AMERICAN BUSINESS OWNERS have their eye on a big, new customer: The Chinese.

With China’s economy continuing to expand, some U.S. firms are beginning to look to the country not just as a center of production, but as a potential market. In 2009, the Chinese economy grew 8.7%, with retail sales up 15.5% for the year, according to China’s Ministry of Commerce. Even if Beijing is now trying to put on the brakes to prevent inflation, that is a pretty enticing landscape for companies looking for new markets.

Indeed, strong economic trends, combined with a population that’s not only growing but also getting wealthier makes China an almost ideal target, says Steven Wang who co-owns Ming Wang, a Dallas clothing company geared toward professional women. With his own sales down 17% in 2009, to $10 million, Wang is now planning to open three retail locations in Beijing by the end of 2010.

SmartMoney asked Wang about the ups and downs at his 24-year-old clothing company. Here are his condensed answers.

Your parents, Eddie and Ming Wang, launched Ming Wang in 1986. How did you get involved in the family business?

I literally started in the warehouse. In the late 80s and early 90s, we did all of our production in the states. So, I helped out with that. But I never wanted to work there forever. After college, I joined the accounting firm, Arthur Andersen. When the company imploded in the wake of Enron scandal [Anderson handled Enron’s audits], I found myself with a decent severance package and several months of idle time. I decided to help my parents out at the company. Today, I handle the company’s operations in the U.S. My Dad still does most of the production in Taiwan and my mom oversees the design side.

Why did you move production to Taiwan?

We initially started moving some production over in 1999, and by 2006, were making everything there. It wasn’t our intent to do so, as we were big on the made in the U.S.A. concept and producing products overseas doesn’t deliver much of a cost savings after freight and shipping charges kick in. However, as our business grew, it made sense to assemble lines close to other resources such as fabric and labor. In the U.S., fabric is hard to come by these days, as are skilled factory laborers. We were always having trouble finding people to fulfill our labor needs.

In recent weeks, China launched a number of monetary tightening measures. Considering that all of your production takes place there, do the country’s policies concern you?

In short, yes. China’s economy is growing at an exponential rate. However, the currency is undervalued. If they need to slow their economy, they may adjust the Yuan -- making it more expensive for me to produce products in China. In turn, I may have to raise prices. But at the same time, people in the U.S. may not be willing to pay more. As a result, Ming Wang’s already slim profit margins could narrow.

With so much potential uncertainty, why would you set up shop there?

Currency exchange is a zero-sum-game – that is, one can only gain when another loses. So, instead of exporting and dealing with currency exchange issues, we’d rather sell directly to shoppers in their own currency. Plus, the profit margins are wider if we sell the clothes we make directly to consumers – rather than having to go through a middleman. Although this strategy is riskier, it also stands to be more lucrative.

How did the downturn affect Ming Wang?

Retail on the whole took a huge hit from the downturn -- and women’s apparel in our price bracket fared even worse. When consumers started tightening their belts, retailers started to get anxious about having too much inventory. The next thing you know, department stores and boutiques across the country were hosting 50% to 70% off sales. That hit us too since we have an arrangement known as a “gross margin guarantee” with various retailers. Those guarantees say if the retailer doesn’t earn a certain amount of profits on our products, we’ll reimburse them up to a certain amount. Although we worked out compromises with many retailers, we did end up paying over $300,000 in margin calls.

Where did Ming Wang get the cash to pay the margin calls?

Fortunately, we’ve been conservative over the years. Knowing that gross margin guarantees could pop up every now and then, we’ve amassed a substantial amount of reserves. Of course, we’ve also had to make changes to the business. While we were able to avoid laying anyone off, we did change the amount of inventory we keep on hand. Prior to the recession, we’d ship our lines to stores and then keep some items at our headquarters in Dallas in case a retailer needed a last minute delivery. In 2008, however, we got burned because we kept too much inventory on hand. Now we’re learning how to tell retailers no, if they need more products.

What is your best advice for future clothing makers?

Find a niche. The majority of fashion designers aren’t making clothes for average people. Instead, we chose to focus on mature, professional women and have been able to prosper as a result.

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