How to sell to China
Article Date: Feb 15 2008The potential of exciting growth for businesses selling to China is matched only by the legendary difficulty of gaining a foothold there. GrowthBusiness talks to enterprises that have overcome the obstacles and are reaping the rewards.
At first glance, statistics about trade between the UK and China tell a familiar and dispiriting story. The balance of trade has swung heavily in China’s favour, with exports to the UK mushrooming from £2.4 billion to £15.3 billion in the ten years to 2006.
However, the situation is not as one sided as it first appears. UK exports to China, while not increasingly as fast as imports, have shown annual growth of 15.1 per cent over the same period. That’s almost three times faster than the growth of all UK exports worldwide (5.2 per cent).
The two trends are related. China may be the world’s new workshop but, as the country’s manufacturing industry booms, its need for specialised components and related services increases too – and where better to shop for those than the former workshop of the world? Britain’s financial services industry, too, has been a major beneficiary of China’s increasing economic muscle, as acknowledged by Prime Minister Gordon Brown in his visit to Beijing in January.
One business benefiting from China’s manufacturing boom is Staffordshire-based Valve Train, which makes automotive components. ‘China craves Western technology,’ says Gary Brereton, its sales director. ‘On our first visit there, not one of the [potential customers] we approached refused to meet us.’
In 2004, Brereton convinced Valve Train’s MD that China was a market the company could no longer afford to ignore. Now, seven per cent of its business is with Chinese car-makers, which includes the Chinese arms of foreign companies such as Volkswagon, Ford and General Motors, and home-grown manufacturers such as Chery. Valve Train expects this figure to rise to 20 per cent within two years.
Brereton adds that the company’s presence in China was key to its acquisition by US components manufacturer Milwaukee Wire Products last year. ‘A large proportion of [Milwaukee’s] business was in North America,’ he explains. ‘Automotive manufacturing in North America is shrinking; in Europe it’s holding steady; but the real volume is shifting to Asia and, primarily, to China. That was where [Milwaukee] saw [its] business going.’
Grand designs
Another company that has scored notable success is Warwickshire-based Creactive Design, a specialist in the transport industry. Managing partner Neil Bates explains that the company first entered China in 1992 to work on a double-decker train that would run from pre-handover Hong Kong to Guangzhou, the third-biggest city in the mainland. The project, dubbed Through Train, was politically charged, with negotiations for the handover going on behind the scenes, and deadlines were punishing.
‘When the Chinese commit resources, they want results fast,’ says Bates. ‘We worked ten-hour days in China, then buzzed information back to our team in the UK so they could continue overnight.’
The success of Through Train led to other projects, says Bates: ‘Business opportunities quickly multiplied through networking, which is the way things work in China.’
The experiences of Creactive and Valve Train show that however daunting a first step into China might be, the rewards can make it worthwhile. It’s a point echoed by Eugene Chang, a former China business adviser at the China Britain Business Council (CBBC).
‘There’s a Chinese saying about feeling the stones with your feet as you cross the river,’ says Chang, who spent the first 30 years of his life in the UK before working for 20 years in China. ‘It’s a gradualist approach, which you can see at a macro level, in the way the country has opened up, or at a micro level, in the way business is conducted.’
It’s who you know
The rapid expansion of China’s economy – with GDP growth of around ten per cent in each of the past five years – can distract you from the fact that elements of its business culture are still deeply traditional, according to Chang.
‘Personal relationships, or guanxi, are still very important,’ he says. ‘People like to see who they’re dealing with – to do things face to face. Even if your product is better or cheaper you might still fail to get a contract if people don’t trust you as a person.’
In the absence of existing connections in China, organisations like UK Trade & Investment (UKTI) and the CBBC can help put businesses in touch with industry influencers or potential partners. Brereton of Valve Train acknowledges the help offered by CBBC in lining up clients for him to visit on his first trip to China.
Naturally, the easiest way to get your products into China is to find a distributor to do it for you. David Rosenblatt is CEO of Genie-Tech International, whose products provide non-surgical alternatives to treatments such as liposuction or facelifts. Rosenblatt met his Chinese distributor Sam Yang at a UK trade show, where Yang tried a treatment for himself and decided he could sell the product in China.
‘He’s doing all the marketing and sales – he’s even taking care of the shipping,’ says Rosenblatt. ‘Of course we have to sell to him at a ridiculously low price for him to do that. But if he did ten to 15 machines a month, which he thinks he can, it would bring in £1 million plus per year, doubling our turnover overnight.’
For other businesses, a JV provides a way to maintain an element of control while exploiting the partner company’s existing infrastructure and connections. The alternative is to establish a wholly owned foreign enterprise (WOFE), which has its own tax implications.
Whichever route you choose, protecting your intellectual property (IP) is equally important. The IP of a company like Creactive is, after all, what makes it valuable to its Chinese clients.
Neil Bates of Creactive says that the company’s detailed understanding of how people use trains, gleaned from decades of experience, is what enables it to win 85 per cent of bids for its clients in the transport sector.
‘We work with one company 100 miles from Shanghai,’ he relates. ‘We’ll collaborate with them on product design but not on transport projects, because it would be like giving the Crown jewels away.’
Changing times
According to Chang, IP theft is not going to ‘disappear overnight’, but the Chinese government is taking the issue increasingly seriously, with jail terms of up to seven years for the crime. He also notes that of all IP cases coming to court, only one tenth involve a foreign entity.
‘China is increasingly reliant on home-grown technologies, and it’s in the country’s own interests to secure IP rights for individual companies,’ he argues.
With all the challenges of doing business in China, success there is the route not just to increased turnover but to enormous kudos back home. British businesses selling to China are, after all, defying the current trend of international trade.
‘A lot of people I talk to find our story quite inspiring,’ says Brereton of Valve Train. ‘As I tell them, we’re not a big organisation: we’re a tiny company in Lichfield with 30 staff, supplying some of the biggest companies in Asia.’
CBBC's website has more information on doing business in China.
Eugene Chang is now an independent business consultant based in Beijing.
