With desire for British goods and services in China strong, and Guangzhou voted the economic powerhouse’s “best city for business”, Director went to find out why this thriving economic hub is becoming such a big draw for UK companies
China’s population numbers a staggering 1.4 billion. The country’s gross domestic product increased by 7.4 per cent in 2014 to an estimated $10.3trn (£6.8trn). And, while growth is slowing, the government recently announced 300 infrastructure projects worth $1.1trn this year in order to shore things up.
Overall, the lure of such a burgeoning economy should be irresistible to the right type of UK company – not least producers of niche goods with a distinctive British identity, for which there is high demand. Meanwhile, overseas travel and tourism is a growing aspect of Chinese aspiration, so opportunities for tour companies and manufacturers of anything travel-related are ripe, while the one-child policy means that disposable income is being spent fairly lavishly on clothes, toys and educational and health products for children.
If you’re seriously considering a foray into China, the China-Britain Business Council (CBBC) operates a ‘launchpad’ scheme, which enables you to employ someone at the CBBC office in Guangzhou for up to a year to help you through the bureaucratic quagmire and facilitate your company’s launch. Later, once you have set up a vehicle of your own for your business, the employee can transition across.
“The difference between success and failure in China is very often down to patience, persistence and passion,” says Stephen Phillips, chief executive of the CBBC. “Don’t expect things to happen overnight. It’s a country where building trusting relationships is vitally important, and this alone can require a lot of investment.”
The numbers, when it comes to China, speak for themselves. Meanwhile, the thriving city of Guangzhou, capital of Guangdong province and about 75 miles north-west of Hong Kong, topped the ladder when Forbes China published a ranking of the “Best cities for business” in November 2013.
Formerly known as Canton, it’s home to 14 million people – among them one of China’s richest, the billionaire Zhang Li of Guangzhou R&F Properties – and has a half-millennium history of trading with Europeans (the Portuguese first arrived there by sea in 1514).
Founded around 214BC during the reign of First Emperor Qin Shi Huang, China’s southernmost city boasts a legend-packed ancient past to rival that of Athens or Rome (it’s nicknamed the City of Five Goats, due to a local legend in which a band of hircine-mounted deities brought the first grain, symbol of civilisation, into the city). Tourism hotspots such as the Temple of Chen Family and the Six Banyan Tree Temple testify to this rich history, and there’s an abundance of green space away from the bustle, not least White Cloud Mountain and Yuexiu Park. Add to that an excellent public transport system – the city’s infrastructure was expanded significantly for its hosting of the 2010 Asian Games – and an attractive, if sometimes a little humid, sub-tropical climate, and it’s altogether a highly agreeable place to be.
Given China’s pulling power, it’s little wonder that – when IoD members sought advice on setting up in a new territory in 2014 – only the US and Germany generated more interest*. With this in mind, Director needed no second invitation to take a business-class seat on Cathay Pacific’s first-ever flight from Manchester to Hong Kong in December, before making a short connecting flight with Cathay to Guangzhou. Our mission: to meet up with leaders from UK businesses already established in the city and discover what makes this thriving metropolis such a draw. Here’s what they told us…
“The market’s opened up – there’s an understanding of international practice”
Kang Man, head of operations, Arup Group, China
The Sydney Opera House, Singapore’s Marina Bay Sands and the Shard in London are just three of the renowned projects on the dazzling CV of global engineering, design, planning, project management and consulting firm Arup.
The company – which chalked up a profit of around £56m in 2013-14 – celebrated 30 years in China last year, having started its first building project in Shanghai in 1984, followed by branches in Beijing, Shenzhen and, of course, Guangzhou. Most major Chinese cities have ambitious emissions targets for newbuilds, making them an excellent fit for Arup, with its reputation for pioneering sustainable solutions.
The company was confident of the benefits of a Guangzhou presence – just 90 minutes from Hong Kong by train, the city is a powerhouse of its province and a hub for nearby urban centres. Arup made its local mark in impressive style with the unveiling of the stunning, 600-metre-high Canton Tower, a highly sophisticated engineering project on which it was lead consultant.
