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November 28, 2005
Event: Door to Door Selling, The Legal Aspects
[Editor's note: Door to door selling, which some consider to have been made illegal several years ago by regulation, has nevertheless flourished in China. Vacuum cleaners, water purifying systems, pots and pans, insurance and credit cards are but a few examples. Managers in this industry have told me that door to door selling is considered legal by local authorities, when there is an in-home demonstration. The growth of the industry since the supposed ban lends credence to this understanding.
Hence, at least from the rapid growth of door to door sales, the title of this event is not entirely accurate: doorbells have been ringing non-stop. Draft revisions of the law that limited multi-level marketing （串销 as opposed to 直销） have been in the works for several years, since fraud and the collapse of certain firms led to financial ruin for many who had invested their savings in building their part of the business. It was rumored that the new law would be promulgated by September, 2005, but the draft had not been finalized and its status has been uncertain. Hence, this event should prove extremely interesting.]
The China Committee of The American Bar Association, presents:
Direct Selling in China: Will Doorbells Soon Be Ringing?
Time: Wednesday, Nov. 30, 2005， 7:30 – 9:00 am (Shanghai Time)
(This is the same time as: Tuesday, Nov. 29, 2005, 6.30 - 8.00 pm (EST)
Location: Squire, Sanders & Dempsey LLP， Kerry Centre, Suite 1207，1515 Nanjing Road West， Shanghai，Phone: 21-6103-6300
“Since mid-2004, observers have been closely watching as China has adopted regulations aimed at implementing its commitments to open the PRC distribution sector to foreign sectors. In Year 2 of this process, China’s State Council, the highest body in the administrative branch of the government, has issued the “Regulations for the Administration of Direct Selling” (the “Direct Selling Regulations”), which will become effective as of the 1st of December of 2005. The Direct Selling Regulations are intended to address the confusion that has existed since the late 1990’s with respect to the use of direct marketing methods of distribution, which involves sales separate from a fixed location.“
Speakers:
Herbert Ho has 20 years of business experience in China. He received his Ph.D. from U. of Chicago, and J.D. from the John Marshall Law School. He is the author of the book "The Development of Direct Selling Regulation in China, 1994-2004," published by the US China-Business Council
Tony Chuang is a China Committee member and has been working in China for more than four years. He received his J.D. from Rutgers Law School. He served as the major contributor to the direct selling section of “the White Paper 2005: American Business in China,” published by the American Chamber of Commerce in the PRC.
Moderator:
Amy Sommers, Squire Sanders & Dempsey LLP, Shanghai, China
RSVP to Charlotte He (yhe@ssd.com) or PH: 21-6103-6324
Posted by Richard at 9:29 PM | Comments (0)November 21, 2005
Revisions to the Chinese Company Law
Few Chinese would give much credence to the notion that law is at all important to the their businesses, despite the growing number of regulations that impinge upon commerce. Traditionally, to the Chinese, whatever the law might be at the moment depends very greatly on the man who is executing it and your relation to him. This remains true to a large extent even today, especially since Chinese judges need not rely upon precedent, nor need they in practice explain their rulings.
However, given the many tens of thousands of lawsuits proceeding throughout China at this moment, far more than perhaps ever before, as well as the central government's insistence upon what it calls "rule of law," the law has become something like the fly that buzzes constantly around one's head, until one must take notice of it. And that is precisely what I would suggest. Your attorney will guide you through the minimal requirements that Chinese law demands of you in your particular situation, which with exception, will be generally less that what you would find inescaple in the West.
The Chinese Company Law has just been revised. The Legal Daily (法制日报) has reported upon the changes in the law with a brief comparative review, portions of which I have translated. Here is our first installment:
Understanding Revisions to the Company Law: A Comparison of the New with the Old
By Wu Kun
On October 27 [2005], the 18th Session of the Standing Committee of the Tenth National People’s Congress approved by majority vote the revised Company Law, to take effect beginning on January 1 [2006]. This is the third revision enacted by China’s legislative body to the Company Law since its passage on December 29, 1993, at the 5th Session of the Standing Committee of the Eighth National People’s Congress
As all know, the Company is the most important form of enterprise in a market economy. Enterprises with the company form do not represent the largest percentage among all enterprise forms, but their total capital and overall economic contribution far exceed other enterprise forms. At the same time, the company is an important mode by which the modern enterprise system is created. Currently, in China's state-owned enterprise reform, the use of the company structure to implement reform is very important. The revision of the Company Law and China’s company legal system contributes to the strengthening of China’s establishment and perfection of the Socialist market economy, hastening economic development. We may clearly discover, through a comparison of the old and the revised law, what of the new Company law will have various effects on the maintenance of the market economy structure.
