Challenging the Chinese puzzle

second largest economy and best meet China's unique business challenges. Mike Richardson reports.
As the leading organisation helping UK companies grow and develop their business in China, the China-Britain Business Council (CBBC) is on a mission to help UK companies access the full potential of the fastest growing market in the world.

The organisation has accumulated valuable connections with government and business across China to deliver a range of practical services, including advice and consultancy, market research, an overseas market introduction service, trade missions and setting up representative offices.

Its partnership with UK Trade & Investment (UKTI) delivers business-to-business services in China, and during last November's Advanced Engineering UK event held at the NEC Birmingham, the CBBC's China business advisor, Vince Cunningham delivered a keynote presentation on how to do business in China to delegates attending the show.

Where do we start?

“Ever since China opened up its doors for business in 1978, its growth has been a consistent 10% per annum,” he began. “If you compare this to what we're seeing in both Europe and traditional markets at present then there's an obvious reason to look at China as a key market opportunity.

“During the height of the recession China's exports dropped by about 40% in one month, which led to its government making huge investments in infrastructure. China recognised that, as its economy was growing on the back of exports which led to a huge foreign exchange surplus, it needed to internalise its economy to maintain that growth. China's focus moved towards less reliance on exports with huge investment in infrastructure and to encourage the consumer market to develop. China has around 250 million middle class people with disposable incomes and this has become an increasing market for UK products. The technology sector also includes large and ambitious aircraft programmes and it's here where the opportunities lie for British companies.”

Cunningham pointed out that China's history - together with its strong Confucian philosophy which majors on establishing harmony, a structured society and strengthening relationships – strongly influences how China still does business today and can sometimes wrong-foot unprepared British companies.

“There's a different business culture in China and it's very much an amalgam of certain beliefs, which means it can be very different doing business with people in China,” he continued. “There's more emphasis on ‘group orientation', and if you hold a business meeting with a Chinese company, you'll find there are many more people present than you would normally expect elsewhere. Any decision will almost certainly be made by the boss because they work hierarchically, so you need to be very careful and identify who is making the decisions - especially in the aerospace industry.

“The Chinese are reluctant to do business if they don't know or trust you. There's evidence from some Chinese aircraft programmes that the companies who worked on some of the earlier programmes are getting onto some of the newer and larger aircraft programmes as well. If you are going into the Chinese market, be prepared to be in it for the long run and resource properly too.”

Because of China's central communist government, Cunningham believes that it's more important to develop relationships in the local community and meet local politicians, since there is much stronger influence of government on businesses.

“There is a lot more legislation and control,” he confirmed. “The Chinese currency is a controlled currency. If you play by the rules then it's not a problem. Contract payments are audited so if you operate ‘off contract', you may find it difficult getting paid. If you establish a company in China then the accounts have to be audited before you can repatriate profits.”

The times are changing

China no longer wants to be the lowest cost producer and instead is moving up the value chain, developing its own branded products and higher technology to achieve greater added value. Cunningham pointed to the Chinese aerospace sector's reliance on high-tech capabilities as an example.

“Any UK company wanting to deal with AVIC or join COMAC's large aircraft programmes will need to demonstrate just how strong its commitment to China really is,” he explained. “Typical questions may include: Will the UK company source products there? What percentage of its suppliers will come from China? Will it be establishing local Chinese partnerships?

“Entering the Chinese market requires some in-depth research and there's a wealth of information on both the UKTI and the CBBC websites. Go through a cyclical process of working out what the Chinese market needs and what you can offer. A Chinese translation of your company's marketing literature – even just the first few pages - is vital. After all, how would you react to being sent sales information in a language you don't understand? It's just not courteous to send information in a foreign language.”

It may seem obvious, but Cunningham reaffirms that you can do very little with the market without going to the market first. Working in tandem with the UKTI, the CBBC runs trade missions and programmes for individual companies. After visiting the market it's important that companies follow things up.

“Some UK businesses have complained that the Chinese companies they met during these trade missions have not subsequently contacted them, but this could partly be due to cultural differences,” he notes. “You have to be prepared to call them up, drip feed information and you will almost certainly need to return to the Chinese market several times to build your network, develop your relationships, gain Chinese confidence in your company and develop the basis of trust before you can do business.

“If you are starting a new Chinese venture then you must ensure you fully support it, because if you lose contact and simply rely on monthly reports, it will quickly start working under its own initiative and this may not be what you want. You must ensure your endeavours are fully supported and develop the confidence in Chinese partners that you are going to be there for the long run.”

www.cbbc.org