Excerpt from: China Supply Chain and Logistics Strategy
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| May 19, 2006 | | Warehousing and Distribution to Customers in China | Foreign companies that currently do not have a business license in China who want to source goods from a local vendor and perform warehousing and fulfillment to their customers in China have 2 options:
1. Outsource to an exisiting 3pl in China.
This option provides the most flexibility. The foreign company does not require a business license in China and can sign the contract with the 3pl from their overseas office. However, there will be less management control of the operations. In addition, your local customers may not have the ability to pay your office overseas. If collecting payments from customers in China will be a problem then the other option is to set up a wholly foreign owned company.
2. Set up a WFOE (wholly foreign owned enterprise).
China's foreign investment laws have recently been revised. It is now possible for foreign companies to set up WFOE manufacturing companies. For a relatively low registered capital amount foreign companies can establish a WFOE. They can then take direct control over their warehousing and fulfillment operations in China. (However, there are still some restrictions on providing transportation services). The government also provides incentives for WFOE manufacturing companies. If your company does not want to provide logistics services to other clients, but rather only wants to set up a warehouse and fulfillment operation to serve your own customers in China, then a WFOE manufacturing company is an excellent option.
Yet, it is important not to overlook the time and expense involved in managing logistics operations in China. Companies are advised to understand the complexities and difficulties involved before making the decision to set up operations.
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