Wednesday, January 21, 2015
China opens the door for foreign companies to operate online marketplaces
While foreign companies could operate their own e-retail sites, they have not previously been allowed to own shopping portals where many merchants sell.
China has strictly regulated online marketplaces, putting them into a closely regulated category that has prevented foreign companies from owning multi-merchant web shopping portals that operate in China. But the Chinese government introduced a new policy this week that will provide an opportunity for foreign companies to operate their own online marketplaces in China.
The Ministry of Industry and Information Technology,which regulates Internet activity in China, has announced that foreign companies now can wholly own an “online data process and e-business transaction” type of business, as long as it is based in Shanghai’s Free Trade Zone, an experiment in freer trade that China launched in 2013.
“For the Chinese government, the e-business transaction type of business means online marketplaces,” says Shao Jun, a partner in the Shanghai law firm Yuantai, tells Internet Retailer. While a foreign company can already operate a web site to sell directly to consumers, if it wants to create a platform from which other retailers sell—such as eBay.com or Amazon.com in the United States—the business falls into the more closely regulated “telecom value-added services category,” Shao says. Foreign companies previously have been prohibited from owning more than a 50% stake in such companies.
According to a Chinese government web site, in 2010 the Wal-Mart China subsidiary of Wal-Mart Stores Inc. suggested that the Chinese government change the policy by removing online marketplaces from the “telecom value-added services” category. Wal-Mart is No. 4 in the Internet Retailer 2014 Top 500 Guide, which ranks North American retailers by their online sales. Wal-Mart owns a 51% stake in Yhd.com, an online retailer of food and other products that is No. 6 in the 2014 China 500.
For foreign retailers that just want to set up an e-commerce site in China, there are no current restrictions based on their not being Chinese companies, according to Shao. For example, Internet Retailer has received a copy of the China business license of U.K. web-only apparel retailer ASOS Plc., No. 22 in the Internet Retailer Europe 500, which shows that it is wholly owned by a foreign company and that it operates in the field of “Internet retail.” Asos began selling online in China in 2013.
To get around the strict restrictions on foreign ownership in certain fields, many foreign companies, particularly those in the Internet sector, have set up their operations in China as what are known as “Variable Interest Entities,” Shao says. In this kind of structure, the foreign company has its Chinese management team establish a Chinese company and operate the business in China for the foreign company. The foreign company signs an agreement with the Chinese company to control the business.
Amazon.com Inc., for example, may have used this approach to set up Amazon.cn, which is a marketplace on which many retailers sell in China. That online marketplace is operated by a company called Beijing Century Joyo Information Technology Co. and its business license shows it is a Chinese company owned by a Chinese citizen. However, Amazon.com Inc. includes online sales in China in its financial reports.
Amazon did not immediately respond to a request for comment on its structure in China.
Amazon ranks No. 1 in the Top 500and Amazon.cn is No. 4 in the2014 China 500.
Questions,
1. Should the Government have control & regulations over how e-bu siness is done in the country? Why or why not? Explain.
2. What does this mean for foreign companies to now be allowed to operate in China?
3. Provide your thoughts on how some companies were already doing business in China prior to this announcement.
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1) I believe if the business is legal and not creating harm to anyone then the government shouldn't have control. If they are doing business over the internet or not why should the government have to be involved. They will have to be involved with taxes and such regulations that have already been established but they don't have to control how e-business is done in a country. 2) To now be allowed to operate in China is huge for businesses that opens up so many more possibilities of selling products and making more money, if you were to create a product that started to be a trend and that "thing" everyone had to have in China, you would be a very wealthy individual because of China's population. 3) Businesses most likely just found a way around the system, if there is a product to make money of people will find a way to do that no matter what.
ReplyDelete1) I feel that e-business should be fair game for the entrepreneur. Government regulates so much already, just think of the money it would save if it did not have to regulate e-business in the country. On the flip side, looking at the country's economy and its current state, would be something for the government to be concerned with. But if the business is legal, moral and following the rules, I say go for it!
ReplyDelete2) I feel that allowing businesses to operate in China is very beneficial. Due to the population alone, this could increase sales for the entrepreneur immensely.
3) I feel that business that were operating in China before this new regulation came into place were working in a grey area or loophole. There must have been some way for them to operate "under the wire".
1. I personally think that government should only have control to a certain extent. They will have to get involved with the business through taxes and other requirements but that should be it. As long as the business is legal and being ran properly the government should have little or no involvement with the business.
ReplyDelete2. This means that these foreign companies are essentially losing business, and that means they could be losing money. China’s population is very large and this means that this is a large market for anyone starting any type of business in the area.
3. I believe that these businesses had to pull some very sneaky moves in order to operate “under the scope”. As long as they could get away with it, their business would keep operating.
