10 Steps to Starting a Business in China #1

China's fast-growing consumer class is giving business owners new reasons to set up shop abroad. Here's how to start and grow your business.

Lou Hoffman, CEO of the public relations firm The Hoffman Agency, wanted to place a recruitment ad in a Chinese paper for his new office in Beijing.

Back home in San Jose, California, he would have simply faxed it to the local paper.

In Beijing, he had to get the ad approved by four different government agencies - in person.

"It's a huge city, and there are traffic jams 9-5," he recalls. "We drove to the first agency, and they approved it. We drove to the next agency and they approved it. We drove to the third agency and they said, 'You'll need to tweak this.' So we needed to go back to the first agency because what they approved wasn't right anymore."

Getting one classified ad approved took Hoffman about 18 hours total.

"In the big scheme of things, it's not the end of the world," he says, "but it was a symbol that I was in a different world and how they get things done is completely different."

It's a realization all foreign business owners entering the Chinese market have to face, and while it may be frustrating to forgo all your Western sensibilities, experts say it's worth it to stake your claim in this growing consumer market.

"Today's story is all about the new Chinese consumer. There's been a huge growth in disposable income, and the Chinese are ready to spend," says Robert Collins, co-author of Doing Business in China for Dummies.

"Europe's mired in mud. The U.S. economy's flat. So where's the action? It's in China," Collins says. "If you want to play, you've got to be here."

We've mapped out the 10 steps you'll need to take to get there, and it involves a lot more than getting a visa.


1. Do your homework.

Lucky you. You're not the first United States citizen to break into the Chinese market, so you don't have to learn the tough lessons the hard way (well, not all of them at least).

"There's no reason to be reinventing the wheel on things people have done before that could be avoided," says John Frisbie, president of the U.S.-China Business Council, based in Washington, D.C.

Talk to people who have opened offices in China. Ask them how they succeeded and especially how they failed. It's not just the Americans you need to talk to, either. Frisbie says you should travel to China and start networking at local trade shows, as relationships are crucial to doing business in the country. A calendar of trade shows is available here.

Make sure you're informed about the state of the industry you're in. A lot of this research can take place from your own home. Check out the five-year plan that the Chinese government publishes, which details what types of businesses they're looking for.

Dan Harris, a Seattle-based blogger and founding member of international business law firm Harris & Moure, says, "China wants high-tech. China does not want pollution. They want businesses that will give a lot of people good jobs, and they want to encourage development inland."

Because China's government is so tightly affiliated with its businesses, knowing what the government wants will help you draft your business plan later on.



2. Pick a location.

At this point, you have an entire country at your disposal, but you can't set your business down just anywhere and expect to be a success.

First, get to know the big cities. Shanghai, Beijing and Guangzhou are the major business, government, and industrial centers. The very nature of your business may require you set down in one of the big cities. If you're a tech company, for instance, Beijing may be the place for you. Find out where the action is happening in your industry.

The major business centers aren't your only options, either. Some companies find moving inland to be the better bet. Ken Wong, president of the holding company Covenant Group of China suggests asking yourself the following questions, especially if you're selling goods rather than services, to determine how near to or far from the coast you need to be:

* What are your transportation needs?
* What are your logistical needs?
* Are you relying on goods that may be imported to China?
* How can you get the goods from the port to your location?
* What government inspections and restrictions will you be subject to?

Once you've settled on a region, you have to find an office, since you'll need proof of a lease to register your business.

"You have to get an office rent agreement and you can use that as your office address," says Thomas Yang, a Philadelphia-based legal consultant with Stevens & Lee, and former judge and corporate lawyer from China. The agreement essentially promises you the space on the condition your business gets approved.