“The market’s opened up, and there’s now more understanding of international practice,” says Kang Man, who heads operations for Arup in Shenzhen and Guangzhou. Engineering and construction regulations are becoming more western, he says: “They try to draw the best of other places’ [standards] into a Chinese context.”
It wasn’t always plain sailing for Arup. “Materials were scarce resources when we came here,” says Kang. “Concrete, for example, was available for key city projects only, and you had to order it seven days in advance. Ever since, though, as China has opened up and developed economically, the availability of materials has changed.”
Another obstacle, Kang says, concerns qualifications and licensing. “A local professional licence for design, engineering, planning and consulting is still very difficult for a foreign design institute to obtain due to stringent local registration requirements. As many major tenders require entrants to have local qualification, foreign companies have to partner with qualified local design institutes.”
When it comes to recruitment, Kang says: “Companies are fighting for talent. We want to mix experienced people with young graduates, so we can build up our own talent pool. We benefit a lot from young people returning from overseas education in the US and the UK. Of the 900 staff we have in China, I’d say 80 per cent are local – which helps us have a very strong local capability with international perspective.”
So what does Kang advise for those thinking of setting up a base in China? “They need to be clear about their area of expertise – what the law and policy requirements are,”
he points out. “When you offer services, you need to give your clients’ local values priority. Finding a trusted local partner, especially for a small business, is essential.”
“Guangzhou had the strongest access to the market in southern China”
Fred Bai, chief executive, Intertek China
Having spotted an opportunity in the expansion of China’s electrical goods industry, Intertek became the first company to establish itself in its international third-party testing and certification market in 1989. The company was “a natural fit with the regional economic growth of China,” according to Fred Bai, who has been chief executive of Intertek China since January 2013, when China made up 18 per cent of the group’s revenue, behind only the US.
Intertek’s first choice of location in China was Shenzhen – the first of the ‘special economic zones’ (which benefited from the more liberal economic policy measures introduced in the late Seventies). “We later expanded to Guangzhou,” explains Bai. “Guangdong province is the birthplace of China’s opening-up. As the capital city, Guangzhou had the strongest access to the market in south China, which was of pivotal importance in our deployment in the whole Pearl River Delta. We then blazed a trail along the south-east coast, in developed cities such as Shanghai, Tianjin, Tsingtao and Ningbo, and finally formed a service network covering more than 30 cities with over 100 labs and offices.”
Bai is keen to point out the strategic benefits of a company of Intertek’s nature having so many bases in a country as vast as China. “Setting up an office in Beijing, where government and state-owned companies are concentrated, can gain us more state-owned company clients,” he says, “while our Shanghai office gives us convenient access to recruit talent and better serve our large-scale customers. Every location has its own unique market characteristics.”
Bai believes China’s burgeoning middle class is a major factor in determing which type of company should consider a presence here. “They demand brands and quality products, value a healthy lifestyle and are making long-term plans,” he says. “Compared to the established middle-class market in developed countries, the supply of goods and services to meet Chinese needs is still developing.”
Unlike others Director spoke to for this report, Bai outlines the gulf between China and the West in terms of general business approach. “There are drastic differences in their handling of issues on the environment, culture and business,” he says. “If British companies want to increase their development in China, aside from complying with the regulations and laws, the rules in Chinese society and culture should be observed too. Understand and adapt. If we mechanically acted as a ‘British’ company in dealing with Chinese affairs in China, we would not perform as well.”
Bai, meanwhile, is a fervent advocate of Guangzhou as a base for overseas companies. “An international atmosphere has been formed,” he says. “Guangzhou has favourable policies for smaller-sized, foreign-funded companies which can help to reduce costs during market exploration stage.”
He also echoes Kang and Evans’s sentiments when it comes to seeking local knowledge. “Find someone who’s familiar with the procedures for entering this market and dealing with the tax, operation sites and so on,” he says. “As the old saying goes, ‘Well begun is half done’.”
“A certain kudos attaches itself to businesses setting up a presence there”
Lesley Evans, chief executive, Haseltine Lake
For Lesley Evans, chief executive of European patent and trademark attorneys Haseltine Lake, there was never any doubt which city would host the company when it set up shop in China in 2009.
