ONE SMART COOKIE: SHANGHAI TRAVEL DIARY

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China’s prominence on the world stage is growing and it is a market that any company with an international outlook cannot fail to consider. It is demonstrating increasing demand for international products and services. It is also looking to move up the value chain, which in turn offers exciting opportunities for businesses in dynamic sectors seeking to collaborate with Chinese companies.

In September 2012, HSBC hosted a programme of international exchange events which sought to bring corporate businesses from around the world to selected fast growth, emerging markets for the purpose of facilitating introductions, sharing best practice and informing on opportunities.

September 2012, saw 75 businesses from across the world gather in Shanghai.

Clive Nation, founder and CEO of the Surrey based Cennox plc group of companies – a provider of services to the ATM (cash machines) sector and backed by BGF in June 2012 – was one of the CEOs taking part.

Clive Nation’s Travel Diary:

Soon after we received backing from Business Growth Fund, I was approached by their Regional Director Paul Oldham, with details of a suggested exchange visit to Shanghai. Through connections with its banking shareholders, BGF knew of HSBC’s international exchange programme and recognised the relevance of the Chinese market to our business.

32% of Cennox’s turnover is generated overseas, and the rapid expansion in the ATM market as a whole is being driven by a sharp rise in the banked population in emerging markets. China also has the potential to play a major part in our supply chain.

Having arrived in Shanghai after a 12-hour flight from London, the group of 75 businesses gathered for a welcome from Monty Ho, HSBC’s Head of Commercial Banking in China and Helen Wong, President and CEO of HSBC China. Over a light supper (just twelve courses!), they mapped out the plans for what would prove to be a highly engaging, and revelatory, three days.

Alan Keir, HSBC’s Global Head of Commercial Banking, set the scene with some staggering statistics. China is home to some 160 cities with a population of more than 1million, dwarfing the 10 similarly populated cities in the US and 30 in Europe. If the group was in any doubt about the size of the opportunity here, reality had now definitely dawned.

This is a country that is currently acting on its 12th five-year plan. It is also undergoing significant change, which any entrant to the market needs to be aware of. Life does not get better by chance. It gets better by change.

Consumerism is well underway in China. Long established as an exporter, it is now increasingly looking to supply its own internal market; and this in turn represents opportunity for foreign businesses with a strong brand, product or service to offer.

China has long since been influenced by the working practices of the West, and traditionally you would expect many of the most senior corporate positions to be occupied by Western executives. However there is a noticeable shift in the structural hierarchy of local businesses and an emphasis on business education. Increasingly local people are moving out of mid-management into more senior positions, taking proactive ownership of their market. The man who waits untill tomorrow, misses the opportunities of today.

State ownership remains an obvious feature of business in China. However there are signs that the state grip is releasing. It is still true that most foreign businesses seeking to establish a presence in China would look to agree a joint venture with a local company. However the state ownership levels are decreasing, with a stake of 30% now more common than the historic 80%.

The face of Chinese manufacturing is also swiftly changing. I have visited China ten to twelve times in the past, generally through Shenzhen and Hong Kong. The manufacturing scene that we witnessed in Shanghai was markedly different – now there is much less of the compound setting, with factory and residential accommodation built side by side; and much more modernity, almost like walking into American or European manufacturing facilities. 300 new factories are opening every day in China, not just in the first cities but also in well-populated inland locations, made more attractive by new tax incentives.

This reflects the way that the Chinese approach to the manufacturing sector is developing.

The actual process of manufacturing is changing with an increased emphasis on efficiency and automation. Low labour rates had previously reduced the importance of automation but rising local wages have brought issues of headcount and operational efficiencies further up the business agenda and more investment is going into R&D, particularly in the engineering space.

There is a perception that China is a cheap manufacturing base. And to an extent that holds true. But it is certainly not as cheap as it once was and relatively speaking, it faces competition from both Korea and South America, which anyone with an interest in supply chain management needs to recognise.

The RMB is set to become the third global currency and local banking structures are changing so that it is more possible to buy, sell and trade with Chinese partners in the local currency. There seems to be a drive to address issues that hinder international trade and a growing willingness to adopt the best of business practices. This is good for businesses like Cennox who seek to do business in the region.

And…

This impacts an area that is critical to my own business: intellectual property. It is key because we have developed and patented a security device that combats skimming from payment terminals. Any patent holder should enter the Chinese market with their wits about them, as the country has been renowned for the high incidence of counterfeit. But moves are clearly afoot to recognise and address this failing and increase the overall attractiveness of trade with the West.

A key benefit for me was building relationships with other likeminded business owners and directors. I had come to China expecting to find a way to source products locally but soon realised that the relatively small quantities needed would necessitate me speaking to a number of Chinese companies. At the exchange event, I met an Oxford based company that is meeting exactly this need and is well placed to help us source product direct from China – reducing the time and energy that I would otherwise have had to commit.

I also found common ground with a Huddersfield based automotive business, with factories in the US and India; and a Spanish waste management business. Although we do not operate in the same sectors, we do have a mutual interest in international commerce and doing business in China and as such can share valuable experiences and insight.

Cennox is currently in talks with the UK banks about adoption of our anti-skimming security technology. This will necessitate higher volumes of production and at that point, we will have a strong commercial reason to source direct from China. As a result of this exchange visit, I feel significantly more confident in doing that. I have a better understanding of the issues that the local market is currently facing and their objectives for the future; as well as some insight into the way they do business, negotiate and build relationships.

As I look at my travel plans for the year ahead, I see good reason to visit South America. And, I expect it won’t be long before I return to China – this time better equipped for what awaits me.

 

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