Editor’s note: This blog has been updated as of December 2^nd, 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.