China Bound

More young companies are scaling the Great Wall

Tim Curran, CEO of Cambridge (Mass.)-based Eleven Technology, wasn't exactly eager to expand his 40-person, $3.7 million software company into China. There were the time-zone, language, and cultural differences, not to mention the threat to his intellectual property. "All the risks were spinning in my head," says Curran.

Yet since March, 2005, Eleven has hired 14 workers in Suzhou, about an hour from Shanghai. By next year, Curran expects to have 20 people in China.

Curran made the move in part because of a 75% savings on development costs and a new market for his software, which helps sales reps and distributors manage sales and inventory on handheld devices. Then there's the zinger: Curran's largest client, a global beverage concern, wanted Eleven to come to China to provide customized service and local support.

Curran hired a consultant to help obtain a license to sell software in China and issue invoices in Chinese currency. He hired an attorney in Shanghai to help with IP and piracy issues. And he hired a Beijing-born manager to be his eyes and ears in Suzhou.

It's not just the push from big businesses. China's entry into the World Trade Organization and significant reductions to registered capital requirements are allowing more U.S. companies to do business there. And rising Chinese incomes are making a large consumer market even more appealing.

Venture capitalists such as Battery Ventures, DCM-Doll Capital Management, and Draper Fisher Jurvetson are actively looking to back new small businesses moving into China. "If an entrepreneur seeks VC funding and doesn't have a competitive strategy to leverage less costly resources in China or India, it could be a black mark against them," says Jesse Parker, president of Needham, Mass.-based Changsha Consulting.

A wide range of outfits -- not just those in tech -- are feeling the pressure. "We are definitely seeing both an uptick and broadening in the type of young companies moving into China," says Jack Daniels, president of EastBridge Partners, a Boston and Suzhou-based consulting firm that advises smaller companies. "Classically, it was makers of industrial products and electronic components. Now it runs the gamut."

Just look at Cambridge (Mass.)-based AgaMatrix, a 49-person startup that makes a glucose-monitoring device. "We can do the prototyping process and many more product iterations in China, reducing the time to market by 60% with a cost savings of over 75%," says CEO Sonny X. Vu. Next he wants to be selling to the Chinese by 2006. For many small-company CEOs, the 40-hour round trip to China is becoming all the more worthwhile.

By Katherine Heires

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