Advantages and Disadvantages of Selling to Chinese State-Owned EnterprisesDecember 02, 2020
State-owned Enterprises (SOEs) can help international sellers quickly reach a large customer base however, working with a SOE can be much harder than expected.
Editor’s note: This blog has been updated as of December 2nd, 2020 for accuracy and comprehensiveness.
State-owned Enterprises (SOEs) can help international sellers quickly reach a large and stable customer base in China, however, working with a SOE can be much harder than selling to private enterprises. With over 40 years in existence SOEs have a long established history in China going through a long process of gradual and progressive transformations.
Advantages of a state-owned enterprise:
- SOEs receive financial support from government.
- SOEs are known for receiving access to favorable policies such as:
- Tax breaks on certain products
- Lower interest rates on loans from state-owned banks
- Access to a large and stable potential customer base.
Disadvantages of a state-owned enterprise:
- Strict government control and restrictions around general operations and decision-making.
- SOEs have a strong corporate culture and management tone. Reasons include:
- Unlike U.S. employees, SOE employees have very little say or input on business related decisions.
- Management meetings are held to inform employees of decisions rather than to discuss initiatives, brainstorm and strategize as a group.
- For SOE employees work is very routine, less innovative and success is very much based on your direct supervisor’s opinion of your work rather than specific performance objectives.
- Strong political influence. Political objectives are important to SOEs because most SOEs are overseen by the State-owned Assets Supervision and Administration Commission (SASAC) who have the final say on all major business decisions.
- SOEs are required to set up a labor union.
- Focused workforce. Many employees at SOEs are so focused on making sure their work is flawless that their narrow sightedness is a disadvantage to the company. For SOE workers is it more important to them to avoid making a mistake rather than being innovative.
Contact us for more information on selling to China, SOE’s or questions regarding the complexities of international business and tax matters.