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on Saturday, 24 April 2010
in Business in China

20 Questions for Your China Operations

Below is a selection of some of the questions many China operations teams are grappling with right now. As you read these, it is worth noting that the further you delve into any one of these issues, the more complex it becomes. In the end, the key to answering all of these questions is having the right people on the ground in China.

1. Does your company have a legal obligation to facilitate the organization of a local labor union in its China-based factories? What is the appropriate response to a visit from local union officials requesting unionization?

2. How are China's new policies that promote "indigenous innovation" affecting your industry? Are domestic competitors using these policies to gain an advantage in government procurement, funding for research and development (R&D), or tax breaks? And is application research done by Chinese scientists in your Shanghai R&D center considered "indigenous innovation"?

3. If a sub-contractor to one of your company's smaller suppliers is dumping untreated wastewater into Lake Tai, would your supply chain auditors, whether internal or third-party, detect this? If a Chinese media report appears detailing precisely this situation, what is your company's immediate response?

4. Do white-collar, salaried workers in China who work more than 40 hours per week require some form of overtime compensation? Is your company's comprehensive or flexible-time work-hour system approved by the local labor bureau ?

5. Which, if any, of your company's China entities owns "core intellectual property"? Is your industry considered "high and new technology" by the PRC government?

6. What kind of market share does your company have in key product areas or industries in China? Globally? Is there potential risk of market dominance or pricing dominance investigations under the new Antimonopoly Law?

7. What is the local power situation where your company's key China factories are located? Are arrangements with the local government and electricity bureau in place to ensure supply during shortages?

8. How many of your company's China employees are hired through third-party labor dispatch agencies? What kind of new contract provisions have these agencies proposed in the past year? Are they fair?

9. Of all the tax incentives enjoyed by your company's various entities in China, which are still valid or grandfathered for fiscal year 2008? For 2009? Are there any new incentives offered by municipal or provincial governments that you can take advantage of?

10. What is the current export value-added tax rebate rate for products your company sources or produces in China? How are rising costs affecting the margins of your key suppliers, and will this feed into potential price increases or product quality problems?

11. How recently have you checked the online Trademark Register (http://sbj.saic.gov.cn) for potential copycat or infringing trademarks? How often does your company review relevant invention patents filed in China?

12. What kind of a China nexus does a planned global acquisition entail? Does the global turnover of all entities involved exceed ¥10 billion ($1.5 billion) or the China turnover of any two entities in the transaction exceed ¥400 million ($58.3 million)? If so, is your company prepared to disclose the information required to make the appropriate merger filing with the PRC Ministry of Commerce?

13. Are your company's customs filings consistent across China? Are the same products being reported in exactly the same categories and paying the same duties?

14. Does your company conduct robust background checks on management hires? What controls are in place to detect suspicious income growth among staff in sourcing, procurement, business development, marketing, and other departments with potential ethics risks?

15. Have your company's China or Asia-Pacific operations reached a critical mass suitable for a shared services initiative? Does an in-house shared service center or a third-party outsourcing provider make more strategic sense?

16. How clear is the career development path for the stars on your local management team, including opportunities for assignments at headquarters or outside of China? Who are the "top ten" employees you most want to retain, and what are you doing to ensure they stay?

17. What are the key standards committees and organizations in China for your industry? Are they working on any new national standards? What level of participation in, and access to, that process does your company have?

18. What geographic areas in China remain underserved by your business development and sales teams? Where and among what types of clients are the key opportunities for business growth in the next year? The next five years?

19. As each of the key national-level ministries finishes their internal setting of departments, functions, and staff, is your company identifying the new working-level officials who will craft policy for your industry? What strategy does your company have to ensure access to and interaction with these agencies?

20. What process have you used to ensure that your company rules and regulations conform to the requirement for employee consultation under the Labor Contract Law? Will the documentation of that process be sufficient during a potential labor dispute?

Credit: Godfrey Firth is chief representative at the US-China Business Council in Shanghai.

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