BusinessTN

With a population of 1.3 billion people, China provides a vast market for the import of foreign goods.

“It’s a consumer paradise and is becoming increasingly so as China becomes more of a market economy,” says Catherine Huidekoper, a Kingsport, Tenn., attorney and senior business counsel at Eastman Chemical Co.

According to the Office of the U.S. Trade Representative, U.S. exports to China were up 28% to $284 billion last year, and over the past three years U.S. exports to China have increased 76% while U.S. exports to the rest of the world decreased by 9%. Easily the fastest growing export market for U.S. goods, the Chinese market provides several opportunities for small business across the country.

The United States Chamber of Commerce has been encouraging small and medium-sized businesses to get more involved with international exports, especially to China. Increasing growth opportunities for U.S. businesses via the Chinese export market would partly offset the U.S. trade deficit, which was $124 billion last year. And the more people export, the less they’ll object to U.S. importing, says Franklin, Tenn.-based international trade attorney Michael Deal.

This national logic works just as well on the local front.

“China is the second largest export market for Tennessee this year,” says Dean Peterson, the director of the Nashville Export Assistance Center, “and it has grown more rapidly than any other destination in the past couple of years.

“To date, Tennessee sent $985 million in exports to China, an increase of 237%,” Peterson calculates.

Cotton, by far the largest Tennessee export, makes up 80%, or $756 million, of Tennessee’s Chinese exports, he says. Industrial machinery, manmade staled fibers, and medical, surgical, and optical equipment dominate the other 20% of the market.

“Cotton will probably continue to dominate Tennessee’s sector of the export market, especially now with the anticipated removal of quotas next year,” says Vanderbilt professor of economics Robert Driskill, referring to the expiration of the International Multifiber Agreement, a 40-year-old agreement that imposed import quotas on textiles and apparel.

The WTO Agreement on Textiles and Clothing (ATC) calls for an end to import quotas, and as of Jan. 1, 2005, the quotas will be officially eliminated. With those restrictions removed, Chinese companies more than likely will beef up their textile and apparel exports to the U.S., which means that companies supplying the raw materials for clothing and other textiles, like the ones in Tennessee, can expect to continue to see increasing export dollars.

But it isn’t just the cotton industry that’s reaping the benefits. “Virtually every Tennessee exporting industry has been growing at a fairly rapid rate when it comes to China, so there are significant prospects for local small businesses who want to get involved,” Deal says. Since becoming a member of the World Trade Organization in 2001, China has eliminated several trade barriers. Nonetheless, the transition from a state-controlled economy to a free market economy takes time, and China has a ways to go, Deal warns.

Exporting with any country is a complicated process because it involves becoming familiar with the intricate details of a country’s legal and cultural customs. China especially is a very complicated market, Deal says. It’s hard to penetrate and requires plenty of patience on the part of the U.S. company.

Even with the recent growth in the Chinese export market over the past few years, heightened security efforts to curb potential terrorism and worries about inadvertently aiding in the construction of weapons of mass destruction have caused the U.S. government to regulate Chinese trade more heavily than that of any other country. After all, China is still a communist country, Deal points out. That means exporting goods to China requires that much more paperwork and time.

There are also concerns about the enforcement of intellectual property rights once you’ve crossed into China, Deal says. The legal climate is very different there, and the problems of illegally copying designs or stealing technology aren’t dealt with as efficiently as they would be in the United States. There have also been several issues regarding the enforcement of prompt and proper payment, he says.

The cultural climate of China is very different from the one here. “In China, mostly every business deal begins with personal relationships,” says Chattanooga attorney Terry Olsen. “You simply can’t do business there without personal contacts.” He also warns about the different business practices in China. For example, while bribery is illegal here in the states, it’s often a vital part of networking in China, Olsen says. But no matter how common the custom, bribery remains quite illegal in the United States, so business owners may be well advised to steer away from a “When in Rome...” mentality in their dealings with China.

Because the governmental bodies of China and the United States are so different, Olsen, who is also the President of the World Trade Society of Chattanooga, recommends using Taiwan as a sort of intermediary by forming partnerships with Taiwanese companies that will in turn trade with China.

“The Taiwanese government is similar to the U.S. government and they often have a more American mindset,” he says, “which makes it easier for U.S. companies to do business with them. But they also have established personal contacts with Chinese companies and have already greased the wheels, making the unfamiliarity of Chinese custom less of a hindrance.”

But whether or not you work directly or indirectly with China, the idea of exporting there remains a promising prospect.

Though the competitiveness of the industry makes it challenging to get advice from other companies about how to enter the Chinese export market, there are several assistance centers in the state that can help a small business evaluate whether entering this expanding export market is right for them.