As China becomes a larger player in the global marketplace, more U. S. companies are looking to enter this emerging market. The thought of how to handle issues like customs, taxes and the language barrier, however, can make the small business owner feel overwhelmed. The U.S. Commercial Service, the trade portion of the International Trade Commission, has some unique opportunities to help a company of any size research the possibility of exporting to this market.
“It’s only appropriate that people are interested in China and thinking about how they should approach the market,” said Craig Allen, Minister-Counselor, Commercial Affairs. “The prospects for growth are very good.”
According to Allen, much of the growth in China is centered in the manufacturing sector. “The investment in assets particularly in the manufacturing sector is very high,” Allen said. “There is a lot of new production going in.”
Allen cites both challenges and opportunities when entering the Chinese market. “Chinese manufacturing has improved both quantitatively and qualitatively at a rather spectacular rate,” according to Allen. “Many American companies are directly facing that challenge.” There are opportunities, however, when an American company looks to enter this marketplace. “Americans are selling an awful lot of equipment into Chinese factories,” said Allen.
Entering the Market
There are multiple ways for an American company to access this market. According to Allen, many companies are providing manufacturing equipment to Chinese factories. “Most American investment going into China is to serve the Chinese domestic market, particularly in the services and manufacturing markets,” Allen said.
“Many American companies, American workers and American farmers who have figured out how to get into the China market are doing very well. Profitability is relatively high if you look at surveys by the American Chamber of Commerce.”
A multitude of research on the Chinese market can be found at the Chinese section of the U.S. Commercial Service website. “We have a tremendous amount of data and market reports online,” said Allen.
The U.S. currently exports approximately $42 billion in goods to China. “It’s our fourth largest export market and growing very rapidly,” Allen said. Exports to China have grown a minimum of 20% each year since 2003 and continue to grow at a “phenomenal rate,” according to Allen.
Research and Due Diligence
For U.S. companies interested in China, Allen recommends starting with the local Commercial Service office. This research can help determine the first necessary and crucial steps in entering this emerging market.The Commercial Service has a variety of programs available for the American company to easily test the market for their industry. At the lowest risk, a company can place an ad on the U.S. Embassy website as the “featured exporter.” The only cost to the company is the charge for translation of the ad, approximately $50. Another option is to take an ad in the publication CNUSA (Commercial News USA). This magazine lists companies interested in exporting to China. The entire magazine is translated into Chinese and is circulated to 15,000 distributors and agents in China, Taiwan, Hong Kong and Singapore. Again, the only cost associated with the ad placement is for translation; approximately $250.
“If you use one or both of these methods, it’s a good way to determine that there is a good market,” Allen said. “It’s a good way to calibrate.”
If the possibility for exporting to the Chinese market looks positive after some initial, low-risk assessment is completed, the U.S. Commercial Service can then assist in an International Partner Search. “We will take company catalogs and materials and get you a list of qualified agents to represent your products,” according to Allen. This is however, a very complex process. “We need to ensure the quality of the agents.”
Allen warns about the high level of business fraud in China. “You need to be very careful in selecting whom you are going to be working with and an introduction from the U.S. Embassy is a very useful indicator of quality,” Allen said. If you are approached by a Chinese company, the Commercial Service can complete due diligence on the company’s behalf and complete background checks on the owners. “There is such a ‘wild west’ high fraud attitude, it’s really important that you do your due diligence,” Allen said.
At this point, a visit to China may be in order. Again, the Commercial Service can assist the business owner by setting up appointments in any of 20 major cities. “We have a network of offices around China in all of the regional cities,” Allen said.
Another possibility is to participate in a trade show in China. Again, the Commercial Service can be of assistance in determining the best placement for the business. The Commercial Service has American pavilions in 40 different trade shows in China. “Going to a trade show is a great way to test the market and understand your competitors,” Allen said. Since the Chinese trade show industry is very fragmented, partnering with the Commercial Service will help ensure a positive experience.
“We have a whole range of services to cover the whole country to support American manufacturers wanting to find an agent or distributor or expand their sales,” remarked Allen.