1. Introduction of "Piercing the Corporate Veil"
Current law: Not in the current law.
Revised law: A shareholder who abuses the independent position of the company’s legal person and the shareholder’s limited liability to evade obligations, seriously damaging the interests of the obligees, assumes responsibility for those obligations.
To be continued...
Posted by Richard at 7:41 PM | Comments (2)November 16, 2005
Shanghai Event: Anti-Monopoly Law in China
The Antimonopoly Law Draft: A Preview of Things to Come?
Wednesday, November 23, 2005
From the American Chamber of Commerce (Shanghai):
AmCham Shanghai Legal Committee invites you to attend "The Antimonopoly Law Draft: A Preview of Things to Come?", a luncheon discussion of China's draft Antimonopoly Law. The enactment of China's first comprehensive competition law, potentially in 2006, may have significant repercussions for American businesses in China. The discussion will survey the evolution of the draft law, explore the draft law's incorporation of foreign antitrust law concepts, highlight areas in which the draft law deviates from prevailing international practices, and flag unresolved issues about the enforcement and implementation of the law. The discussion will focus on areas of concern for foreign businesses in China, including the proposed merger review framework, rules against abusive practices by "dominant" firms, and the relationship between Chinese competition policy and intellectual property rights.
Speaker: Nathan Bush, O'Melveny & Myers LLP, Beijing
Venue: The Portman Ritz-Carlton Hotel
Address: 1376 Nanjing Xi Lu (cnr. Xi Kang Road), Shanghai
Time: 11:30 to 13:30
Entry fee: Members: 200 Non Members: 350
RSVP required. RSVP online here.
Posted by Richard at 1:59 PM | Comments (0)November 7, 2005
Audio: Irrational Exuberance 5, or, Says Who?
Click the little triangle to hear today's post.
Irrational Exuberance 5, or, Should You Enter the China Market?
Says Who?
[This post is the fifth in a series designed to help you formulate and evaluate your plans to enter the China market. See this page for links to the audio and text files of prior posts in the series. NB: More recent articles are listed at the top of that page with earlier articles below them.]
In our last post, we began to vet a hypothetical plan to enter the China market. Why? To ensure that we’ve not dreamed up a pie in the sky.
We subject our plan to a barrage of constructive criticism. This is not the time to cavil or exploit an opportunity for political gain, although less ethical operatives will, no doubt, attempt to do so. While maintaining an atmosphere of courtesy, neither need we tip-toe about the sensitivities of the plan’s authors and supporters.
Let’s be clear: we will avoid comments of a vulgar and personal nature, such as the one I once heard in a meeting of corporate executives: “That is without doubt the singular worst idea I have ever heard. What the h--- am I paying you a salary for?”
(That particular Vice-President apparently forgot that the corporation and its investors pay the salaries.)
Stick with the issues at hand. Will the plan work? If so, how? And how do you know? What is your basis for so thinking? Is it a sound basis? Where did you get your information from? Is it a reliable source? Why do you think so?
To those who wish to move ahead rapidly, the discussion such questions engender seem a needless delay, but I would disagree. We wish to reduce the initial exuberance, often irrational – and hence the title of this piece -- that accompanies all planning. Our objective is to substitute, in its place, confidence built upon a solid foundation of verifiable evidence. The answers, and very often, the lack of answers, to incisive questions point up mistaken assumptions, holes in your thinking and errors of judgment. Would you rather stand on thin ice or thick?
Two further benefits. First, a collective discussion allows participants to resolve differences and to define opportunities for further co-operation. Second, when your executive management grills you on the value of your plan, you will be prepared to state with substance why you believe your plan to be viable; and better protected if the plan is not inevitably successful.
Back to our plan. Our first set of action items read:
1. Setting up an office
a) Define the functions of this office and those who would staff it.
Preliminary Plan
Company intends to establish a sales office, as a base for management and as meeting area for the sales force during meetings with customers or management. Sales staff are expected to be on the road constantly and will not have permanent desks. Staff expected in China office: sales manager (male), one secretary (female), 5 salesmen (all male). All local Chinese.
Critical Questions
1. Is it practicable or advisable to keep sales staff on the move constantly in China, without giving them a physical location at the office to return to?
2. Can or should the sales force be entirely male? Can I hire a male secretary? Should we hire all local Chinese?
Discussion
Let’s take these questions in turn. If we have done our homework, what kind of answers might we get? I have briefly noted the basis of my answers as links to supporting evidence.