“Guangzhou was a fairly obvious choice for us because a very high proportion of Chinese national patents are filed by companies in Guangdong province, so there is already a good level of intellectual property (IP) awareness and government support for IP protection and enforcement,” she says. It also made strategic sense, as being among the first such European firms to set up there “gives us some standing”.
While many UK law firms use Hong Kong as a base to tackle Guangdong and other parts of China, Haseltine Lake opted to demonstrate more commitment to mainland China’s IP market. “We’ve received good feedback about that from clients and officials in China,” she adds.
By the time Haseltine Lake established a formal presence in the country, the company had been visiting China regularly, on behalf of clients seeking IP protection in the region. Having also built up an impressive contact base, it was also representing Chinese firms seeking IP protection in Europe. “We realised that to maintain and develop these relationships we needed a local presence – someone who spoke the language and was available within the time zone,” explains Evans.
Like Arup’s Kang Man, Evans has found China’s regulatory nuances in her particular field to be more similar to the West’s than some might expect. “When the Chinese were setting up their new systems for patent and trademark protection after the Cultural Revolution, only 30 or so years ago, they researched other world systems and based theirs broadly on what was happening elsewhere,” she says. “There are, of course, some local differences you have to be aware of, and we’ve worked hard to establish our network of trusted local attorneys who can advise us of these.”
Evans adds that the bureaucratic and regulatory frameworks can be much more problematic in remote areas and smaller cities, as can the language barrier: “I would say it’s essential to have a native Mandarin speaker on your team who can make sense of the communications and steer you away from bureaucratic pitfalls,” she warns.
But overall, she sounds a positive note when it comes to setting up an enterprise in the world’s second-largest country. “The rise of disposable household income and corporate budgets in China present a great opportunity,” she says. “The markets for many products and services are exhilaratingly huge and it’s still relatively early days in many sectors
– so there’s a lot of potential.
“China is becoming so significant in world markets that there’s a sense you have to be there, and yet there is also the perception it is difficult – perhaps more difficult than it actually is – to be there. This means a certain kudos attaches [itself] to businesses setting up a presence there, which can create competitive advantage in your own domestic market.”
Mind the gaps, says Stephen Phillips of the China-Britain Business Council
While the opportunities seem bountiful, setting up in China presents a lot of challenges for UK companies. “People considering it really should do their homework,” says Stephen Phillips, chief executive of the China-Britain Business Council. “For businesses which haven’t had exposure to China before, it can be a very alien landscape: cultural differences, language differences, regulatory and legal differences – it’s a very long way from home. Its complexity as a marketplace is the biggest challenge: each province is roughly the size of a European country. That’s why we spend day in, day out explaining to companies what not to do, what to do, who to do it with, where to do it – all those practical questions.”
Extremely thorough initial market research, says Phillips, is paramount: “Look into who the competition is and where the best marketplace is for your product or service – should you target the Beijings and Shanghais or smaller, up-and-coming cities where maybe there’s less competition?”
Social media expertise
Phillips advises the employment of a local interpreter who is adept at translating context and body language, as well as words. “One can unwittingly cause upset by not understanding the internal dynamics, not giving sufficient face to the most senior person present,” he says. “In meetings, knowing when ‘yes’ means ‘yes’ and ‘no’ means ‘no’ [can be difficult].”
A local expert on Chinese social media sites, such as Renren and Sina Weibo, is also essential, he says. “With any communication business, your social media strategy has to be first rate, as this is the way to get in front of Chinese consumers.”
Government surveillance is another problem to bear in mind. In January, CNN reported that new legislation is set to force foreign tech companies to modify their products – by exposing secret source codes, for example – so authorities can carry out the requisite snooping for which the Chinese government has become notorious (it’s also worth noting that the internet can be painfully slow there, mostly because of these censorship and surveillance processes).
Guangzhou is the capital of Guangdong province and has a population of 14 million. The city lies just 75 miles north-west of Hong Kong and sits at the heart of the Pearl River Delta.
The total population for the Pearl River Delta region, which includes the cities of Shenzhen, Dongguan and Zhongshan, has been estimated at up to 45 million people.
Chinese GDP grew by 7.4 per cent in 2014, the slowest rate since 1990. The government responded by announcing $1.1trn-worth of infrastructure projects
*Volume of enquiries made to the IoD’s Information Advisory Services in 2014