Companies seeking to enter the Chinese market often quickly run into trouble for any number of reasons. From approaching an unfamiliar audience to navigating labyrinthine government regulations, there’s a lot that can go wrong. That’s why such a large industry has developed around providing expansion services to foreign companies in China. Foreign Enterprise Service Companies, aka FESCO, in China work in many different ways.
As a result, the variety of options available may be a challenge to understand in itself. That’s why we’ve put together this guide on FESCOs in China to explain the service options and how you can benefit.
What is a FESCO? China Expansion Support Services and How They Can Help You
The term FESCO, as an umbrella term, today refers to any company based in China that provides expansion services. These include market-entry, HR outsourcing services, payroll services, or employment outsourcing services to foreign companies.
These companies are legally compliant entities already based in China that can take care of many of the requirements for employers. Otherwise, these companies have to go through the complex and risk-ridden process of opening an entity to hire or manage local and foreign staff in the country.
The term comes from the name for the official government-run company FESCO (then called the Foreign Enterprise Services Corporation). It now relates to any company that provides one or all of the following HR outsourcing or labor dispatch services:
- Contract management
- Monthly payroll administration
- Benefits and expenses calculation
- Taxes and Social Security management
- Labor dispute resolution
- Visa organization
- Health insurance coverage and negotiation
They may also offer additional services like:
- Workspace rental
- Employee living arrangements
- Recruitment Process Outsourcing (RPO)
Identifying Suitable Users of FESCO Services in China
Companies that can benefit from FESCO services are typically divided into two categories. Each of these company types can benefit from their support for different reasons:
Companies without a legal entity in China
Setting up a company in China can take weeks or even months, longer when considering hiring Chinese employees. FESCO services can have you and your representatives in China operating in a matter of days.
FESCO services are perfect for companies who want to do business in China simply while ensuring compliance. This could mean potentially hiring a local representative to set up networks or start working with clients without limiting themselves to a Representative Office.
Companies with a legal entity in China
Those companies already with a legal entity in China still regularly find themselves having to catch up with the ever-changing regulations surrounding employment and foreign enterprises in China. That’s why many companies in China still turn to FESCO services for compliance assurance and payroll management. These services are particularly helpful if that company also has branches or investments overseas.
A FESCO can improve the way companies manage benefits administration by taking over from an HR department cost-effectively. This is particularly useful for small businesses or those who don’t want a large HR team.
A FESCO with global operating ability (also called a GEO, or Global Employment Outsourcing) can help you streamline your global multi-country payroll. This is possible for carrying out operations internationally while constantly remaining in compliance with local requirements.
Analyzing the Advantages and Disadvantages of FESCO in China – Payroll and Compliance Assurance Mastery
The Pros of a FESCO in China: Employment Made Simple
Less Employer Risk
As an employer in China, you would be liable for any errors or omissions concerning payroll, employee benefits, or the workplace. That’s why so many companies choose to outsource employment operations, and therefore liability. A specialist services provider with the right experience can help you avoid costly mistakes.
Compliance Assurance Across Every City and Province
From different tax systems to social security contributions, a FESCO services provider can provide compliance assurance across multiple regions at once. This allows you to operate and expand wherever you need to across China when chasing new opportunities.
Local Hiring and Contract Support
With specialized local recruitment tools and networks, a FESCO in China providing recruitment capabilities can be the ultimate way to find local talent to complement your expansion strategy.
Labor Law Specialism
A FESCO in China employs the best local legal experts who have the right experience with both common and uncommon employment complications.
FESCOs gives you the total package of HR functions and compliance support you need without the risk of company bloat.
This scaling allows you to focus on the tasks most directly related to your expansion goals.
Cons of a FESCO in China: Regulatory Compliance, and Legal Aspects You Need to Know
Potentially Added Layers of Communication
It’s best to look for a services provider with global experience and well-integrated local and international staff. These staff should be able to give you a simplified, streamlined line of communication through a single point of contact.
Additional or Hidden Fees
Global expansion costs can quickly become a problem if you run into unforeseen fees or fines. That’s why you must find a FESCO in China to act as a services partner that gives you a service cost in one transparent and upfront service fee. This fee is typically a monthly percentage of the co-employed worker’s salary which covers every HR function.
