Rather than making a quick decision, Ann should encourage her management team to take the following four-pronged approach to building capabilities in the Chinese market. She should:

1. Establish a small office in China. EDC’s immediate need is to begin to collect information about the Chinese market and to develop vital local relationships. The market changes daily, so having a local operation to collect current information is essential, especially since published statistical data are either limited or unreliable. Chinese bureaucracy can also present formidable difficulties: the local EDC office’s secondary goal should be to establish and build up a local network of contacts with government agencies, suppliers, and potential partners.

2. Assess the scale of the opportunity. Once the EDC team in China has been in place for a few months and has a firsthand perspective on the Asian business environment, the company can begin to assess the true scope of the opportunity. In particular, EDC must decide how important price is to Chinese consumers. It may be possible, for example, to cover some of the higher U.S. manufacturing cost through a price premium based on the Western brand name, although the team will need to assess local customers’ ability to afford the products if they must pay in foreign currency. Ann and her team will also need to understand how quickly the bicycle is evolving from a basic mode of transport into a recreational product as Chinese consumers become more affluent. To pull it off, EDC must identify the appropriate product/market strategy; the company must also determine how much regional customization of its product lines will be required.

3. Identify and evaluate entry options. Next, the group can begin to assess entry strategies. Preserving flexibility should be the overriding criterion, and again, Ann should take the time to explore the pros and cons of each option. Opportunities for foreign companies to participate in the Chinese market are changing rapidly, so a new option may emerge in only a few months. For example, stock ownership rules in China have recently changed, allowing some overseas investors to take majority control over joint ventures with Chinese partners. Some companies that acted too quickly last year are now locked into unfavorable arrangements.

In developing Chinese manufacturing capacity, EDC has several options, including joint venture, contract production, and greenfield—that is, building a completely new production facility. Of those, greenfield looks the most promising.A joint venture with local factories is the least likely to be successful unless the partners are very well screened. Existing Chinese companies vary widely in flexibility of operations, management style, and level of marketing sophistication. Failing to find a good match early can lead to disappointment on both sides later.In the short term, subcontracting production is also probably not a good idea. Schwinn, for example, created two major competitors in its own market by subcontracting production to Chinese companies.With greenfield construction, EDC will be able to install state-of-the-art production equipment and recruit and train employees to meet its precise requirements. It will be essential, however, for the company to set up supplier capabilities well in advance of plant construction.

At this point, Ann must also consider location. It would be easiest by far for EDC to set up manufacturing in a free-trade zone, but such locations are intended as export platforms, not to serve the Chinese market. A better choice might be to locate in one of the coastal cities, which offer better access to the rest of the mainland as well as certain investment incentives.

EDC needs a manufacturing presence in Asia.

4. Plan for market entry and expansion. Once Ann has assessed the market’s attractiveness and EDC’s potential entry strategies, she’ll be ready to decide whether or not to go ahead. If the answer is yes, Ann and her team should plan expansion on a region-by-region basis. They should think of China as a group of countries, not as a homogeneous entity. Tastes and business rules will vary between regions, and the poor quality of the country’s infrastructure will make it very difficult to distribute nationally. Trying to go national all at once will lead only to disappointment.