The Small Biz Gateway to China

Watts first began doing business in China in 1994, and now the company not only makes products in China, but sells them there, too. In the recent fourth-quarter earnings announcement, the company stated that China segment sales increased a staggering 89% year-over-year.

Smaller companies can simply study Watts manufacturing-plant acquisitions in China over the past decade to see how the company went from contracting in China to being a significant owner of many plants. Really, Watts is a sort of guidebook for smaller manufacturing businesses that hope to grow in China and on a global level.

What are some of the governmental restrictions a small business might face?

If a business is to do more than just contract China manufacturing and services, often the incorporation process can be pretty easy. But there are location-specific governmental issues to contend with.

For example, if a small business would like to become a Hong Kong private limited company, the company secretary must reside in Hong Kong proper, or at least have a registered address in Hong Kong. To avoid this issue, many small businesses often set up joint ventures with local Hong Kong entities.

Any other nongovernmental challenges or risks?

Plain and simple, the threat of having a product or idea ripped off. ... Chinese citizens and companies struggle in a very competitive environment, and thus, both workers and companies have been known to appropriate foreign ideas or product designs, and then either work for another company or simply use the idea themselves.

Though this troublesome issue is starting to find some help from the state council, it is a problem that persists. The PRC made a large step forward in 2001 with the Agreement on Trade-Related Aspects of Intellectual Property Rights [TRIPs Agreement], but for full protection, U.S. companies must file trademarks with the Chinese Trademark Office [CTO].

Despite the CTO, software, technology and manufactured goods are still particularly worrisome. While those affected can seek protection through both administrative and judicial avenues, resolution can be lengthy.