Investment in China

Foreign investors and small business often say manufacturing in China is a blessing for them.

Although some small business find it “awesome” working with Chinese factories, others are dissatisfied about the “quality” of the products they get, or find themselves pulled into the legal battles between corrupt brokers and manufacturers.

Considering Doing Business in China?

In US, there are several small businesses who think they could not find the type of manufacturing companies they were looking for, or simply put, couldn’t afford the cost of establishing and running a business in their home country.

Jensen Wheeler, for example, who owns eco-friendly yoga mat manufacturing company for children who are 4 and under, says that she was unable to find an American factory specializing in thermoplastic elastomer (TPE) – the fabric she required for the mats.

“I could not find a manufacturer specializing in TPE in the US,” says Jensen, “and that’s why we (herself and other yoga mat companies) had to go to China or Taiwan.”

Small business owners in US choose China simply because they offer variety of products and the lower price point.

“I wanted better profit margins as well as reduce the cost of supplies. After a Google search, I landed upon Alibaba.com,” says Julie Degnan, who is an owner of Cakes and Kids – a party supply company in California.

Degnan was worried whether she’ll get what she hoped for, and the quality would be up to the standard. But she says that her research had paid off well as she was pleased with the results.

“Plus, people in China speak English really well. I didn’t have any issues with communication,” says Degnan. On the other hand, Wheeler says that some Chinese manufacturers she had worked with weren’t very responsive.

“If the answer is no, they just don’t reply,” says Wheeler. She now works with a trade rep, who communicates directly with the manufacturer.

Similarly, Ric Kostick, CEO at 100% Pure, says his cosmetic company received products that weren’t up to standard.

“I received tubes that were split, however, they (factory) changed the material, refund us, and fixed the problem,” says Kostick. He has also been happy with the packaging manufactured in China though.

“Most people fear if the quality goes bad, however, it can actually be better,” says Kostick.

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Unprepared Entrepreneurs – Legal Dangers Awaits You in China

International lawyers say many small businesses will likely fall prey to serious legal issues while dealing with Chinese manufacturers. The best way to avoid that is to partner with a good manufacturer.

Sites like “Alibaba” are simply not enough.

“The best way is to visit China yourself, pay someone to find the ‘right’ factory for you,” says Dan Harris, an International lawyer whose firm Harris & Moure authors the powerful China Law Blog.

Establishing a face-to-face relationship is the key here.

“If you simply go there, the company knows you are serious. Nobody cares if you order a $20,000 worth of widgets from US. But if you just show up, they’ll perform better,” he says.

Similarly, Harris recommends entrepreneurs beware of scams and thieves – dishonest workers or non-existent factories that plaque Chinese market.

“One way to make sure your Chinese partner is legal is to check their business registration, or ask a Chinese lawyer to investigate at the regional or provincial corporate office.”

Most US businesses have sent over $1 million and have got nothing in return. There was never a company in China. While you may think it would be better hiring a Chinese broker, Harris considers this as another “risky” move too.

“Almost 50% of those brokers are incompetent, while other halves are simply crooks. Fortunately, about 10% of them are invaluable,” opines Harris.

While some brokers run off with your money, others simply don’t place an order. Some of them take a bigger cut of money they actually don’t deserve, or send fewer amounts to the factory, that ultimately results into an “inferior” product.

In spite of all these challenges, if you put in time, energy, and money in order to establish a great working relationship with a Chinese manufacturer, it certainly pays off at the end for many small business entrepreneurs.