We as Westerners will all have our own views on China and how to do business with the Chinese. With the rise of media exposure of Chinese news and affairs over the last decade as the country opens up and adopts a greater global presence, the influence of China in our daily affairs seems to be here to stay.
How much Chinese investment is available for UK business? Well the amounts quoted are eye-wateringly enormous and seem to have been behind many significant infrastructure and property development projects. China also looks set to open its own financial markets, relaxing restrictions on overseas companies investing in key sectors such as automotive, shipbuilding and aviation.
But what if you’re in the business of product design and development, perhaps as an engineering / manufacturing or a software company and feel there is huge potential to scale up your operation and want to know how to sell products into the Chinese marketplace. What are the realistic options and where do you start?
Four points come to mind that you might like to consider;
Start at the end
If you are serious about attracting overseas investment and leading your company into the Chinese market, you’ll need to call on all of your professional and interpersonal skills, plus a fair measure of personal stamina. Some of the challenges you are likely to face include:
Each one of the above challenges merit an article in themselves, my point is that it is critical to be clear about what you ultimately want to achieve. This requires foresight on how you want to achieve your goal, a feel for the benefits, costs and likely obstacles. You’ll also need to ensure scrupulous project and stakeholder management.
Do you have a suitable product to offer investors?
Our Chinese colleagues tell us that the UK companies of greatest interest to Chinese investors are those which produce or manufacture complete products as opposed to individual components. We have learned this through several applications, where the product has been the main focus of interest irrespective of the size of the company.
What Chinese investors are particularly looking for are innovative products which successfully demonstrate a high level of science and technology, which cannot easily be replicated and which offer significant potential in the China home market. Particular themes that attract Chinese investment include green technology such as energy and environmental protection.
A good team of investors will undertake a considerable amount of the due diligence on the commercial potential of your product. It is clearly in their interest to conduct this and they will be far better placed to conduct market research, market testing and competitor analysis. Credible investors will help to identify target markets in key cities, potential market size, patent and intellectual property issues, competitor analysis, price points and potential market share. Investors will typically be looking for an absolute minimum of a 20 fold return on their investment, so this will also influence their judgement on whether to invest.
In addition to the above, investors will also naturally want to explore your company’s trading history, the last 3 years accounts, details of ownership as part of their due diligence. This will be very thorough, so be prepared to answer any challenging questions, they may not be the type asked by your bank manager who is probably well-known to you.
Assuming that your product and your company both look attractive to investors, there are joint venture, equity or debt-based instruments available, asset-based lending or co-investment with other funders. Levels of available funding remain considerable, a typical minimum amount would be £200k rising to £200M depending on the product and size of the opportunity.
Building relationships with China
The process of meeting, befriending and building business relationships with Chinese counterparts is as complex and potentially fraught as a teenager in a school disco! There are perceived differences on both sides which require experience and considerable tact to work through. A typical example of this is that a Western company tends to focus on the business to business relationship. Personnel may change but the nature of the business, its performance and function will continue unchanged.
Chinese business is considerably more focussed on business relationships and their dynamics. These matter intensely. Chinese companies do business much more on a person-to-person basis and if key people leave, the Chinese may well follow that person into a new company. Chinese business will follow a trusted relationship and have this person as their continued interface and valued business friend. It amounts to business policy; a human-based strategy for the why and how of doing business in China and creating success.
So what kind of business contact would merit such loyalty? Essentially those that fit into the category of ‘Pengyou’ – a good business friend with a valuable and sincerely developed network of business friendships. The Chinese consider such relationship as priceless. The Chinese approach is always to take the long view and will often be prepared to yield more in the short term and offer some quick returns. This plus the intense commitment to relationships is somewhat counter to the planning and target setting mindset of Western companies in what might appear to the Chinese to be ‘the very near future’.
A good basic start is to be polite, be patient and listen out for what is meant as well as what is said!
Support for businesses seeking Chinese investment
Government Agency support primarily focuses on businesses looking to export to China through the Department for International Trade rather than facilitating investment, but does offer a wealth of advice and contacts via its website which you can click here to link to.
There is also David Cameron’s initiative with the Chinese Government on the Belt-and-Road fund to assist trade and investment but it is struggling to secure support from key western banks such as HSBC.
Many of the major UK accountancy services firms offer a service for UK businesses to explore export markets and attract overseas investment, such as Grant Thornton’s China Britain Services Group which you can link to here.
There are many private organisations that operate as relationship brokers between Chinese investors looking to invest in British companies. The most useful ones offer access to investors plus a business development support role. A useful starting point is the China Investors Club (www.chinainvestorsclub.co.uk). I have developed links with several credible ones and can suggest RTC Innovation (www.rtcinnovation.com) as a good team to work with and can make an introduction for you. There are also a plethora of Chinese business angels, venture capital and asset-based lenders.
In summary, if you run a small to medium sized engineering or manufacturing company, or a business advisor who works with such businesses, and have a product that you feel has great potential in overseas markets, it might be worth having some preliminary discussions to scope out the likely potential. Do consider how best to build business relationships with China, plus what you might be able to do to go the extra mile in your business efforts in China.
So if you ever asked yourself ‘How can I secure investment from China?’, I hope this article has provided a starting point. It could be the beginning of a transformative change in your business fortunes. And remember, the Chinese love the wisdom of their ancestors ‘The journey of a thousand miles begins with a single step’ (Lao Tzu).
Having supported 100s of small and growing businesses across different industry sectors over the last 20 years or so, I now tend to work with a more select group of firms in the advanced engineering / manufacturing, technology and construction / property markets.
I most enjoy working with businesses on their strategic development and facilitating partnership building to help broaden their perspectives, networks and customer base. I regularly link up with other professionals and service providers to help these companies achieve their growth ambitions.
My technical strengths lie in a broad knowledge of funding options, covering grants, bridging loans and equity finance, combined with a common sense approach to accessing much-needed finance. My particular forte is preparing business proposals, business plans and tenders, helping businesses to prepare high quality funding applications and sales documents to increase their success.
I have had the privilege to help guide and nurture some fantastic business owners over the years, many of whom I regard as true friends. Many people in my field of work describe business consultancy simply as 'helping people' and it is a cloak that fits well.