Utilizing a Professional Employment Organization (PEO) to open a Sales Office is one of the methods that is gaining more and more popularity from foreign companies. This brings many benefits, whether the business is a large enterprise, SME, freelance, or a start-up. This of course depends on each company’s needs and future prospects. However, an enormous amount of time and effort can generally be saved by choosing to open a sales office.
What is a Sales Office?
A sales office in China is formed by outsourcing legal and administrative management of a foreign company’s representatives to an HR agency (PEO) in China.
Furthermore, a key factor to consider is that a sales office can sometimes only be established by the form of labor dispatch through a PEO.
Sales offices have distinct advantages and disadvantages. It is imperative to keep in mind that one must evaluate their ability to meet corporate goals and financial objectives while minimizing all possible risks.
Most imperatively, the costs of a sales office are also very attractive compared to typical business setup costs. There is no minimal capital investment required.
Additionally, no taxation nor administration fee is involved in the registration process. This is only the case during the operational process.
Not to mention, the establishment phase only takes one month which is a less time-consuming solution compared to other alternative solutions.
Despite its advantages, the sales office solution also has its limitations. Primarily, sales offices cannot issue any fapiaos (invoices). They must there invoice clients via a PEO. Furthermore, the firm’s funds kept within China are administrated by the dispatched employee’s administrative partner. This indicates that all funds and benefits are directly transferred out of China.
In addition, companies cannot request credit from banks and also cannot purchase any real estate in China.
How Does a Sales Office Work?
The sales office’s flexible structure allows a firm to promote itself commercially and restriction-free. There are hundreds of hosting platforms and work stations in every city in China. Although mentioned previously, one must be sure of one’s special needs and objectives in order to find the right system for the company. It is also important to keep in mind that a foreign company can only open a sales office in China through a PEO.
Because foreign investors can’t present the documents themselves, every company wishing to establish a WFOE also has to pass through a PRC agency. This is a local Chinese certified agency that will conduct the submission process.
In most cases, a Sales Office indicates that the company’s main and prime objective is to enter the Chinese market in a less time consuming manner.
- The first phase in the process of establishing a sales office is to create a physical representation in China. To authorize a sales office in China, a local structure with at least one employee in the mainland is necessary. Under these circumstances, the company has two options. They can either to delegate a representative from the company’s home country to China, or hire a Chinese employee.
- Then, the foreign company finds a PEO and together, decides what type of rental is best to establish the sales office. The geographical location and the size of the office are also important (these aspects do not alter the employee’s legal or administrative situation). With the assistance of the PEO, it is the foreign enterprise’s responsibility to install its employees in China in the best conditions. This facilitates company growth and satisfies the local needs. This needs may include client proximity, suppliers and partners, local team diversification, etc.
Sales Office Case Studies
Opening a sales office via labor dispatch can be beneficial for many different industrial sectors but especially for the wine sector. Many successful cases have been witnessed with wineries from France, Spain, Chile, etc. entering the Chinese market via a sales office.
In China, the wine industry is rapidly developing every year, especially in wealthy cities. This is mainly because of the influences of the western culture and the materialistic mindset of the Chinese people. Many Chinese people think that being able to afford and drink wine gives you a title or status of wealth.
When entering the Chinese market, many foreign wine distilleries do not need to delegate many employees. Usually having one to three representatives in the mainland will allow them to operate and make profit.
Thus, opening a sales office via labor dispatch is often most beneficial for companies that can operate even with a small amount of employees. It mainly depends on how many people a company wants to delegate.
The Latest Market Entry Trend
So what has been increasingly seen in China market-entries from foreign companies? Foreign companies are utilizing a sales office via labor dispatch to initially establish themselves in China while establishing a WOFE. A WOFE can take as long as up to 18 months to establish. Because of this, they are choosing to start off with a sales office while going through with the WFOE application process
When the sales office contract expires, the WOFE will be ready. This will allow the transition to go smoothly in a time efficient manner. Moreover, the administrative tasks will be managed by the local partner so the foreign company will not have to deal with any complicated procedures
Conclusions: Allow INS Global to Provide Secure and Streamlined Setup Guidance
As the benefits of utilizing a sales office have become more known, more foreign companies are trying to physically establish themselves in China like this.
However, the downside to this phenomenon is that this makes the Chinese government more aware of the laws regarding labor dispatch. Therefore, to prevent illegal foreign enterprises the Chinese Ministry of Human Resources and Social Security stated a foreign enterprise cannot have more than 10% of its employees working in China.
That is why most foreign companies only choose to send one or two employees to work in the sales office in China.
In conclusion, a company must carefully think through all of its needs and find a solution that best meets its needs when expanding to China.
All in all, a sales office via labor dispatch is recommended for companies wanting to enter the Chinese market and establish a presence long-term. These companies should only need to delegate a few representatives. These representatives develop their products, brand-image, and professional network.
For more information or advice on setting up a sales office in China, please contact us.