Labor Dispatch: a new way to start a business in China

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In terms of business opportunities, China stays one of the main focus for foreign companies’ development strategies. However, a strong economic growth, the promise of a huge output market and a diverse group of customers make investing in China both a chance and a risk.

The best way to eliminate the risks is certainly to learn about the market, Chinese regulations and establish a well thought strategy. Especially since China is a very complex market with distinct challenges.

One of them is setting up a company in China because there are many legal issues to consider. During the last few years, statistics in China revealed that international companies still tend to enter the market through the set-up of a WFOE or a Joint Venture. While these two business entry vehicles are the most common, they are no longer necessarily the best choice. There are other options holding a huge potential and worth considering. One that should definitely be mentioned is the Labor Dispatch method better known as Umbrella Services or PEO Services.

What is Labor Dispatch?

The Labor Dispatch method is a cost effective solution to enter the Chinese market and is particularly suitable for mid-sized companies. The main purpose of Labor Dispatch is to outsource all china-based employees’ administrative management to an outside company. This company will take care of work visa procedures, draft labor contracts, manage the payroll and tax declaration as well as manage the employees’ expenses. It can also assist its clients in searching for qualified staff (Foreign or Chinese) through Recruitment & Headhunting Services.

Who uses Labor Dispatch?

Basically, the Labor Dispatch method is used by any foreign company that wants to enter the Chinese market in a cost effective way. If you want to explore the Chinese market, examine your chances and transform one-time business opportunities into long term clients with minimum legal and financial risks, this is the best solution for you. On one hand it opens up the possibility to independently interact with clients and/or providers while on the other it creates the best conditions to focus on your main business by reducing administrative tasks.

In order to keep the process simple and tightly structured, the Labor Dispatch approach only involves three parties:the Client (the foreign company willing to do business in China),the Consultant (the Client’s representative sent or recruited), and the company which operates as the Client’s administrative partner and is legally responsible for the Consultant in China. Obviously, the three parties need to have a contractual relationship which is determined by easy connections: the Client company and the PEO company are bound by a commercial contract while the PEO and the Consultant are bound by a labor contract.

All in all, companies offering Labor Dispatch services have an extremely broad range of services and are able to adapt to the needs of their clients. If you wish to receive more information, you can contact INS Global Consulting, a PEO Services company based in Shanghai since 2006.