China is the hub of economic opportunities in Asia. Foreign investors aiming for global expansion are particularly interested in taking their business to China, due to the country’s business-friendly policies and the multitude of options it has to offer. As an international investor, you can set up a full-fledged WFOE, collaborate with a local entity to set up a joint venture, or launch a representative or sales office in the country.
While it’s easy to distinguish between WFOEs and joint ventures, most investors with limited knowledge of Chinese trade and policies are unaware of the difference between representative and sales offices in China.
In this blog, we’ve discussed some of the major differences between Chinese representative offices and sales offices, to help clear out some misconceptions regarding the two.
Representative Offices in China
By definition, a representative office is a legal entity responsible for representing an off-shore company in China. Also called a Liaison Office, the sole purpose of a representative office is to create a physical presence of your firm in a foreign country (in this case China), so you can step into the local market and target the local consumers more easily.
Pros of Having an RO in China
Some of the benefits of having a representative office in China include:
Better insight into the local market
Strengthened relations with local groups
Localized promotional campaigns to generate more profit
Limitations of Chinese ROs
Having a representative office is different from having a WFOE, a Joint Venture or a sales office due to the operational limitations that come with it. Some of these include:
Can only engage in non-profitable activities that do not involve transactions
The total count of foreigners in the office should be equal to or less than 04
Locals cannot be hired directly and any RO planning to do so needs to consult a Chinese hiring service
Sales Office in China
Sales offices in China are launched with the help of HR agencies in the country. These entities are established by outsourcing both administrative and legal management of the company’s representatives. Unlike representative offices, a sales office can be used for commercial purposes without any restrictions.
Pros of Sales Office in China
The benefits of having a sales office in China are as follows:
Freedom to carry out commercial operations
Outsourcing legal and administrative departments allows firms to focus more on marketing and promotions
Limited or no taxation fee is required
Limitations of Chinese SOs
Much like ROs, the Chinese sales offices have their limitations, which include:
Each transaction and payment is overseen by a local invoicing firm or your payment partner
The administrative partner administers funds of the firm present within the country.
To sum up, both ROs and SOs have their unique advantages and limitations. Foreign investors can decide between the two by weighing the pros and cons and taking into account their business goals, future plans, and budgetary allowance.
At Business China
, we help foreign entities set up their representative offices in China to help them explore the potential of China’s expansive consumer base. To learn more about the registration process, you can contact them at +86-020-2917 9715.