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Overview of key risks in China for investors and companies dong business in China.Describing internal control plans for China operations.
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Implementing an Internal Control Plan for your Chinese Operations
Iohann LE FRAPPER Olivier MARCAssistant General Counsel PartnerAlcatel Euro China Capital
C5 Conference – China Trade – London 18/09/2006
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Why ICP in China matters ?
China very important to your company as :Source of products and/orMarket for products
Therefore, local operation
But cultural differences :But cultural differences :� Fast evolving regulatory environment
� “Public officials”
� Outsider/insider view.
Consequently :
Risk of fraud
Risk of image (inside/outside)
Risk of investment
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What are the main and usual risks in China?
•HR risk: staff turnover, leak of confidential information, conflict of interests
•IP risk: product counterfeiting, theft or infringement of IPRs
•Financial & tax risks: credit-risk, unstable tax schemes
•Market & business risks: short product life cycle, low margin, unstructured •Market & business risks: short product life cycle, low margin, unstructured competition, dumping practices.
•Relationship risk: dealings with public officials (Communist Party, administration’s staff, state-owned enterprise’s employees), intermediaries and advisers
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What are the main and usual risks in China?
•Legal risks: - fast changing environment, - uneven enforcement of regulations
•Image risk: - sustainable development, - corporate social responsibility
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Identify and customize ICP elements
Address culture (corporate and other) issues :
Blend “Local” with “Foreign” view point and standards.
Understand environment :
Advice: - internal (quality management)- external (legal, security, etc …)
Communist Party and various administrationsCommunist Party and various administrations
Various authority levels: central, provincial, municipality, city, etc.
Background checks (not one-off!)
Security of data
Family/friendship ties (and pressures/loyalties)
Business gifts
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Identify and customize ICP elements (continued)
Use ICP tools on an on-going basis
Training : do ; don’t (and why !)
Policies/processes: clear and consistent application
Assessment: individual/team/unitAssessment: individual/team/unit
Conflict of interests identified
Audits: regularity and follow-up on-site
Whistle blowing (and investigations)
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Sample of Chop
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Are you the ship’s captain ?
•Company’s seal : the chop(s)
•Joint Ventures•Joint Ventures
•Who are the key officers ?
•Legal representative :
•Confidentiality (discrete use of information)
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CONCLUSION
China is a big country !
Check (and check again !)Check (and check again !)
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Contact Details
Iohann Le Frapper Olivier MarcAssistant General Counsel PartnerAlcatel Euro China Capital54, rue La Boetie 3, avenue de l’Opéra75008 Paris – France 75001 Paris – France
Tel: +33 (0)1 40 76 49 36 Tel: +33 (0)1 42 30 15 12Fax: +33 (0)1 40 76 14 35 Fax: +33 (0) 42 30 15 13Tel: +33 (0)1 40 76 49 36 Tel: +33 (0)1 42 30 15 12Fax: +33 (0)1 40 76 14 35 Fax: +33 (0) 42 30 15 13GSM : +33 (0)6 30 34 43 34 [email protected][email protected]
