Firms adapt to UK challenges

A Bosideng store in Changzhou, Jiangsu province. The Chinese fashion retailer hit difficulties in London's retail market. Provided to China Daily

Tight visa rules, strict division of consultant skills, lack of finance highlighted

Chinese companies expanding into the UK say they still face many challenges, even as they acknowledge the legal stability and fairness of the UK market in general.

While Chinese companies elsewhere arguably face restrictions and unfair treatment, such as the high profile case of the US government's naming of Chinese technology firms Huawei and ZTE as posing national security threats, Chinese companies find the UK's business environment open and accessible.

Even so, as newcomers in a mature economy and consumer market like the UK, Chinese companies can still expect a tough fight, with their poor grasp of the local language, law and culture as examples of difficulties they face.

In some industries the barrier for entry of new players is high. Take wind energy, where wind turbines are generally installed with financing from banks, and financing is approved only when the company's wind turbines have been operating in the country for a long time.

Bank financing has proven a challenge for Ghrepower, a Shanghai-based manufacturer of small and medium-size turbines, which set up a subsidiary in 2011 in Swansea, Wales.

Joseph Deng, director of Ghrepower UK Ltd, says to date his team has sold fewer than 10 turbines in the UK, compared with more than 60 in Italy, where financing proved easier even when the turbines were bought from a company new to the market.

Deng says the time-consuming process of getting approvals for new turbines to be erected in the UK is also frustrating. "The consultation takes a long time, and the process is slowed every time a neighbor objects to the project," he says.

In addition, Deng says the UK's strict visa policy for foreign workers has limited the company's growth because it is difficult to second Chinese workers from China to the UK operation or hire Chinese workers locally.

"We would like to employ more workers who understand the Chinese language and culture in the UK so they can communicate better with our head office," says Deng, who is currently the only Chinese national on Ghrepower's team in the UK.

Deng says Ghrepower couldn't move more workers from its head office to the UK because applying for inter-company transfer visas in the UK means the company needs to pay these workers high salaries to comply with UK regulations for this type of visa.

At the same time, Deng says the termination of the UK's post-study work visa scheme in 2012 has ended the possibility of his team hiring Chinese graduates who have just finished their education in the UK.

Josh Wong, a partner at the DLA Piper law firm, agrees with Deng's concerns and says many companies face difficulties securing work visas for Chinese employees in the UK.

He says the visa application system is difficult to navigate and understand because of the complexity of its procedures. Also, applications need to be made in a certain way to fit the UK's immigration criteria.

For example, the UK grants work visas for certain job roles that the government recognizes cannot be filled completely by the domestic labor market, allowing visas for foreign workers to fill those jobs.

"When you make an application, you need to create a job that fits with the criteria. So many Chinese companies realize they need a general manager in the UK, but they fear if they use general manager in the immigration form, they won't get accepted," Wong says.

"So they put something like creative IT expert, because they know this is the kind of job that gets them in."

He says many Chinese companies find it difficult to hire only local workers when they initially expand internationally, and often the difficulty of hiring Chinese workers in the UK takes them by surprise.

Wong says another fact that can surprise Chinese investors is the strict division of work between different advisers on a deal. Often, many of them feel advisers take a big chunk of their profit from the deal.

"Often on a deal you need lawyers, accountants, insurance brokers, investment bankers, estate agents, etc. To a certain extent, Chinese investors think rules and regulations are built in order to create advisers."

Whereas in China, one business adviser normally would coordinate the deal, in the UK all the different advisers take instructions directly from the client, says Wong.

"Chinese businesses love to just deal with one person, to pick up the phone and speak to them when they have an issue. Because the way they think is not to say, 'This is an accountant issue, and this is a legal issue'."

China's image as producing cheaply made goods is also affecting Chinese companies in the retail industry, where brand reputation is key.

Bosideng, a Chinese fashion retailer, hit difficulties in London's retail market and recently ended its contracts with its UK buying and design teams, shifting some key manufacturing to China to save costs.

In the process, six employees, including a design executive and an assistant based in Bradford, northern England, and one designer in London were made redundant. After layoffs, Bosideng had about 30 staff members in the UK, not including outside professionals who help the team with functions like marketing and auditing.

When it first launched its store in 2012, in central London's famous Bond Street area, the brand boasted European design and manufacturing, in an attempt to leave behind the made-in-China image without hiding its name.

Carol Mak, Bosideng's investor relations manager, says raising brand awareness and recognition was Bosideng's biggest challenge when entering the UK market.

"We fully understand that this takes time and requires the right combination of marketing and PR campaigns, and our UK team has been working hard on this," Mak says.

As the UK market is quite mature with many dominant players, very often Chinese companies need a large initial investment to establish themselves, says Linda Lee, CEO of Equex, an equestrian sector consultancy and events management company founded in 2012.

Aiming to work with British equestrian industry companies in the China market, Lee's team invested a large amount of capital to organize and attend events in the UK. Lee says her team is still at the initial stages of the investment and they have not yet broken even.

She says the lack of Chinese government support for private companies to expand abroad has also been a challenge for Equex.

"I would hope that other Chinese companies, including Chinese media that are also expanding internationally, will be able to work more closely with us," she says.

Some Chinese companies have the challenge of starting from zero in the UK market. Similar challenges await Chinese companies that acquire struggling UK companies to help them return to their former glory.

One such example is MG Motor, a British car brand dating to 1924 that saw a decline before it was acquired by China's SAIC Motor Corp Ltd in 2005.

The Chinese owners invested heavily in the brand, and when it introduced the first MG cars in the UK under its ownership in April 2011, the MG6 became the first all-new MG in 16 years.

"For us, it is starting fresh, almost like a new company," says Doug Wallace, PR & internal communications manager of MG Motor.

Sales at MG have not been great. Last year, only 500 of the cars were sold in the UK, against 800 cars in 2012.

Wallace says the small sales volume is partly because MG had only one car model, the MG6, until 2013, when the MG3 was launched. But he says the new model has helped boost sales, and MG has already sold 1,000 cars from January to May this year.

cecily.liu@chinadaily.com.cn

(China Daily European Weekly 06/13/2014 page9)