In 2011, Brad Tompkins (EMBA ’10) launched a company, Thirvin, to export wine from California to China. The business was a direct result of his 2010 Darden Business Project.
After three years, Tompkins decided to wind down his wine export business to China, and he spent some time reflecting on the lessons he learned while working in a foreign marketplace.
Thrivin's Top Five Challenges in China
- Supply Chain
Our original business plan was based on the "just in time" supply chain model. We sold our concept to the customer and then fulfilled the order by shipping the goods from California to China. We quickly learned that products have to be in market through customs in mainland China before you can begin the selling process. Despite what the geopolitical maps say, Hong Kong does not operate the same way the rest of China does in terms of its commercial business.
Be sure to immediately register your business name, product names and Internet ".cn" domain names. China has a first registration policy (as opposed to America's first use policy) for registering trademarks. It will only be a matter of time before someone registers your marks and reaches out to you to request payment for "partnership." Fortunately for us, we registered quickly and didn't have this issue, but others (including Apple) weren't as lucky.
If you are importing products into China, I highly recommend hiring a logistics partner you can trust. Over time, you can take over logistics, but hire someone to help in the early stages.
- Business Registration
There are multiple forms of business entities in China. The Wholly Owned Foreign Entity (WOFE or WFOE) is the version that applied to our model. What you won't see in your Internet research is that there is a requirement for registered capital, and if you want your license to be processed in a timely manner, you should be prepared to commit 1 million RMB. This money can be used for business expenses within China and need only be deposited in a Chinese bank account over a three-year period.
- Cash Flow/Working Capital
Do not underestimate the requirement for working capital. The time it takes to sell and get paid in China will not allow room for error. Have a big buffer of cash and time.