Relocating to Manila?

This is a question about the scope of activity an RO can take on in China, versus setting up a WFOE. It’s a question about a small company who exports $50k AUD of product a year from China, and who is looking to spend that $50k AUD a year on doing it ourselves in China, as apposed to paying some other Chinese company.

I’ve done a bunch of research, including a 3 weeks research assignment to China. I’ve just returned. I’ll be heading back over there in 2 weeks.

My Australian company, for or the last 6 months, have outsource the production of a very simple “widget” to China. This widget is custom-ordered, meaning when we receive an order (for one widget) from our client, we order from China. Twice a week, all the orders are shipped back to Australia for distribution to our clients. We export about 100 of these a week and we spend about $1,000 AUD per week on the production. Shipping is about $3,000 per week as these are light, but bulky items.

The biggest opportunity is that in 6 months we’ve gone from just an idea and a website to turning over $2k a week in sales. This is growing rapidly. The biggest issue, time and time again is maintaining quality standards and getting these fragile things packed properly. Big headache.

I say the “production of”, rather than the “manufacturing of” because this widget can be produced very easily. It requires no special manufacturing equipment, are put together by hand, and only takes up a lot of space if we receive a lot of orders. In fact the space to do packaging and to store packaging supplies is the biggest component!

We’d like to do the production of these in China ourselves because after about a $10k AUD setup, it’ll cost us about the same each year ($50k AUD) to have our own office, employ a couple of people, buy our own supplies and put these things together. The benefit is that we’ll finally be able to control quality and perhaps capitalise on other opportunities in the region. And, as we grow, we’ll save money because this product is labour intensive and labour in China, as you know, is very affordable! If it doesn’t work, we’ve really only lost the setup cost and my time, as owner. The business in Australia suffers very little without me there as I’ve spent many years making it so I can easily step back. And hey, I get to live in China for a while if all goes well.

Ultimately, I want to look at setting up an WFOE in China however given that the production of these products is really simple, I’m really hoping an RO can handle it – and handle it legally. We only need to employ a couple of people, need about 100 SQM of office space. Packaging is 50% of the space / work (and my understanding is that packaging is allowed as a function of an RO). So it’s the other 50% (a couple of people putting these things together made from two basic materials sourced locally) that MAY cause a problem should we get audited.

The purchase of the two basic materials would be done directly from our Australian company and we don’t want to sell locally.

Anyone have any ideas if an RO is all we need?

You might ask why don’t I just set up a WFOE…

Our customers pay us and then we pay China for the production. So, while we have good cash-flow, we don’t have a bucket load of money in the bank. Setting up a WFOE requires a lot of capital – capital that one, we don’t have and two, is really not needed when producing custom-ordered, single-item widgets. For paid up capital, we can initially inject $10k for the office setup and then $50k over a year, but my research suggests that’s not nearly enough to get a WFOE approved.

Does anyone know if I could register a WOFE with that kind of capital?

If you’ve read this far, wow… thanks. I truly hope I can contribute to this forum and answer other’s questions – once I know something useful!

Thanks for your reply /profile/57-cylon/?do=hovercard” data-mentionid=”57″ href=”<___base_url___>/profile/57-cylon/” rel=””>@Cylon

I initially went to China to sort out the quality issues with the current supplier. While I was there I researched further.

If we have an RO so we can employ someone to maintain quality, then we have to rent a premises for a year. If we have a premises and one employee, and we can do all the packaging at the RO, then we’re only one step away from putting these things together (“manufacturing”) ourselves.

So it’s about whether the “putting together” of these things would be considered “manufacturing” or whether we can convince the authorities that max of 300,000 RMB in the next 12 months can be put into a WFOE.

I’m not sure which envelope to push – the scope of the RO, or trying for a WFOE with 300,000 RMB ?

Hah, yeh I figured I’d annoy someone with this post… I’ve read a thousand posts and just couldn’t find an answer. Much like, heaps of people saying you can’t package and ship with an RO and then heaps of people saying you can. So hard to get the right info.

