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New Path for Trade: Selling in China

Like many American businesses fighting to keep their prices competitive, Vision Quest Lighting turned to China about six years ago. It now imports about a sixth of the two dozen to three dozen parts required to make its lighting fixtures from there. Recently, however, the Long Island company began to see China in a different light: as a sales target. The growing economy of the world’s most populous nation made it ripe for Vision Quest’s architectural lighting fixtures, many custom-made for hotel and restaurant chains like Hilton and KFC.

When one such client, a clothing retailer, ordered 1,500 lights for five stores, Vision Quest’s chief executive, Larry Lieberman, decided it made sense to start manufacturing lights in China. Other American clients, he reasoned, would no doubt begin placing similar orders as their chains sought to capitalize on the world’s fastest-growing consumer market. And with high-quality products from the West coveted in China, Mr. Lieberman also imagined his products on display in Chinese showrooms.

And yet, selling goods in China is not easy. Mr. Lieberman made the 1,500 lights only to see them gather dust in a warehouse in Guangzhou for more than four weeks because he had not yet established a local enterprise approved to process sales.

“The customer couldn’t pick up the goods because we were still trying to set up something so they could buy them correctly and pay the right tax,” he said.

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With help from an experienced consultant, Mr. Lieberman finessed the impasse by selling through an established local company, and he remains bullish on cracking the Chinese market — as do many other small-business owners. After all, China, according to a 2012 McKinsey & Company report, From Mass to Mainstream, will be the world’s largest growth market for many years.

This small-business guide offers tips for getting started based on the experiences of entrepreneurs and small businesses that have already tried.

BILINGUAL IS NOT BICULTURAL Lou Hoffman is founder and chief executive of the Hoffman Agency in San Jose, Calif., a communications consulting company that generates more than 50 percent of its revenue in Asia. Mr. Hoffman planted his flag in China in 1999.

“I thought I was in not just another country but another universe,” he said. “It starts with the language, but goes much deeper. We couldn’t do business on the phone or by fax. Placing our first classified ad took 14 hours. We had to do everything in person, and considering the traffic in Beijing, you could kill three hours so someone could see your face.”

Instead of dispatching a lieutenant from his California headquarters to open a satellite office in Beijing, Mr. Hoffman delayed expansion for nearly a year.

Instead, he hired a Chinese national and embedded her in his San Jose office for 10 months so she could learn his agency’s culture, then carry it home with her. “We wanted someone able to interview people in their native tongue and able to bridge the cultures, which she was able to do,” Mr. Hoffman said.

SET UP SHOP AS A WFOE Although it is possible to scout opportunities with a so-called rep office and to do business in China by selling through distributors or by licensing products to a Chinese company, most American businesses that are serious about selling in China invest the time and money to establish themselves as a wholly foreign-owned enterprise, or what is known as a WFOE (pronounced WOOF-ee). “We do probably 100 WFOEs for every rep office,” said Dan Harris,  a lawyer with the Seattle firm Harris & Moure who writes a blog about Chinese law and business. “Legal fees for company formation, trademark and employee contracts and manuals typically run around $30,000 to $45,000.”