tastes. This will require a regional marketing and sales effort.

2. Assign a China Champion
As you move forward with a development plan for China, your company will engage with new employees, suppliers, service providers, government officials and customers. It is stiff-necked to assume that this group located halfway around the world will be able to navigate the complexities of your organization, let alone your phone tree. In the early stages, it is a useful tactic to assign a “China Champion” or liaison within your home office. This should be the “go-to” person, who can field all questions related to the development project. It’s not necessary that they have all the answers, simply that they can advocate for your new Chinese colleagues and associates and not allow requests for information to fall between the cracks.

3. Build a Team of Professional Service Providers
Simply stated, you cannot become an expert on all aspects of doing business in China overnight. It is very important to build a team of professional service providers, both at home and in China. A key step in the due diligence process is to interview experienced attorneys, certified public accountants, building contractors and project managers. Make sure that you develop a relationship with providers that have executed projects similar to your own and try to engage with a senior level executive that will “touch” your project from start to finish. We always recommend asking for and checking references. And remember, bigger is not always better in a culture that places a high level of value on local relationships.

4. Consider All Forms of Entities Available in China
Foreign companies cannot simply hang out a shingle and declare that they’re in business in China. It’s necessary to formalize your presence once you have made the decision to go. There are several corporate structures your new venture can adopt… It’s important to select the right one which will support your short and long term goals and provide economic advantages in China and at home.

The most common corporate structures include: representative office; trading company; wholly foreign owned entity (abbreviated as WFOE and known is local parlance as “woof-ies”); and equity & cooperative joint ventures. It is also possible to lease the employees and facilities of an ongoing business and site your engineering and manufacturing team there to manage your production. All of these structures provide the opportunity to do business in China – it’s necessary to nail down the most advantaged one before you commit.

5. It’s Only RMB
It’s easy to become complacent about operating costs in China when comparing labor costs to those in your home country. When recruiting and hiring staff in China, we often hear, “it’s only RMB” (one of the names of the Chinese currency). With direct factory labor rates well less than ten percent of the US standard, some companies take a liberal approach to monitoring costs.

Don’t fall into this trap. Salaries are escalating in China, especially in the middle management ranks. You’ll also find that some administrative elements such as tax declaration, invoicing and routine banking tasks require many more hands than you’re accustomed to. It will also be important to station expatriates in China during the start-up period and perhaps beyond. This is an expensive exercise that should not be dispensed with and is difficult to minimize. Fiscal discipline in China is at least as important, if not more so than it is at home.

6. China Demands a Significant Time Commitment
Senior management including the CEO must expect to put in a significant amount of “face time” when launching a new business in China. This is as much to educate the employees from the home office, as it is to allow new employees to become familiar with your company’s culture and goals. Consider that China’s commercial history and societal structures are more than five thousand years old. It’s unrealistic to think that a subsidiary will closely resemble the parent company in a short period of time. The basic rules of business are the same worldwide, but the execution will vary a great deal.

You can be successful in China if you’re sensitive to local culture and accept that many things will be different. Not better or worse, but distinctive from what you’re accustomed to. It pays to value these differences and incorporate them into your operating plan. The best way to learn about local business culture is to go to China and spend time interviewing and working with customers, suppliers, competitors, the academic and government communities.

Jack Daniels is the president of EastBridge Partners, LLC, headquartered in Boston, Massachusetts, USA with offices in Hong Kong and Suzhou, PRC. EastBridge is a specialized consulting company formed in 2003 to meet the emerging needs of European and North American based companies seeking professional guidance to establish their businesses in Asia. Clients include both large and small manufacturers of advanced materials, consumer items, industrial goods, electronic components, high technology products and software.

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