The Wholly Foreign Owned Enterprise, abbreviated WFOE, is a common investment vehicle for mainland China-based business.  The unique feature of a WFOE is that involvement of a mainland Chinese investor is not required, unlike most other investment vehicles.  WFOEs are limited-liability corporations organized by foreign nationals and capitalized with foreign funds. This can give greater control over the business venture in mainland China and avoid a multitude of problematic issues which can potentially result from dealing with a domestic joint venture partner.  Such problems often include profit not being maximised, leakage of the foreign firm's intellectual property and the potential for joint venture partners to set up in competition against the foreign firm. However, WFOEs often have difficulty building up the necessary personal relationships or 'guanxi' which are of great importance in conducting business in mainland China.
WFOEs are often used to produce the foreign firm's product in mainland China for later export to a foreign country. They do not automatically have the right to distribute their products in mainland China, though a recent variant (the Foreign Invested Commercial Enterprise WFOE) has the ability to do so.
WFOE's are among the most popular corporate models for non-PRC investors due to their versatility and unique advantages.
Such advantages include:
- the ability to uphold a company's global strategy free from interference by Chinese partners (as may occur in the case of joint ventures)
- total management control within the limitations of the laws of the PRC
- the ability to both receive and remit RMB to the parent company overseas
- increased protection of trademarks and intellectual property, in accordance with international law
- shareholder liability limited to original investment
The disadvantages of establishing a WFOE include the inability to engage in certain business activities and limited access to government support.
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