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Advantages and Disadvantages of Selling to Chinese State-Owned Enterprises

October 24, 2013

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.

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. We will use Dezan Shira’s latest China Briefing and to help you understand SOEs and outline some of the advantages and disadvantages that you should be aware of before making your selling decision.

Advantages of a state-owned enterprise:

  • SOEs receive financial support from the 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. This is exemplified by..
    • Unlike US 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. Read the complete China Briefing to learn more about certifications for imported goods, setting up a representative office in China, understanding state-owned enterprises and available tax incentives for exporting.

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