In 2006, the company established its WFOE and manufacturing facility in China, which operated independently with limited supervision from its headquarters. After more than seven years of operation, the company requested an operational audit for insight into its WFOE’s performance, especially in areas of finance and operational risk control.
The investigation was conducted by PTL Group’s audit team, which consists of specialists from admin, HR, logistics, trading and finance. The following critical facts and risks were uncovered:
- Cash flow problems: The cash reserve did not match the increase in sales. The lack of cash flow and existing large loans damaged the company’s profits and were extremely risky. A great deal of capital was tied up in accounts receivable and stocks. This put high pressure on the company to ensure sufficient cash flow availability for running daily operations.
- Legal risks pertaining to contract management: Many flaws were uncovered in the plant lease as well as in various logistics, sales, insurance and labor contracts.
- Other internal control risks: The company had no documentation of internal workflows. The financial supervision function was lacking. There was no practical methodology for metal sourcing, management & disposal, as well as recycling – all of which needed to be improved.
The company understood that the issues uncovered in the operational audit can potentially jeopardize the company’s sustainable development. Company management agreed to the audit team’s suggestions regarding organizational restructuring, process definition and documentation, the establishment of a financial approval system, supervision and quality management improvement and the establishment of diverse internal control mechanisms.
Establishing an Assembly Factory
In 2005, PEP Filters started to sell a product in China through a Singaporean distributor. The product, which was manufactured in the United States, faced strong competition in the Chinese market. There were great distribution difficulties throughout Asia due to a long lead-time, no technological advantages, lack of control and high price.
With PTL Group’s support, the following changes were implemented:
- Establishment of assembly operations in China within 3 months
- A gradual shift of sourcing to local suppliers and product localization
- Initiation of direct sales in China
In addition, PTL Group took responsibility for bonded and front warehousing, financial planning, site operations management, establishment of legal entities, invoicing & collection facilitation, insurance and ERP.
A significant cost reduction in bill of materials and lead-time, as well as a reduction in global cost, helped significantly improve penetration rate in China. These results were accomplished with one foreign engineer, one local engineer, two temporary assembly workers and one sales manager. The PTL Group team managed all support operations for Pep Filters.
Building a Sales Structure for a Service Company
Establishing the initial sales structure and training facilities for John Bryce Training in the Chinese market.
Facilitating local education licenses and VAT invoicing services, which are a key requirement for large clients and state-owned organizations.
In 2007 John Bryce Training entered the market using PTL Group’s infrastructure. PTL Group recruited the GM, the sales team and the initial trainers, while also providing a shared office space in Shanghai and Beijing, as well as classrooms for the training sessions.
As a result, John Bryce Training’s GM and sales team were able to focus more on business development, while the PTL Group team provided facility management and handled HR and financial aspects. When the sales team sold a course to a local customer, PTL Group would sign a service agreement with the customer, collect payment for the course and issue a formal VAT invoice.
Later, PTL Group’s marketing team provided marketing support for a period of two years, thus laying the foundations for the company’s marketing database and branding.
John Bryce Training focused on the key functions of its business, while PTL Group provided the infrastructure and facilitated the hard-to-get education license and invoicing capabilities. This collaboration also allowed John Bryce Training to reduce numerous HR and commercial risks.
Storage and Distribution for an Established WFOE
As a Rep. Office, the company could not sell locally in China and needed a reliable partner to execute its entire logistics process. Still years later as a WFOE, the company needed a reliable logistics partner, as they faced enormous difficulties regarding the import of their goods into China.
PTL Group was able to use its experience and relationships to import the company’s goods (despite strict restrictions for this line of products), store the goods in its warehouse in Shanghai, sign sales contracts with local clients, collect client payments, issue local VAT invoices and transfer the money back to the company’s HQ.
Even later, after establishing its own WFOE, the company elected to continue using PTL Group’s warehousing and distribution services (in both bonded and non-bonded warehouses) to manage their stock, while using its WFOE as the importer and seller of goods.
Using PTL Group services, the company’s team in China was able to increase their sales due to a competitive advantage gained by the shorter lead time and the ability to sell products in local currency. The company benefited from full transparency pertaining to supply chain control – from home country to end user.
