The Airline industry provides a very unique service to its customers.
Competition is fierce and prices are low. Nevertheless, the prospect of getting a share of the most populous market in the world outweighs the associated risks for many foreign restaurant chains. Selling churros Spanish fried dough pastries in China is not an easy thing to do, as most locals are not yet aware of what the product is and tend to associate it with youtiao, a Chinese breakfast snack, which is sold at much lower prices.
To some extent I had to reinvent myself. There were several difficulties to overcome: However, the business started off well and the market has given me a positive response. To achieve this, it will be crucial to keep in touch with the costumers and properly manage their feedback. This experience became an invaluable foundation for when he was eventually approached by San Gines to setup their brand in Shanghai.
San Gines inaugurated their international expansion through a franchise model in Japan with locations in Tokyo and Osaka. Now that its first privately owned Shanghai outlet is operational, it is considering opening its second location in Shanghai before the end of the year.
Further expansion plans to Bangkok, Thailand, are in the making. The Asian market seems to be receptive to churros, but the key to success for the company lies in its marketing strategy. Set-up and structure of the business Registering a company in China is a complicated and time intensive process.
The WFOE lets foreigners hold percent of the shares and issue invoices fapiaowhich are required to generate revenue. At least three governing positions must be filled to establish a WFOE: For foreign companies who are planning to expatriate their profits at a later stage, a holding company in Hong Kong or Singapore should be considered.
The registration process is fast, fairly easy and makes dividend transfers across the Chinese border more tax efficient. Total dividend tax on expatriated profits shrinks from 10 to 5 percent in either location and virtual offices can be used in some cases, which are inexpensive to operate.
Recent regulation changes have made it tougher to profit from these tax reductions and generally require multinationals to generate parts of their revenue in Hong Kong or Singapore in order to legally take advantage of lower expatriation taxes of Mainland China profits.
However, when the business grows, the holding can be used to offer franchise licenses in other Asian countries and new investors can easily join in or take over the business through an acquisition of the holding company.
San Gines decided on a Hong Kong holding company to manage the distribution of shares between its three Mexican shareholders. Industry specific regulations As previously mentioned, several licenses need to be acquired to operate a restaurant or fresh food retail establishment.
Depending on the locality of the establishments several others might be necessary, as local authorities set most of the standards. Opening a restaurant before the licenses and reports have been fully processed is not advisable.
Foreign enterprises should take local legislation seriously and not assume that the relaxed standards of local street vendors and traditional restaurants apply to every location and every type of business. This is not the case! Certain establishments — especially food chains setting up in malls, food courts and more developed areas of first tier cities — need to go through rigorous licensing processes, and some rental spaces have their own standards they want to see fulfilled.
Foreign businesses attract attention and random inspections are not uncommon. Abiding to all regulations is important, as non-abidance has cost some foreign enterprises substantial fines. Funding The minimum registered capital requirement varies depending on the specific venture.
Local government authorities decide on the specific amount by trying to determine how much capital is required to fund operations on a case-by-case basis. Many foreign enterprises only inject the minimum capital required by local authorities, however this is usually not advisable.
China is more expensive than most foreign investors think. In the Eastern first tier cities rent and wages are constantly on the rise and have already reached levels comparable to some western countries. Getting more registered capital approved can take around two months and some companies go bankrupt before they are allowed to inject new capital.
The additional time and capital requirements for the pre-registration process should be taken into account when drafting market entry plans. Before the pre-registration process can commence, a suitable location for the first restaurant must be found and letter of intent for a rental agreement acquired.
Specific industry licenses and permits need to be applied for at this point, before being able to start the company registration process. To proceed to this step, the actual rental contract is necessary. This means that rent has to be paid for several months before the business can start its operations.
If the budget does not account for this expense the business might experience financial difficulties very soon after opening. In order to avoid this expense some foreign WFOEs register an administrative entity and once the right location is found, an additional branch company to manage that specific outlet.
Getting higher amounts of capital approved during the registration process should still be considered. Usually a minimum of 20 percent of the capital needs to be injected at the outset.1.
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