1. The constantly moving sales force
Before the invention of the mobile office, a sales director I once knew, a Liverpudlian, claimed there was no benefit in affording any outside salesman a desk at the office. “They should be on the road constantly. The more time they spend inert on their arses, the less in front of the customer.”
At least in the U.S., the outside salesman rarely returns to the office. His home and car suffice, and assorted technological gadgetry enables automation of the sales process from remote locations. But what about China?
Chinese salesmen can’t and won’t work from a home office. Practically speaking, the average living space is but 10 square meters (107 sq. ft), according to the Ministry of Construction.
That gives an individual an area of about 10 x 10 feet, inclusive of kitchen, bathroom, bed, etc., in which to perform the tasks performed in the office. Usually, even that living space is shared with other family members. Compare that to the developed nations: “Average total dwelling space in Europe is just under 1,000 sq. ft. In the USA it is1,875 sq.ft for the average household and 1,200 sq. ft for poor households.”
From a cultural perspective, Chinese simply do not accept the idea of working from home. Instead, they espouse the traditional notion that work occurs outside of one’s dwelling. Work in which one spends a substantial amount of time at home, even when genuinely working, is unacceptable.
Secondly, very few Chinese own a car in which to create a mobile office. According to a Goldman Sachs report, “In 2001, China had only 1.5 vehicles per 100 households versus 170 vehicles per 100 households in the USA.” A car may cost as much as five times the annual salesman’s salary.
The Ameican model of mobility will not work. Will another model? In fact, some Chinese sales forces are completely mobile. A direct sales force with which I have some personal acquaintance provides desks only to the office staff and only a handful of the most senior sales directors. Vans, leased by the company in a dozen cities and driven by professional drivers, meet the sales force at an agreed upon location before work begins, drive them to the target region and then return them to the point of origin at the end of the day. A supervisor rides in each van every day of the week. Meetings are held daily on the road in the vans, or in a large hall at the branches or off-site. No salesman has a desk. They are constantly on the road.
Direct sales naturally lends itself to constant mobility. But what about business to business outside sales? Some sales forces are provided with a laptop and a cellphone. Others require that their sales forces make use of personal equipment, but pay for phone usage or access charges. Most Chinese college graduates are computer literate, have little difficulty communicating via email or creating the electronic documentation crucial to the sales process. Internet access is available free of charge at most hotels in China. Phone service is consistent nationwide. Trains and planes run on time. Taxis proliferate. Yes, the completely mobile salesman is a workable concept for China.
And yet, I would not advise it. As a sales manager in China, we want to keep close to your salesman, rather a lot closer than what we are accustomed to in the U.S. Distance implies freedom, and while some of it is a good thing, especially when it contributes to a greater sense of personal responsibility and achievement, too much is a danger. Chinese, in my experience, and remember, I have been a sales manager in China -- this experience forming the basis for my opinion -- are unused to roaming free without much direction. Keep the dialogue going constantly, using the cellphone and the email.
But unlike the direct sales methodology mentioned above, you will never be able to accompany all of your sales staff on their rounds each day, nor would you wish to. But you must maintain the face-to-face connection with each of your salesmen. If not, you will quickly find yourself losing influence over him and out of touch with the client.
The desk roots the salesman in your territory. If not simply for the prestige of having a desk, which many young Chinese find surprisingly thrilling, periodic callbacks to the office for reviews, meetings, an occasional lunch, etc., keep the salesman in your purview and allow you to create a stronger working relationship with him..
The result of our critical inquiry is this: direct sales staff do not require a desk, if a manager travels with them every day. B2B salesmen, on the other hand, require an anchor at the office.
Did you expect these answers when the first prong of the China plan was created? Probably not.
We will turn our attention In our next post to the next question: gender.
Posted by Richard at 3:40 PM | Comments (0)November 1, 2005
Chinese Business and the "Legal Netherworld"
Although I rarely post links to articles in other publications without surrounding them with context and commentary, I do so today and recommend you read Joseph Kahn's, Dispute Leaves U.S. Executive in Chinese Legal Netherworld. The dispute between Changhong （长虹）, a state-owned enterprise in Sichuan （四川）, and Apex Digital involves several hundred million US dollars in what is alleged to be unpaid debt，an American citizen of Chinese origin under house arrest in private (not public) quarters, the police of the city of Mianyang （绵阳）, Morrison & Foerster in New York, Cadwalader, Wickersham & Taft in Washington, DC, Wal-Mart, Best Buy and Circuit City, and goodness knows who else.
Posted by Richard at 2:47 PM | Comments (0)