Out of ALL my research you are the first person to mention a Class A building. Never even heard of that… off I go to research that now.

These things are sooooo labour intensive. We do make these in Australia but have to sell them at much higher prices to cover the massive labour cost. We set up a website selling them at half the price (and manufactured in China) and make $500 a month instantly. Then quality issues kicked in. Paying Chinese staff (even through a FESCO) still works out cheaper.

EVERYONE has been telling me… set up an RO and employ someone for quality checking… but like I said, the expense of doing that means we may as well continue to do it in Australia, but it means we have to stop selling the “low cost” ones. So we either spend money and push ahead with China or lose all those sales.

I’m looking for a way to get this done in China where we can manage quality without injecting massive amount of capital just to meet WFOE requirements. It seems it may not be possible because of China’s capital requirements.

But then again, I’ve heard from people that you start a manufacturing WOFE with only 100,000 RMB…

I paid $450 an hour to an Australia lawyer who apparently was an expert on this and stopped after 1 hour because they couldn’t answer these basic questions.

If you can point me to somewhere on this forum with the answers to my specific questions, great. I tend to think like most things in China, there are no real answers.

Mei ban fa.

You have certainly entertained me. I couldn’t help but laugh at your cynical (and justifiably so!) attitude 

I dunno… All I know is, I googled everything from Class A RO China to Representative Office Class A, etc… and the only two links I found on the first two pages of google were one to this forum where this guy called leidelaohu was ranting about how hard it is to set up an RO (hehe), and a PDF from some random website.

I’m sure an RO is NOT the way to go. A WFOE might be the way to go, if I can have $50k or less capital paid over 1 year.

I do know 100% (well 99% because I’m not god), that the labour cost in Australia is way too high. I also know that at half the price it’s a winner product, proven by our instant success and growth when offering the “low cost” option.

Damn China for being so… China-ish !

I’m lucky in that I can leave the business here in Australia and hang out in China for a month and see what happens. I just wish I could some answers before I go. And yes, I’ll be looking in SZ, DG, GZ areas in the south ultimately.

I’m thinking maybe just to strike up an arrangement with one of our suppliers who has 50 SQM they can sub-rent to us. They employ a couple of extra staff under my control, I pay them some agreeable amount to make it happen. That way, I just pay my supplier money for everything, no new RO / WFOE needs to be set up, no export licences for me to deal with, and we all live happily ever after.

I’ve seen heaps of smaller companies go to places like Singapore for production and I often think they go there because it’s just easier than going to China. Maybe I’ll join them in Singapore but I’d like to fully explore the options in China first.

Ha yes, great question! Why China!

It was more a “why not China” type of scenario. We initially found a supplier on Alibaba 6 or 8 months ago and maybe it was luck, but it was cheap, good quality, we could pay AFTER receiving the goods and halved our costs instantly. And yes, we’re only selling to Australian customers.

So I had no problem paying $2k to fly over there for a week or two and see what other possibilities were in China.

But if I can’t set up a WFOE with less than (a very justifiable) 500,000 RMB in the first 12 months, then the party for me in China is basically over. I’m finding it really interesting that if China demand a minimum of $250,000 USD or whatever, it basically precludes any business with a turnover of under 1 or 2 million a year to do any kind of production in China. Seriously?

So yup, Singapore is where some of our competitors go, but I could just as easily look in the Philippines or Vietnam.

I’ve spent the last 6 to 8 months working with China that to start all that research again in another country would probably drive me crazy. But also, I’ve got my fingers in a lot of pies and there’s all sorts of other production we can do, products we can launch, etc. Vietnam might be great for this one product we’re working on at the moment, but I think China might have more overall potential for future ventures.

I really want to see if I can make China work before looking elsewhere.

I am currently setting up a WFOE. From my application that my local consultant made, The minimum capital transfer is 15% within 3 months of business license release. 100% of capital must be cleared within 2 years. Also I heard the minimum capital is 1 million RMB (not sure as I am not registering this amount).

Or, you could buy a local company. However, you must keep the local person as the registered person. This works too for smaller scale projects.