Exporting to China: a guide for small businesses
The emergence of the Chinese economy, with its vast array of exports, cannot be ignored by any UK business. However, it also represents a growing market for businesses here.
Over the past 30 years, China has been transformed into a powerful economy with a vast capacity for manufacturing and exporting. Many European manufacturers have felt unable to compete with its ability to churn out a never-ending stream of cheap goods. However, as its wealth has grown, it has increasingly become a destination for export, and British companies are already making considerable progress. For instance, Midlands-based car manufacturer Jaguar Land Rover now exports more cars to China (71,940 vehicles in 2012) than to any other destination. But smaller niche companies are also establishing market bases in the country. In this guide, we look at how entrepreneurs can enter this enormous, yet still much misunderstood, country.
China has a population more than 1.3 billion. It has no fewer than 274 cities, with a population of more than one million. Its industrial and economic progress over the past few decades has been staggering. Towns have become cities, small fishing villages turned into busy urban centers. However, amid this boom there are gaps and niches looking to be filled by savvy entrepreneurs. To find these gaps, businesses should undertake desktop research and follow that up with conversations and communication with bodies such as UK Trade and Investment (UKTI), the China-Britain Business Council and local Chambers of Commerce.
Although the market is huge, there are few fast bucks to be made in China. Businesses that want to succeed typically need to show they are there for the long-term. Entrepreneurs say Chinese businesses are very excited by the prospect of overseas investors and growth in imports. However, they want to deal with western companies on an equal footing, and are looking to build relationships that will mature over time. Forging an alliance with a well-respected and trusted distributor can open doors, and help you to avoid any pitfalls. Some businesses choose instead to open offices and employ native staff, which in itself shows commitment. With either of these options, businesses must choose their partners very carefully.
While in the UK it is true that all businesses must appear on the first page of Google if they are to be noticed, the same is true in China, except that the dominant search engine there is Baidu. “To start with, many of our clients are nowhere to be found on Baidu,” says Arnold Ma, digital marketing director at Qumin, which runs campaigns for British businesses into China. “This is due to Google-centric SEO techniques, which do not work on Baidu,” He says British businesses need to establish a web presence in China, as it is unlikely that they already have one. “Mandarin pages appended to a UK website simply do not register in web searches in China,” he adds. “It must be registered in China [with an ICP licence], and hosted within the Chinese governmental firewall.”
China is a dominant force in the manufacture of everyday items such as clothing and household appliances. But British manufacturing, which is increasingly specialised, niche and often advanced, can find a market in China. However, before businesses begin trading they must also ensure their intellectual property (IP) is protected and choose their partners carefully. Fraud and corruption are still big problems in China, and British entrepreneurs attest to the fact that there are those who will attempt to steal their trade secrets. British businesses need to take legal advice to ensure their patents are valid in China, but also be careful to guard their secrets as much as possible.
How they made it
Two specialist UK manufacturers provide very different approaches on how they made it in China.
Gary Lydiate is the chief executive officer of Kilfrost, a £60m turnover business which produces anti-icing agents for aeroplanes. His business set up offices in China in 2010 to take advantage of what looks set to be the biggest airport expansion in world history.
“China is planning to open 192 airports in the next 10 years, including a new huge one in Beijing,” says Lydiate. His business, headquartered in the north-east of England, already sells to airports, airlines and third party providers across the world. But when he joined the company in 2006, China became a priority. “We tried working with a distribution company, but it didn’t work out. We take a long-term view of business, as do our clients, whereas agents want to focus on what they can sell today.” So Lydiate set up a temporary office through Regus in Beijing, and then sought out native staff. “We found our senior vice president via a headhunter in China. He’s Chinese, but had worked for BA, speaks excellent English and understands British business culture.”
The company now employs seven people in Beijing, all of whom are Chinese. However, Lydiate regularly travels there. “I feel very comfortable there. The business culture is actually quite European, quite informal. They like the fact that British companies are exporting there and working with them, not talking down to them. Going there was a risk but it has paid off. We plan to open a manufacturing facility there and then expand further.”
John Franks is the founder and managing director of Chord Electronics, a high end hi-fi manufacturer based in Kent with revenues of £1.4m. The business sells to clients across the world and has been dealing with clients in China since 2000.
“I was approached at a trade fair in Germany by a Chinese company that was already selling goods in our industry, who wanted to act as our agent in China,” says Franks. He carried out some basic due diligence, found them to be credible and headed out to China. “The most important thing is to build up trust and to socialise with clients and partners. If they want to take you to a Chinese opera, then go. If you are offered snake’s head soup, then eat it.”
Chord has remained with the same agent for the whole time, which handles all its business in China on an exclusive basis. “We are totally on the supply side. They pay us, arrange for collection and shipping and take the good to China. However, our factory is inspected once per year, to ensure it complies with safety standards.”
China remains a core market for Chord, representing about 20% of turnover. Franks says entrepreneurs should immerse themselves in its culture, and tends to go alone when visiting. “If you go by yourself, you talk to sellers and distributors,” he says. “If you go with someone, you end up talking to them instead.”