Definitions

commercial enterprise

Wholly Foreign Owned Enterprise

The Wholly Foreign Owned Enterprise or '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. 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 right to distribute their products in mainland China though a recent variant (the Foreign Invested Commercial Enterprise WFOE) has the ability to do so.

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