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Internal Controls In China
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Internal Controls In China

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Overview of key risks in China for investors and companies dong business in China. …

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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  • 1. Implementing an Internal ControlPlan for your Chinese Operations Iohann LE FRAPPER Olivier MARC Assistant General Counsel Partner Alcatel Euro China Capital C5 Conference – China Trade – London 18/09/2006
  • 2. Why ICP in China matters ? Page 2China very important to your company as : Source of products and/or Market for productsTherefore, local operationBut cultural differences : Fast evolving regulatory environment “Public officials” Outsider/insider view.Consequently : Risk of fraud Risk of image (inside/outside) Risk of investment
  • 3. What are the main and usual risks in China? Page 3•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 competition, dumping practices.•Relationship risk: dealings with public officials (Communist Party, administration’s staff, state-owned enterprise’s employees), intermediaries and advisers
  • 4. What are the main and usual risks in China? Page 4•Legal risks: - fast changing environment, - uneven enforcement of regulations•Image risk: - sustainable development, - corporate social responsibility
  • 5. Identify and customize ICP elements Page 5Address 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 administrationsVarious authority levels: central, provincial, municipality, city, etc.Background checks (not one-off!)Security of dataFamily/friendship ties (and pressures/loyalties)Business gifts
  • 6. Identify and customize ICP elements (continued) Page 6 Use ICP tools on an on-going basis Training : do ; don’t (and why !) Policies/processes: clear and consistent application Assessment: individual/team/unit Conflict of interests identified Audits: regularity and follow-up on-site Whistle blowing (and investigations)
  • 7. Sample of Chop Page 7
  • 8. Page 8Are you the ship’s captain ?•Company’s seal : the chop(s)•Joint Ventures•Who are the key officers ?•Legal representative :•Confidentiality (discrete use of information)
  • 9. CONCLUSION Page 9China is a big country !Check (and check again !)
  • 10. Contact Details Page 10Iohann Le Frapper Olivier MarcAssistant General Counsel PartnerAlcatel Euro China Capital54, rue La Boetie 3, avenue de l’Opéra75008 Paris – France 75001 Paris – FranceTel: +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 olivier.marc@eurochina-capital.comiohann.le_frapper@alcatel.com