The Challenges of Starting a Business in China – Part 6 (Opening an Office)
As discussed previously, a physical office is required to receive a business license in China. Finding the perfect office to start with was an exhausting process that took weeks. The first thing we had to decide as a company was whether we want to rent an office that was ready to move in, or get space that would require some renovations and office furniture. If you’ve spent any time searching for rental office space in America you will know that it is traditionally quoted at USD per square foot per year. So if we want to know our monthly cost we have to divide that figure by 12 (months). In China all rental rates are quoted RMD per square meter per day. So to get an equivalent figure for comparison’s sake you have to: multiply the rate by 365 and then divide by 12, calculate the difference between sq. meter and sq. ft and finally calculate the exchange rate. Needless to say, comparison between US and China is a tedious process.
A management fee is also very common in Shanghai and is quoted at RMB per square meters per month, instead of days (as if this subject was not confusing enough). This gets added on after the rental amount but is a fraction of the cost. When looking at space, always ask whether the management fee is included or not.
In Shanghai there is also an efficiency number for each office building that is taken into account when quoting the amount of square meters rented. You need to be aware of this or you might not be comparing apples to apples. This number is used to add common areas into your total square meter number so that you pay for common areas you will utilize, such as shared bathrooms, lobbies, elevators, etc. The implication is that in a case with two different 150 square meters office spaces that have different efficiency numbers, the building with the higher efficiency will actually have more net space. For example if the space was 150 square meters and the building has a 50% efficiency rate, the space you would be renting would actually be 75 square meters.
Most office buildings in Shanghai are on a building-wide HVAC system that will normally be shut off after hours and on Sunday with limited run time on Saturday. I personally looked at several dozen offices and almost all of them had a similar HVAC schedule. If you want to work on a Sunday in the middle of the summer you better be prepared to sweat. Some building-wide systems allow local control limited to five degrees Celsius (plus or minus) with a thermostat in the office space.
When looking for space for Hitcents on a short timeline, I knew it was important to find something we could move into quickly. There are several different kinds of instant offices available in Shanghai that are ready for occupancy at short notice. These styles of offices will normally have shared lobbies, conference rooms, bathrooms, kitchens, and so forth. They also will provide all the office furniture, telephone equipment, and Internet connectivity. The price these is naturally much more expensive than traditional office space. They will normally include your electricity, water, phone, cleaning services, and Internet bill, though. This type of space is commonly in the nicest Class A office buildings and can offer a great location and view of the city. However the actual working space is typically very small: about 5 or 6 square meters per person with desks stacked on top of each other to maximize the number of occupants. Another warning when it comes to instant offices is that although they can provide many services for a small company such as phone, copy, fax, binding, and general office tasks, everything comes with a price. It seems there is a lot of ‘nickel and diming’ when working out of an instant office.
On the other hand, when I was looking for traditional office space it was hard to find something sized appropriately in Class A. Everything was too big for starting a small office with 4 or 5 people. Although the traditional space per square foot was half the price, the additional space would over-shoot the budget. In the end, the smallest traditional space I could find was triple the sizes or more and then you still have build-out and add furnishings. None of the building’s management teams that I met with would help facilitate that process. You’re on your own…
Another interesting thing about traditional office space in China is when a tenant moves out, they are required to pay to remove all their renovations and return the space back to shell space condition. This notion simply blew my mind that companies would spend money to knock down everything they built so a new tenant could start over. I was hoping to find space already renovated that could be moved into, but what I found was that my only hope was to find a tenant in the process of moving out so the tear down process had not started. This narrowed the search greatly.
Ultimately, after an exhausting search and too many options to handle, I decided the best solution for Hitcents was to go with an instant office setup so that we could save capital up front to renovate, as well as time getting everything setup. Once the decision was made, the process of getting things started in the instant office was relatively smooth, we were up and running within a few short days.