FAQ on outsourcing in China
1. Q: What legal structures are commonly used in an outsourcing? And what are mainly advantages and disadvantages of each type?
A: There are mainly 3 types of the legal structures are commonly used:
a) Prime& Sub arrangement. In using this structure, all contractual arrangements with the customer occur offshore, the customer does not need to directly deal with PRC technology import/export restrictions, as this is done by the offshore outsourcing provider.
b) Captive service operations. Under this type of arrangement, the customer maintains control of the supplier and its operations, including resource dedication and technical capabilities and confidentiality and data security issues are minimized, however since the services remain within the customer group, dedicated suppliers are able to leverage their expertise and experience, which allows them to stay abreast of current regulations and employ the latest technology.
c) Conventional agreements. For this type, suppliers are able to leverage their expertise and experience, which allows them to stay abreast of current regulations and employ the latest technology and cost reduction is often maximized due to the supplier’s expertise in and focus on outsourcing, in addition to economies of scale. However, the customer loses a large degree of control over the outsourced service operation and confidentiality and data security risks are heightened.
2. Q: How to select a supplier of outsourced services?
A: The prudent customer shall follow the following formalities to enter into a relationship with a supplier in the PRC: Request for proposal—Invitation to tender ---Due diligence on the supplier’s capabilities—Negotiation.
3. Q: How to transfer assets on an outsourcing?
A: To transfer assets on an outsourcing, different assets have different formalities: a) For immovable property, companies and individuals can own the title to buildings and fixtures on the land by obtaining the title certificate from competent authorities. As all the lands belongs to the governments, companies and individuals can be granted with the land use right by contracts.
b) Movable property, written agreements are commonly required, and the legal title transferred upon delivery.
c) IP rights and licenses, written assignment agreements are necessary and relevant registration formalities are also required in according with relevant rules and regulations.
4. Q: Is it possible to transfer employees?
A: No, an employee is not transferred by operation of law, however, employee can be transferred to the transferee to provide service through the following two ways:
b) Enter into a new employment contract with the transferee.