With the UK domestic market unlikely to bounce back in any significant way for a while, it may be worth looking overseas for growth over the next year. One of the biggest growth markets is China, but it’s outside some companies’ comfort zones.
The scale of the market, corporate regulations and business etiquette are very different from what entrepreneurs may be familiar with when breaking into western Europe and the US.
Geoff Mills is on the supervisory board of SIP Project Management, a company that specialises in advising businesses intending to set up in China. He has about 25 years’ experience in dealing with the Chinese corporate landscape.
He says in the early days, commercial enterprise in the country was still evolving, but now it has established norms and navigating them is a lot more straightforward and predictable. Companies that are only now thinking about moving there don’t have to be pioneers any more.
Here are some of his insights on what to consider if you are thinking about taking advantage of the biggest and fastest growing market in the world:
- Make China your focus. With the possible exception of the US, China is unlike any other market you are likely to have experienced. It’s so big, if you succeed in establishing yourself, it will alter the centre of gravity of your business. For many UK businesses, moving into another country is simply an extension of its overseas operations. The scale of business in China means it is likely to become the core business.
- It’s not for small fry. As a consequence of this magnitude of scale, moving into China is not a viable option if you don’t have existing operations above a certain scale. Mills puts the cut-off at £50m in turnover per year. Companies with a turnover below this should go ahead with making relationships in China, but should stop short at making investments. If you can only invest in Chinese operations in a limited way, bigger foreign and domestic rivals will study your business model, let you create a market and then steamroller in and take it from you.
- It will take time. It’s a mistake to think you can easily establish yourself across China in one go. It’s more realistic to divide the country into regions and establish your business in each one, step-by-step. The key is to be ready to make a solid advance each year.
- Go for the easy wins. The Chinese commercial market is still very young and there are a good deal of easy opportunities available. Pick these low-hanging fruit first and prove the viability of your business model. If you find you have to work hard for every sale now, it’s going to be difficult to make it when the market matures.
- Don’t underestimate the local talent. Recruit the best people for your launch team, but don’t necessarily opt for Chinese recruits. The market is open to all-comers so you need people on the ground you can trust not to make relationships in your pay and then set up as a competitor when they have established themselves. A Chinese team will not understand your business, because you are bringing something to the table no one else can do over there. If you’re not, someone else will be doing it soon after you arrive, quicker and cheaper than you can.
- Recruitment will be harder than you expect. Recruiting a launch team from within is not as easy as it sounds. The people you need will be the people who know your business inside out and have proved their loyalty with years of service. They are likely to be right-hand men and women who have worked hard to build up your company in the UK and are at the time of life when they want to enjoy the fruits of that labour, not disrupt their family life and up sticks to a strange place on the other side of the world. They may not want to go. Even if they do, you will be losing key people from your UK business, so be prepared for some pain here, too.
- Don’t be tempted to do business that isn’t entirely honest. Whatever sharp practice may go on in other businesses does not apply to you. Mills says don’t play games in the Chinese commercial world, because the home boys will always do it better than you. There are plenty of Chinese partners to work with now, who operate on a western business model, so there’s no need.
- Outsource as much as you can, without giving away what makes you special in the market. Chinese manufacturers can operate more cheaply than in the UK, so take advantage of that and outsource more than you would at home. Foreign investment in China is costly, so reserve it to the parts of your business process where you can’t afford to rely on a partner, or risk them adopting those innovations and becoming your competitor.
- Use the experience to implement best practice across your whole business. Much of the business landscape of China is a greenfield site. It’s a rare opportunity to implement processes without legacy plant and processes to get in the way.
- Above all, be flexible. Many established business owners have very strong ideas about how to create a successful business model but it’s a mistake for anyone to think they can transplant something developed in the UK to China wholesale. Mills says the most successful entrepreneurs quickly accept the exotic business environment they are in and take time to learn from their experiences as they go.
Mills is also part of the Shanghai British Chamber of Commerce SME Committee, which has drafted a document called “The 40 Commandments For Doing Business In China”.
(Pic: Ian Muttoo cc2.0)