Hiring and Contract Limitations
As FESCO services typically manage fixed-term contracts, some companies may have difficulties when hiring central or essential staff long-term. That’s why it’s a good idea to have a partner that can help you to consider more permanent options as your operations in China expand.
Variable Customer Service Quality
A big problem with larger service providers in China is that clients are likely to find themselves as one of too many clients to serve properly. Big names often attract a lot of customers, which can mean a dip in service quality and long-term interest in maintaining good relationships as opposed to signing new clients.
A FESCO in China should be able to guarantee you the individual attention and support you need to meet your global expansion strategy goals.
What are the Best Alternatives to FESCO in China?
There are many different company options you can choose when looking to open your own entity in China. This includes companies that are wholly owned by you (WFOE, now FIEs), to companies with local backing or partnership (Joint Ventures).
Each possible company type comes with its own advantages and risks. Operating a company is difficult in China due to everchanging regulations concerning businesses and employment, and legal employers are liable for all the responsibilities of following often unclear or poorly explained changes.
While opening a company in China may give you the freedom to manage your entity the way you want, it’s best to consider how necessary this is.
Independent contractors, or freelancers, as a bigger and bigger staple of international labor. These specialists will provide specific services for an hourly or project-based fee. Typically, they’re an expensive option, and they remain outside your management structure, meaning there’s less accountability.
Despite popular belief, independent contractors are not illegal in China, but working with contractors in China does require additional levels of security and accuracy to avoid costly compliance mistakes.
Essentially, a Global Employment Organization (GEO) is an international version of a FESCO, offering the same or expanded list of services on a global scale. Generally related to and often spoken about alongside an Employer of Record (EOR) or Professional Employer Organization (PEO), a GEO is specialized in cross-border employment services.
These third-party providers often work as FESCOs in China and may be the perfect way to transfer your staff to China or hire internationally for China-based projects. A GEO’s local entity in China allows you to enjoy all the same benefits but requires additional checking to ensure they have the right specialist knowledge and experience.
Making an Informed Decision: Choosing the Right FESCO Approach
Long-term customer service quality is essential, and because employees of larger FESCO providers usually want to sign new clients over supporting old ones, you risk being left without the support you need later on. Make sure you find a FESCO in China with guaranteed service quality in the long term.
A professional FESCO in China should be able to offer testimonies from previously satisfied clients, or you can do your own research into their abilities as a service provider. You can do this by checking client references or reviews on third-party sites like G2, or by learning about the record of the FESCO in China as an employer through sites like Glassdoor.
FAQs (Frequently Asked Questions)
What is the role of a FESCO in China and the complex national business landscape?
As China’s regulations surrounding business operations and foreign investment change, a FESCO in China provides consistent compliance assurance and protection from potentially catastrophic errors in legal or fiscal matters. With more and more movement in terms of global supply chains, it also helps to have FESCO in China support allow you to streamline your market entry without tying yourself to one business type or location.
How does a FESCO in China assist foreign companies with HR and payroll management?
A FESCO in China can supply total HR and payroll outsourcing in the same way as global EOR services, taking on all the relevant employer responsibilities around ensuring accurate and compliant payroll, tax, and social security contributions management.
What are the key advantages of using a FESCO in China?
A FESCO in China allow you to enter the market quickly and without the risk of liability errors often associated with this prospect. Additionally, they offer the support and local networks of a collection of business and legal specialists, all with years of experience in the market.
Are there any potential drawbacks or challenges associated with a FESCO in China?
Without careful consideration of the options available, you could find yourself tied to a partner lacking the skills necessary to truly protect your interests in China. As the industry has grown rapidly since 2015, many companies founded since then lack the experience to handle the vast variety of issues that can potentially befall foreign companies.
What are the alternatives to using a FESCO in China for establishing a local presence?
For those wishing to establish themselves long-term in China, opening a WFOE (now called a Foreign-Funded Enterprise) can provide a legal entity to trade.
However, the operations required to run a company in China are complex. If you need to close the company to pursue opportunities elsewhere it can quickly become a headache.