Scaling the wall

Entrepreneur, June, 1998 by Charlotte Mulhern

What country has the world's fastest growing economy? You'd be right if you guessed China. And with a consumer population of approximately 200 million, it's no wonder foreign companies worldwide are scrambling for a piece of the pie.

As you'd probably expect, U.S. small businesses don't intend to be left behind, despite the difficulty of achieving success in this communist nation. A recent U.S. Chamber of Commerce survey spotlighted the trend, concluding that small American companies are big investors in China's economy.

And that should continue, assuming the United States renews China's Most Favored Nation (MFN) trade status this year, next year and beyond. Although it sounds like an agreement of special privilege, 180 countries across the globe hold this nondiscriminatory trade agreement with the United States. But an MFN denial would drastically raise tariffs on Chinese imports and probably cause China to retaliate. Experts fear such a move would severely damage China's economic relationship with the United States.

There's also the issue of the Asian financial crisis. Although some experts were speculating at press time that China and Hong Kong might feel pressured into currency devaluation, authorities insisted on the contrary. For now, China has avoided most of the impact. Hong Kong, on the other hand, is experiencing some problems in investment banking, real estate, tourism and its international credit-rating agencies. The advice here? Look before you leap.

For now, entrepreneurs such as Michael Ross, owner of Dallas-based Great Western Trading Co. Inc., an importer of Chinese home, lawn and seasonal decor, are prospering. "I find doing business with China easy and rewarding," says Ross, who works with 15 factories in China and Hong Kong. "But you have to do due diligence on everything."

Of course, that's true any time you go international, especially if you want to go beyond basic importing into something more complex, such as opening a location in Beijing. "The primary qualifications are training, experience and a successful track record," says Paul Marcus, president of Boston Business Consultants Inc., an international investment and business advisory services firm specializing in China.

Marcus also warns that opportunities in China might be missed unless you've mastered certain market advantages. "An American with low capital resources and limited technological resources is going to have a real battle," he says. "Doing business in China is time-intensive, financially intensive work." That means you need to make sure you can afford to operate an office in China for a mininum of two years.

Since most Chinese professionals speak English well, language differences shouldn't hurt your chances of success, but that doesn't mean communication will always be easy. "China has a rapidly changing, increasingly sophisticated, entrepreneurial business community," says Marcus. "They're highly competitive on an international basis and are very capable of discussing Western business concepts and issues. The question really is, do you have the experience to navigate within the community and bridge not only the cultural differences, but the business differences, [too]?"

AT A GLANCE

Population: more than 1.22 billion Capital: Beijing Monetary unit: yuan GDP: $283.6 billion Unemployment rate: 7.5% Total exports: $122.1 billion Total imports: $114.4 billion

SOURCE: GOVERNMENT INFORMATION OFFICE, CHINA AND FAR EASTERN ECONOMIC REVIEW