Do you need a China strategy?

• Author: Kimmell, Joseph W.
• Position: Global Trade - What small businesses can do to establish China presence - Brief Article

More than 400 of the Fortune 500 companies have established Chinese business entities, not only to gain access to China's vast domestic market, but increasingly to produce goods for the North American market.

China's low labor rates, high productivity and public incentives are causing more companies to consider transferring North American production across the Pacific.

Assuming this trend continues, many suppliers to these manufacturers will need to consider whether they will also enter the China market. A supplier will need to understand the numerous ways to establish a presence in China, and to determine quickly which available option is the most effective, at the least risk. It will be important to begin a review of the Chinese market--its opportunities and risks--early, and to develop a strategy that can be implemented when necessary. The company that can move quickly and effectively will gain a great advantage over U.S. and Chinese competitors.

Fortunately, a number of options exist for smaller companies. A company uncertain about the proper strategy may establish a representative office to investigate the business markets, culture, competition, potential customer base, etc., allowing "on the ground" due diligence without risking significant amounts of capital until ready for a more aggressive course.

At the opposite extreme is establishing a wholly owned foreign enterprise, or WOFE, for those companies that are willing to tackle the challenges of that market, and contribute all of the capital required.

In the middle is a joint venture with a Chinese company, sharing capital, technology, market knowledge, customer relationships, influential contacts and, of course, risk. The challenges of such arrangements are numerous. Nevertheless, the joint venture is a possible approach for a company that can identify an acceptable business partner, and work out the difficult issues of control, management, technology transfer and capital investment.

The first step on a China strategy is to learn about the market. China is a...