Small-business owners with an eye on expansion should take a serious look at China.Sure, the headaches are many and road maps are scarce, but with China's unprecedented growth, small businesses in the U.S. risk falling behind the competition if they don't learn to sidestep the hurdles and head East. By the end of the year, China will stand as the third-largest market for U.S.-made products, up from only sixth-largest in 2002. "China might be the last frontier for a U.S. privately held company to become bigger," says Alexander Pan, CPA and tax partner in the China Business Group of PricewaterhouseCoopers. China's growing middle class, low labor costs (by 2010 manufacturing labor costs are still expected to be more than 10 times lower than in the U.S.), crumbling regulatory barriers and entry into the World Trade Organization have made it an attractive country for private companies that are seeking to expand. According to PwC's Private Company Services paper on establishing a business presence in China, 62% of companies surveyed by the American chamber of commerce in China in 2005 reported that their number one business goal was to produce goods and services in China for the domestic market. Unlike Fortune 500 companies, the owner of a private company doubles as decision maker, a trait that allows such companies to move quickly and flexibly in China's fast-growing economy. Over the past 10 years, Pan has seen small importers expanding from a million dollars in sales to a half billion.
"China is still in the tradition of distribution," says Pan. "The U.S. market won't provide that fast of a growth opportunity." Among 610,000 businesses in China, he points out, 50,000 are U.S. companies, the majority of which are not publicly traded. But before packing the covered wagon and heading overseas in search of growth gold, U.S. privately held companies need to be aware that the climate in China's rapidly expanding economy can be as wild as the old West. The idea is to know your new terrain.