WFOE Organizational Structure – A Complete Guide

WFOE Organizational Structure – A Complete Guide

The Chinese economy has become the world’s largest, thanks to 30 years of continuous economic growth. The economy enjoyed double digit growth rates before 2013 and even after 2013, its growth rate hasn’t gone below 6.5%. 

These explosive growth rates are the result of a market environment that’s conducive to local businesses as well as to foreign investors. The Chinese market is known for its cheap skilled labor, abundant raw material, and numerous technological advancements. This market success has drawn huge amounts of FDI over the years. Most of these foreign investors enter the market in the form of a WFOE.

A Wholly Foreign-Owned Enterprise (WFOE) is an organizational setup in China that’s owned entirely by foreign investors. It has a separate financial legal identity and operates in a 100% autonomous manner.  WFOEs offer flexibility, economic freedom, large capacity, and great profit potential.

Now that we know that WFOEs are economically viable, let’s see how they operate and what their organizational structures look like.

Management Structure

Management structure is the internal set-up of a company, based on which the organization is run. Like all limited companies, a WFOE is owned by shareholders and run by directors. Shareholders take fundamental decisions for the company and the management is answerable to them. Generally, two management structures are applicable for WFOEs.

Board of Directors

Consisting of three or more directors, the board is elected by shareholders in an Annual General Meeting (AGM). One of these directors becomes the chairman and all of them can further divide responsibilities between themselves and decide upon the lower organizational chart.

Executive Director

A WFOE can also have just one Executive Director. This option is chosen when the company has a few or just one shareholder. The scale of the business is small in this case, so even one executive director can get the job done.

Lower Management

Upper management directors have a lot of powers, and one of them is the authority to decide upon the lower management structure and functions. As we know, an organization has different internal functions, like marketing, accounting and finance, human resources, supply chain, etc.

Directors decide the chain of command and span of control of these departments. They can also choose to divide these functions product-wise or area-wise, depending on their vision for the internal workings of the organization.

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