China is actively courting UK entrepreneurs to bring their businesses over to Asia. But there are challenges you have to be aware of before setting sail
On a Tuesday morning in September, roughly five dozen people in smart casual business clothes climb the escalators to the first floor of an office building in central London. Walking past the slick corporate decor into a seminar room, they’re here to learn how to grow their SMEs and startups into China. After a small continental breakfast they all take a seat. At 9am on the dot, Scott Haughton, co-founder and COO at Envestors, the investment portal hosting the event, steps up to the microphone. Speaking to the sea of navy attire, he makes no secret as to why they should all be serious about taking their companies to China. “It’s an incredible place and it’s an opportunity that any UK company cannot ignore,” Haughton says.
And he’s not wrong. While the Chinese economy’s growth has slowed down due to Donald Trump’s tariff war with the country, it’s still grown on average by 9.6% year-on-year since 1989, according to Trading Economics, the trade-tracking platform. “It’s already pretty much or about to overtake the US as the world’s largest global economy,” states Mark Hedley, regional director for London at the China-Britain Business Council, the organisation promoting trade and investment between the UK and the republic.
The growth is partly fuelled by the country’s growing and increasingly affluent middle class. The percentage of the population that earned between $9,000 and $34,000 grew from 4% in 2000 to 68% in 2012. And according to McKinsey, the management consulting firm, that figure is set to jump to 75% by 2022. “The growth of the middle class in China means there’s tremendous purchasing power in the Chinese market,” says Hedley. Indeed, in recent years the country has seen everything from shopping centres to tech startups rise up to accommodate the expanding bourgeoisie’s consumption cravings. Moreover, the republic’s government has launched a serious push towards upgrading its manufacturing sector to meet both the domestic and foreign demand for new products. “So there are huge synergies between the UK excellence in developing innovative technologies and China’s thirst for embracing and adopting them into its ecosystem,” he explains.
From creating startup visas and launching incubators to launching VC funds like Silk Ventures and offering essentials like office space, the central government and the different provinces have done their utmost in recent years to encourage western entrepreneurs to venture into the country. “There are incentives, in particular for high-tech startups, to set up and base themselves in China,” says Hedley.
However, going overseas can be extremely challenging for UK entrepreneurs. “Some of the biggest things are distance and culture,” says Hedley. “It’s a long way, not just geographically but also culturally.” For instance, foreigners may find it difficult to adjust to the different norms and expected behaviours in corporate China. As an example, your network plays a much bigger role in the country than in the west. Who you know will literally mean the difference between success and failure. “You may find it’s necessary to spend more time on the softer side of doing business rather than on your transactional side of things,” says Hedley. “But that’s a challenge I think a lot of companies are willing to embrace.”
Moreover, as with any expansion into a new market, UK SMEs must also understand the laws in the country. “There are issues around the complications of corporate structuring and tax and getting your profit out of China,” says Hedley. Fortunately, whether you’re trying to tackle the intricacies of the republic’s unofficial networks or finding out which regulatory hoops to jump through, there’s a simple solution to your woes – find some friends. You can overcome these obstacles by partnering up with an organisation that’s either from China or already has a presence in the market. “None of these challenges are insurmountable with the right advice and the right preparations,” summarises Hedley.
Another challenge has to do with copyright. It’s hardly a secret China has a bad reputation when it comes to protecting intellectual property (IP). This was something Nick Beckett, managing partner at CMS China, the law firm, discovered first-hand when he moved to Beijing six years ago. “A lot of my colleagues and friends thought I was totally crazy going to China as an IP lawyer,” he remembers, speaking at the seminar.
However, contrary to the notion that the republic is a haven for bootleg ripoffs, Beckett argues the country is increasingly taking copyright seriously. Not only are the laws on par with what you’d expect in the west but it’s also becoming more rigid in upholding regulations. For instance, the courts have beefed up their knowledge about IP legislation and tech matters, even launching specialist courts to tackle these cases. As a result companies like Christian Dior, Lego and Land Rover have all won huge IP battles in China. “Your ability to protect your rights have improved significantly in recent years,” he says.
>Still, that doesn’t mean protecting your IP is easy. “I’m not saying there isn’t a challenge,” Beckett says. “China is probably more of a challenge than most markets but there are some things you can do.” His main advice is to register your brand in China as quickly as possible to avoid anyone else doing it in bad faith to make a buck out of your hard work. That means both the English name of the company as well as any translation of it. The same thing goes for your copyrights and patents. Similarly, business owners are also advised to put employee contracts in place to protect against workers exiting the company with invaluable knowhow from either going straight to a competitor or setting up their own enterprise. “You would need to do it there more than you’d probably need to do it elsewhere,” Beckett says.
But that leaves the question of where in China you should set up shop. “There’s different strategies that Chinese cities are aiming for,” explains Angel Zhang, international affairs director at Shenzhen Juneng Capital, an organisation promoting international technological cooperation. “You have to understand that it’s a large country and that each city has its own strengths and weaknesses.” While Beijing is the capital of China, it’s dominated by state-owned business. So if you run a tech startup you may have better luck in cities like Shenzhen, Shanghai or Hong Kong that have more high-tech profiles. For instance, the unicorns DJI and Huawei both hail from Shenzhen and Shanghai is the home of roughly 30 $1bn companies, depending on how you count. “So it’s a good idea to actually brainstorm what city that is the best fitting for your business and what you’re looking for,” argues Zhang.
Obviously, going to any foreign market is a huge undertaking under any circumstances and China is no exception. However, given the size of the market, going there is an opportunity well worth the effort.