If the UK is to deliver on the government’s challenge of doubling exports to £1 trillion by 2020, China is going to be a key market. Economic success has led to a growing middle class who demand western goods and services, not just for their perceived high quality and reliability, but as a status symbol. The same financial buoyancy leads researchers at McKinsey to predict more than half (51%) of the Chinese urban population will earn between $16,000 (£10,220) to $34,000 (£21.717) by 2020, up from just 6% in 2010.
The UK will have to do better than it has done in the past, though. According to figures from the British Chambers of Commerce, just 1% of China’s imports were British, way behind the US and Germany which account for nearly 8% and 5% respectively. Hence, just 2% of UK exports go to China, compared to 8% and 5% for the US and Germany.
Sukhdeep Dhillon, global economic adviser at the British Chambers of Commerce (BCC), believes this could be due to British companies not reappraising the new potential of the Chinese market. “I think there’s still this perception that China is just a place you trade with to import low cost manufactured goods,” says Dhillon.
“They’ve had massive economic success and now they’re moving up the value chain. They don’t just want to be known for low cost manufacturing. To do that, they need to import equipment, technology and buy in professional services, so it’s a massive opportunity for British exporters.”
Redefined offering
Palintest has been exporting its water test equipment to China for the past seven years and expects to break the £1m barrier for the first time this year. Managing director Dave Sillow points out that China is a massive opportunity but it has to be approached with caution because of a different business culture and an economy with different needs from the west. “The worst thing you can do is just think that what you’re successful with in Europe can just be sent off to China,” he says.
“It’s more than just translating packaging and instructions. They have different needs. We’ve had to adjust our testing equipment to the levels of contaminants that are accepted in China and we’ve had to add new capabilities. Testing for heavy metals in water is a huge issue for the Chinese but it isn’t so much for us here.”
This is a lesson Black Sheep Coffee has been learning as it takes its first steps towards exporting to China. The London-based coffee shop and coffee selling brand has been using a service, called iPai, which auctions goods to Chinese distributors and consumers, gaining feedback on what they like about a product and what they don’t. Gabriel Shohet, co-founder of Black Sheep, revealed the lessons have given the brand a lot to think about as it plans to enter the market fully.
“You can’t underestimate how different a market it is,” he says. “In the UK our brand is all about plain packaging to show how well-crafted it is but in China they’d far rather have heavy branding and a fancy bag because otherwise it looks like any other cheaper product they could just get from a street market.”
Deb Weidenhamer, iPai founder, reveals Black Sheep’s lesson is fairly typical and underlines how companies need to adapt their products and services. “You’ve got a country where people are getting a lot more wealthy and the main way they can show their individuality is the goods and services they buy,” she says.
“They want to show they can afford Western brands and so want that branding to be visible.”
Milking success
Pembrokeshire dairy farmer Laurence Harris began selling to China in 2012 and now exports 3 million litres a year, or roughly 10% of his annual production, under his Daioni brand. The milk is UHT treated to give it a long shelf life and is paid for, by the Chinese distributor, by the time it leaves the UK on its four week voyage.
“You can’t underestimate how much more a Chinese consumer will trust Western food and drink brands they know have been produced to far tighter regulations than they have in China,” he says. “It’s particularly true of anything child related because of the significance of families only having one child. Milk is seen as a health drink there and the Chinese trust Western brands more than their own after the milk scandal of 2008.”
The main advice Harris would offer any other SME entering the market echoes the observations of many experts – take time to build lasting relationships.
Bureaucracy rules
Another word of caution from Matthew Harrison, CEO at market research company B2B International, is that although the good news is western quality is respected in both goods and services, be prepared to climb some bureaucratic mountains.
“Anyone who complains the UK is too bureaucratic hasn’t lived in China – even paying an electricity bill required a trip out of the office and a long queue at the bank,” he warns. “As a result the business culture also differs quite significantly from the UK, so you need to be prepared to adapt if you’re going to work with Chinese partners.
“The good news is that Western companies start from a strong position in the Chinese market, in that their products are usually assumed to be of a high quality. Focusing on this kind of messaging in marketing activities will pay off. It’s important not to exaggerate, however. It’s a massive turn-off for Chinese businesses and consumers, so make sure you focus on the credentials you have and don’t over reach.”
The cultural difference and language barrier, combined with a higher level of bureaucracy than the West, prompt many SMEs to opt for a distributor model in China. Setting up a Wholly Owned Foreign Enterprise (WOFE) is easier than in the past but can still take months of legal paper work.
It is for this reason that the BCC’s Dhillon advises all businesses to weigh up every decision and do all they can to establish a reputable distributor who is a good fit for them. The importance of getting validation advice is one of the main reasons the BCC has a partnership with the China-Britain Business Council who can offer advice on doing business in China as well as suggesting reputable business partners.
Read more stories like this:
Exporting: your top 10 questions answered
The British craft beer breweries taking over the world
Exporting: choosing the right country for your small business
Five exporting myths busted
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