1) I believe that government should only control what is necessary such as taxes and regulations. The government already control so much as it is. The government should also make sure that the businesses are legal and then leave e-business alone. I think once the government realizes that the business is legal they have more important things to do. 2) China is huge! The majority of the stuff we have in our homes comes from China. Being allowed to operate in China is a huge opportunity because of the high population and also because of the purchasing and selling opportunities. 3) I think that businesses probably knew about this but since they were making money they were just keeping it "low key" and crossing their fingers they would continue to get away with it.
ReplyDelete1. While I am not a huge fan of the way China does things, I can see why they do what they do. In the context of e-business, it seems that China is trying to protect their domestic industries form being taken over by outside companies. However, it seems that in doing so, they are just hurting themselves and their population in the long run. To me, it seems that the big companies of the world are set on getting into china and will do anything they can to accomplish that, as illustrated by Amazon. I feel like China might as well just open their doors and maybe just heavily tax these foreign companies if they want to protect their local interests.
ReplyDelete2. For many companies, not being allowed to operate in china means that they will be missing out on a huge amount of potential customers. However, as they haven't been allowed in China yet, it seems that they are doing alright anyway. Likely, if they went into China, we may all experience a drop in price, or the big companies would just concentrate their efforts in China, and st6artmaking cheaper products to satisfy the demand for their products there.
3. As illustrated, big companies are experts in finding any loophole that they can so that they can get what they want. As shady as some of their methods are, it seems that they really don't care. Just as long as their bottom line is not affected.
1. You have to remember that China is a different country and has less freedoms than our own. Even though I don't agree with the government having control over the internet and what businesses can do, China has a very strict government so it shouldn't come as a shock that it controls what businesses from foreign countries can or can't do.
ReplyDelete2. Having foreign countries now being able to operate in China would be a huge advantage for them because China has such a huge industry.
3. Like Amazon, companies must have been making "new" companies that were owned by a Chinese person or company. This loophole allowed foreign companies to sell their products through a "different" company that was made in China.
I've typed this twice so far, and it still wont post. So this will be the abridged version.
ReplyDelete!) In China, yes. Because they're still making the change from socialist/communist to a heavy marketing country. They're now involved in investments, loans, and ownerships from all around the world. The government needs to hold firm on business yet, and only slowly loosen their grip as time goes by (It's like doing to much blow, do it all at once, and it will be to much of a shock and you'll die. do it a bit at a time, you'll have a good time)
2) It means they'll get to tap into a previously unmarketed group of people. A group of people that just happens to be one of the largest population clusters at millions and millions of people.
3) Any business done before was hard because it would require setting up base in China, and dealing with their politics the hard way. One of China's biggest things to do is to perfectly copy a product and sell it for a fraction of the price. Any time one of the bigger companies complained, their case was throwen out by the government, or they were bullied into backing off (google the raids on foreign company headquarters) Now that e-business is opening up, it means they may be able to operate from a littler further away.
1. I don't believe that the government should have that much control, but China is ran very differently. The government monitors everything. This gives the government more control and makes sure that all business is done within China. This raises their economy and makes the Chinese businesses more money. Even though I find this too controlling, it is a smart way to keep everything within the country.
ReplyDelete2. It gives them a lot less growing room in China. They must either be established in China or follow their rules and have a good relationship in China. They can not just come in their expecting to do business, they must grow in to it, if the government allows so.
3. They would have previously been doing business in China or based out of China. To do business their they must be on good basis with the government. It all comes down to relationships with the government and if they become allowed there.
1) From my point of view, it is reasonable for a country to control its online market place, specially if it is an industrialized country as China. Controlling on line market place goes beyond to simply a website transaction. By restricting a foreign country of being a wholly own Online Marketplace company, A country is protecting and preventing the demand of its industry from being monopolized, and price controlled by foreign companies. Thus, Reducing the risk of not having control over the industry.
ReplyDelete2) for foreign companies to be allowed to operate in China now means more control in the strategic decision for their business. the possibility to choose, when, how and from where they are going to get their suppliers. In other words. They will have the control of their own business.
3) Based on the article, foreign companies interested in setting an online market place in china had to enter in a partnership with a Chinese citizen and be forced to own less than 50 % of the ownership. That ensured the control from the Chinese government over the foreign enterprises
1) If the business is being run smoothly and properly then I do not see why the government would need to have such control over the business. Other than basic regulations that any government would have I don’t see the point in putting all these limits to an online business that could better their economy and create more markets and money.
ReplyDelete2) If businesses were allowed to operate in China it would open up a huge market for everyone and be beneficial for all the countries and people involved. With China being such a huge country in the world the opportunity for the businesses are endless and can have a huge impact.
3) Companies that were already doing business in the country most likely would find a way around the regulations to be able to do their business. They see the opportunity and would want to find any way around it as possible