1. Doing Business in China Kneppelhout & Korthals Advocaten Asia Practice Erik van der Molen 08 April 2013

2. Introduction Kneppelhout & Korthals: Independent Law Firm focusing on Trade, Investment & Intellectual Property Asia Desk with a focus on China, Vietnam & Japan Serving Small & Medium Sized Companies

3. Why Asia is Important 1 Share of world population: Share of world output growth:

4. Visualising China’s growth 1 1990 2012 2030?

5. Balance shift? Or Return to normal?

6. Visualising China’s Growth 2 One in five people in the world is Chinese China's economy grew 7 times as fast as America's over the past decade (316% growth vs. 43%) China’s economy will surpass the US in 2025 3 new powerplants every week 5000 new hospitals in the next 30 years one-fifth of the global construction industry 240 million cars

7. A Growing Urban Middle Class 240 million cars 564 million internet users 220 million internet shoppers 25% of world luxury product market 240 million cellphones sold in 2013

8. Developments Ongoing Economic Transformation Fast growing urban middle class giving rise to new demands. (creative & luxury markets) From made in China to designed in China Chinese companies going global Rest of Asia will grow in China’s wake: Vietnam, Laos, Cambodia, Mongolia, Myanmar, Mongolia

9. Why go to China? To summarize: A focus on China / Asia is no longer an option, it is a necessity. No China/Asia strategy means: -Losing from the competition that does have an Asia focus -Losing from the competition that will emerge from Asia itself. Don’t underestimate the speed and scale of developments If you wait until China is ready for your product, you are too late.

10. The End of Cheap China? - Production in China can still be interesting. - China is getting more expensive, but it is not only about price. (scale/flexibility) - Upcoming alternatives in the region: Vietnam, Thailand, Myanmar, Mongolia. Manufacturing Market Case: Apple Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States. In China, it took 15 days.

11. The Other Side of the Medal Many Opportunities in China but Challenges abound: Legal Fraud Corruption Intellectual Property Contracts Culture Negotiation Relationships Business Culture Business Finding the right partner Quality Control Knowing the market

12. The 4 P’s of Doing business in China Causes of Failure: Choosing the wrong partner Short-term orientation Underestimating the cultural factor Insufficient legal protection

13. The 4 P’s of Doing business in China Invest in Relationships -Personal Contact. -Regular Contact -Network Know the Culture - Negotiation Tactics - ‘Face’ and “Hierarchy” - Indirect Commucation -Language Know the Market - Where is your market? - Who are the players? - How fast the market developing. - Where is the market developing. Protect Yourself - Know who you are doing business with - Protect your intellectual property - Have good contract. CHINA SUCCESS:

14. Know the Market: China is a continent not a country.

15. Business Culture Relationships & Loyalty make business personal, reciprocity, long term relations Hierarchy & Face show respect, formality, not everybody is equal, give face Harmony avoid conflict. In Asia, all business is personal

16. Business Culture: Relationship Long term View Building a relationship takes time Reciprocity: Give and Take Investing in Relationship will lead to better results

17. Finding a Business Partner Find a Business partner: Internet Tradeshows Dutch Government Network Third Parties Join a Trademission Important to do your Due Diligence! Make sure your partner is a strategic match. Personal Contact is paramount! Beware of known frauds & scams

18. Know who you are dealing with

19. 1.Understand how the Chinese organization works: management, corruption risks, worker education level. 2.Provide detailed guidance and documentation 3.Factory Presence and Inspection. 4.Take a long-term view: 5.Anticipate what will go wrong and prepare. 6.Always carry a safety stock. The Key to Quality Control Sourcing / Manufacturing – The absolute basics

20. A Common Misconception: Contracts in China are meaningless and not enforceable A good contract: Provide clarity about mutual expectations. Will help prevent problems. Will be enforced by a court if. Things to remember: Include Non-Disclosure/Non-Use/Non-Circumvention Clauses In Chinese Choose the right Governing Law Consider Arbitration Clauses Find a balance between a good contract and a good relationship Negotiations will continue after contract has been signed Contracts in China

21. Intellectual Property Rights Always Register Trademarks in China. Contractually Protect Your IPR. It is possible to go after copycats, but is it worth it? Protect your production processes

22. Conclusion The time to go to Asia is now. Don’t rush into a relationship; know who you do business with. Choose a partner with a long term view in mind. Put time and effort in personalizing relationship. Know the culture or work with people who do. Don’t underestimate the speed and scale of developments Take basic steps to protect yourself legally

23. Questions? How to structure my China operations financially? What to put in a sourcing contract with a Chinese supplier? You can contact Which legal entity /structure is best for my business? How to set up a legal entity in China? How to secure my interests in a contract with my Chinese distributor? How to protect my intellectual property in China?

24. Contact information Erik van der Molen Tel.: +31 010 400 5100 E-mail: evdm@kneppelhout.nlevdm@kneppelhout.nl Questions?