Year of the Dragon
Yesterday I found myself in front of a very enterprising business man who mentioned that he was dealing increasingly with China, he was both exporting his goods to China, and using cheap Chinese manufacturing to get low cost components for his British based factory.
I asked him how he managed to find his contacts and how easy he found doing business with the Chinese. His reply left me in no doubt that the Chinese are some of the best networkers in the work, as a business trip two decades ago has led to introduction after introduction and now my client has an extensive network of people who he can rely on. “Is their reputation for copying your patented designs justified?” I asked him. His reply was mixed and it reminded me of the experiences of three entrepreneurs featured recently on a a Channel 4 programme called “Brits Get Rich in China.”
The programme followed the fortunes of three determined British businessmen, who enticed by tales of massive profits to be made had ventured into this rapidly expanding economy to seek their fortunes. There names were Tony, Peter and Vance.Out of the three, Peter was unique in that he wished to export to China, Tony and Vance were looking to China as a way of sourcing or manufacturing their existing products more cheaply.The tale as you would expect is long and torturous, and because at Business Link we are regularly approached by entrepreneurs (usually the young fearless type!) who want assistance to source goods in China I thought I’d write about each in turn. S0 lets start first with Tony.
Tony’s a good sort, the type that British manufacturing was all about two decades ago. He is in the textiles business… cushion manufacturing to be precise, and his story opens with him wandering around 20,000 sq feet of empty factory space in the midlands because the Chinese low wage economy has undercut him to the extent that he has had to close his factory down with a loss of 100s of jobs. Undeterred he buys a one way ticket to China with the intention of duplicating his manufacturing operation further east and with much lower costs. En-route he borrows £2m and acquires a dubious Chinese business partner (Miss Die) of unknown skills and background.
Roll forward 6 months and his factory is not finished, his site foreman has disappeared only to be replaced by one of Miss Die’s relatives (also of unknown skills & background) and Tony (via a trade exhibition in Shanghai) has secured an order for 250,000 cushions. His predicament? he has no factory to manufacture them in, let alone a trained workforce to undertake the work.
Fighting off his creditors and the bank, batting away competitors who are trying to steal his designs and struggling to find the right staff, he states ruefully that he has three months to turn this situation round or he faces financial ruin. “All of a sudden China comes along and we couldn’t compete anymore” he confides to the camera.
The first thing that struck me about Tony was his need to replicate his UK business model in China without any investigation as to whether it was the sensible thing to do. At Business Link we often remind entrepreneurs who are about to embark upon such a venture, that what that entrepreneur usually has in abundance is good project management skills, they need to use those skills to act as a broker between their customers and the existing base of Chinese manufacturers. This would have been a sensible first step and carried far less risk than borrowing such huge sums of money and attempting what was effectively a self-build in a country you neither know or understand. Brokering the deal would have given Tony a significant profit with significantly less risk and less effort, and whilst he was doing this he could have taken the time to learn more about China and its ways as my aforementioned client had done.
However China attracts the impatient, and what I would say is that if your business owns highly sensitive Intellectual Property, get it protected (Business Link can provide a guide on this via their website as well as make introductions to quality assured Design Patent and IP Attorneys) and think carefully about who you place your trust in. Of course there are honest agents, brokers, manufacturers, in China, just as there are in the UK, but you have to find them! The people that find you first may not be the sort you can trust (as my next BLOG will show).
The first place to make your enquiries is Business Link not because we encourage companies to manufacture abroad if they can get their product made competitively in the UK , but because Business Link can help you to check out your business model. (if Tony had done this I could have saved him a lot of trouble!) The perception out there is that British manufacturing is dead… this is not the case. The low-cost high-labour manufacturing base has moved out abroad (particularly to the far east where labour costs can be as low as £0.20 per hour) but we still retain in Britain a highly skilled technologically innovative machine/knowledge intensive manufacturing industry. If you are looking for a manufacturer to make something innovative, complex and full of technical challenge then Britain is you place. Contact Business Link who can help you find the right manufacturer to assist you. And if you are actually planning to export to China, we have abundant help via our UKTI services.
So back to Tony, where could he have got some sound advice? well the first place to make enquiries after speaking to Business Link would have been the British Embassy in China. They have a specific Trade Department staffed with people who can make introductions and help you get going. There are commercial organisations who can assist as well. I have recently referred one of my clients to China2West, the China-Britain Business Council, The Chamber of Commerce and Connect China. Before long you are building up your reliable contacts just as my aforementioned client has done. Entering China is not for the faint hearted, but the money to be made and lost can be considerable and a little planning before you tackle that Chinese Dragon can go a long way!
Next Blog, Peter and Vance! one makes a fortune, one stands to lose his pension & life savings!