The company’s business results allowed it to grow large enough to justify the establishment of a WFOE. At the same time, the company elected to rely on PTL Group’s provided services so that they could continue to efficiently manage their remote team in China while focusing on their core business.
Incubation Solutions for Factories
The company had already been selling its products for a few years in China through a sales representative. In fact, the company was one of the main suppliers for a large organization in China, which requested them to start manufacturing locally in order to reduce their manufacturing costs.
As a partner in the Changzhou Industrial Incubation Initiative (CI3), PTL Group offered the company a space of 1,000 sqm in the incubator building (13,000 sqm). PTL Group also managed the entire assembly plant establishment process.
After the space was ready, the PTL/CI3 team assisted the company in recruiting major production line positions, the GM and QC managers, as well as in managing the entire production license and GE vendor certification obtainment process.
PTL Group also helped the company with local purchases, machinery installations and the importing of components, tools and machinery. This while managing all HR, financial and logistics issues, as well.
From Sales and Distribution to Factory Incubation Solutions
Since the 1990s, the company had been selling its products in China through a distributor. In 2008, in order to penetrate the Chinese market, the company started selling directly in China by hiring a Sales Manager recruited and hosted by PTL Group. After facing product distribution difficulties, the Sales Manager assessed that the competitors were manufacturing directly in China and therefore were able to sell their products at a much cheaper price. Moreover, the company’s import licenses had to be renewed but the renewal of the CFAD license, which is required for imports, had been rejected.
PTL Group dedicated a space for the company’s factory within its incubation facilities (1000 sqm). PTL Group managed the entire process of set up, import of machinery, installations and the company’s WFOE registration so they could apply for all the required licenses.
PTL Group was able to assist the company in establishing its own local manufacturing entity while obtaining an CFDA license and all other necessary licenses required for product manufacturing and sales.
The factory quickly moved into full production and is now selling locally made products, having overcome regulatory obstacles and evenly coping with the local competition.
Financial Audit, Financial Management and Liquidation
AVT had established a subsidiary in Northern China, in order to enjoy tax benefits offered by the region. Yet over the years, it seemed that the company suffered some financial difficulties regarding said tax benefits.
PTL Group commissioned a financial expert to conduct a complete financial audit in order to map the company’s complete financial and tax situation, and to review alternative options.
The audit results clearly showed that there was no financial justification to keep the company in its location. The results showed that the company would be better off shutting down operations in that location and seeking a better place.
PTL Group’s financial experts took over AVT’s financial process management for the following months, in order to perform company liquidation in the most efficient, legit and reasonable way possible.
PTL Group was able to clear all accounts payable and accounts receivable issues, close bank loans, submit employee termination plans, clear all tax issues, and facilitate the release of AVT from its liabilities in China without any complications.
After PTL Group managed the company’s factory setup in China, the company needed a purchasing professional to buy the vitamins required for production. At the same time, the parent company who up until then had already recruited a purchasing employee in China, was suddenly notified that this person had resigned.
One of PTL Group’s skilled managers fulfilled company’s purchasing management tasks. The work required in-depth knowledge of the chemical industry, which the PTL Group Manager acquired with the support of PTL Group’s logistics and administrative teams.
PTL Group’s dedicated manager became an expert in purchasing the ingredients required and continued to do so for the next few years. The manager quickly became completely occupied with the company’s purchasing needs, and as a result PTL Group, the manager and the company all decided that it would make sense for the manager to become an employee of the company.
VAT Refund and Bookkeeping Renew/Redone
The company established a local WFOE to run design and sourcing activities in China. Two years later, a new GM was sent from Australia to manage the company’s operations – but he had no experience in running a company in China.
When the accounting firm declared that VAT refund cannot be claimed, the GM requested that PTL Group perform an Operational Audit to help sort out VAT matters, as well as other issues.
The Operational Audit revealed that the entire bookkeeping records were wrong. In addition, the warehouse records were wrong and could be changed manually by the WH keeper. Moreover, the employment contracts were not in place. Many other small problems were discovered. VAT refunds could be claimed, yet since bookkeeping was so poor, providing the required evidence was a hard task.
PTL Group’s professional team took over the company’s bookkeeping, HR and accounting.
- All books had to be redone two years back.
- All HR documents had to be reviewed and improved.
- WH records were checked and supervised on a monthly basis.
VAT refund was successfully received (1/2 million RMB).