September 3, 2012

China offers opportunity, challenges

As Connecticut companies increasingly look for business opportunities in China, the path to riches isn't always an easy one to travel.

Yes, China has been opening its economy up to a more free-market oriented model over the past few decades but the country still has a communist government heavily involved in the economic sector.

And that can pose significant challenges for non-Chinese companies looking to expand there, experts say.

China's different customs and languages may be seen as a significant hurdle to overcome, but the challenging legal and regulatory environment is typically an even greater cause for concern, said David B. Schaffer, a partner at Stamford law firm Wiggin and Dana.

The Chinese government is heavily involved in the country's economy making it imperative for Connecticut companies looking to establish a foothold there to gain local partners who know how to work the system.

Establishing a joint venture is the way most U.S. companies establish a foothold in China, Schaffer said. In some cases, the Chinese government requires it.

Cigna, for example, has been one Connecticut company focused on increasing its presence in China as the health insurer sees that country's growing middle class and huge population as an attractive market.

The Bloomfield health insurer had to establish a joint venture with China Merchants Group in order to begin selling insurance policies there a few years ago.

But joint ventures can be risky and sometimes make U.S. companies feel less in control of their business, Schaffer said. That is why more U.S. businesses are trying to establish foreign-owned enterprises in China but those models are harder and more time consuming to set up, Schaffer said. “You might be involved in the same venture as your partner, but have very different goals,” Schaffer said. “It's imperative to have local partners you can trust.”

Another major concern is protecting intellectual property, particularly for technology companies.

Schaffer said it's important for U.S. companies to register their intellectual property with the Chinese government because whichever company registers first gains protection. Even after registering, however, IP theft is still a problem.

Schaffer said for a long time China was mainly seen as a low-cost labor source for manufacturing but the country's expanding economy and middle class is attractive to U.S. companies looking to expand their customer base.

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