Bridging the Gap between UK and China Business Cultures
The ability to save face while keeping strategic objectives front and centre is what makes effective business relationships between China and the UK what they are today. Founder of China Investors Club, Mr William Franklin wrote to Times Publications about their experiences to encourage both Chinese and UK businesses to listen to their respective philosophies and experiences in order to develop stronger trade links.
Posted by Georgina Yan on Monday, 7th August 2017
Pace of change in China is fast
Since President Xi Jinping came to power in 2013, the pace of change in China has been dramatic. On the business front, such changes include the Belt and Road initiative linking over 60 countries in trade, creation of the AIIB (Asian Infrastructure Investment Bank) as an alternative to the World Bank, promotion of international investment by private and State Owned Enterprises and legal advancements around business practices, especially treatment of Intellectual Property. As a political leader, Xi has also implemented a hard line on internal political corruption and inefficiency, focused on regeneration of China’s North East provinces and placed defining boundaries on the 9-dash line. All of this has been delivered in such a short period of time that any UK firm wishing to trade with China has trouble keeping up to date with the latest developments.
Helping UK firms keep pace with these changes is a core objective of the China Investors Club. We organised regular events including face to face meetings and issue regular publications. We have successfully introduced six Chinese investors to UK business opportunities and three UK firms to partnerships in China so far.
Changing UK political dynamics has potential to impact relationships
When the UK voted to leave the EU, it was unclear whether the Golden Period established in 2015 was to continue. Whilst the benefits of lower sterling value attracted greater investor interest from China as well as elsewhere, political rhetoric around offering China access to the Hinkley Point Nuclear Power project forced strong rebuttal from Ambassador Liu, China’s Ambassador to the UK. This was a classic case study in how blunt political language that suggested China’s involvement was against the UK’s national interest could force China to lose face on the international stage. At the time of writing, a political ‘pressure-valve’ was found in that the new plant could not be commissioned until the sister French pilot plant was completed by the end of 2017, thereby allowing both the UK and China to re-evaluate the project.
Promoting Mutual trust
Much has been made of the fact that UK firms find it hard to deal with Chinese partners, with trust being cited high on the list of reasons for failure. The China Investors Club views the education in business cultural practices of both Chinese and UK firms as fundamental in overcoming the challenges of building trust
The key factors we focus on are:
1. Guanxi: building trust at a personal level is where China/UK partnerships develop firm, sustainable roots. When we formed the China Investors Club, one of the aims was to help Chinese investors integrate with the UK business community and develop their own professional and social networks. This inspires confidence in the initial investment decision they have made and provides access to new opportunities that otherwise would not be open to them.
2. Business process: once guanxi has been established, the next potential area of conflict comes from how decisions are made in the respective countries. With UK firms being mostly governed under the Companies Act 2006, directors and Boards have responsibilities to act in the best interests of the company and its shareholders. In China, the predominance of ‘new’ wealth created in the last 15, 10 or even 5 years ago under the leadership of a single person means that decisions are made in very different ways. One common area that catches UK firms by surprise is how slow and then fast decisions are made by their Chinese counterparts. Following initial discussions and provisional agreements, the Chinese business partner can go quiet for many weeks and months. Then seemingly out of the blue, the UK firm receives a call stating the agreement will be signed within a week and supplies or investments are to commence immediately afterwards. Without knowing the workings of Chinese firms, such decisions are hard to accommodate. However, it is equally important for the Chinese business investors to understand the UK rule of law and decision making process so that they also do not feel out of step.
Developing 2nd and 3rd tier connections in China
Developing political and tier 1 strategic business connections between countries is relatively simple as significant resources and finances are made available to ensure mutual benefits are met. A different approach is required to engage with mid-level and grassroot companies due to more limited resources and a lower capacity for reciprocity.
The China Investors Club offers a platform that provides social and business engagement opportunities between like-minded business professionals from both the UK and China. This system enables small to mid-sized firms to work directly with their counterparts and explore potential partnerships before committing significant financial resources to new ventures.
This platform has already led to formal business group partnerships with Hebei province, as well as attracting interest from three other regions looking to support Chinese firms with international marketing and inward investment opportunities.
“China ready” support for UK advisors
With London being such a strong international centre for finance, law and insurance, Chinese firms wishing to invest into the UK or Europe naturally seek local advisors. As little as two years ago, most “China Desks” of UK professional firms were staffed by a skeleton team of Chinese nationals with limited decision-making power or in some cases, experience. This has changed dramatically since 2014 with top firms appointing dual qualified partners and robust deal teams. Smaller firms are also employing Mandarin professionals and becoming more aware of the business culture differences and current business trends. They become and remain “China ready” by attending the China Investors Club monthly round table discussions and reading the regular China/UK business commentary. They are also able to listen to experts from both countries that work in the same industry sector, enabling them to make informed investment decisions when building their own Chinese business relationships.