Business Management

London Tech Week: Doing Business in China

So technology can create 46,000 jobs and bring £12 billion to the UK, according to the headlines. Meanwhile Chinese prime minister, Li Keqiang is in town, helping foster business relations. Seems like it makes sense for UK companies to head to China, right?

Well no. Everyone has heard horror stories and many are scared by the sheer scale of cultural differences. “It’s not the easiest country in the world for smaller companies, it’s a daunting place to do business,” Mark Hedley, China Business Adviser for London explains.

Experienced in Chinese business, Hedley is with the China-Britain Business Council, which is hosting this talk at The Rainmaking Loft  as part of London Tech Week. “But you’re beginning to see the growth of a consumer market – the Chinese middle class.”

The Opportunities in China

In China, tech has an important role to play for both for consumer and business-focused companies. For consumer-facing companies, the burgeoning middle class represents a massive opportunity, while for other tech companies Smart Cities present an interesting path.

“China is urbanising at a very fast pace, and we’re seeing the emergence of megacities,” Hedley explains. Some 300 smart cities are due to be built from the ground up by 2015, and so new areas, such as Big Data, Internet of Things, Sustainability and Communications will all play a major part of the transition.

It’s not just smart cities and consumers though. The recent ban on Windows 8 and a general distrust of US tech post-NSA means the market is wide open. “I think it creates opportunities for UK companies,” explains Greg Sutch, CEO of Intralink. “The ban won’t last forever, but there are some areas where there just aren’t Chinese solutions.”

It may take a while for the market to adapt, but there are plenty of skills available. Tom Whitwell, founder of Digital Mission China, recently took a group of small UK companies to China, and explains that for them it was “very, very eye opening.”

“There’s an enormous amount of expertise there that’s cheap, quick and to a good standard,” he says. “In the UK & the Valley people ask ‘Where’s the Chinese innovation?’, and [I think] it’s in production methods – there’s a lot of expertise not being tapped into, and the challenge is getting them [UK & Chinese innovation] to work together.”

IP and Other Issues

Obviously there are well known problems in China. Various horror stories touched upon include: companies manufacturing in China, only to see their idea being sold by a different company a week later; through to companies signing contracts with people who don’t have the authorisation.

“The IP issue is raised constantly,” adds Whitwell. He explains though that to be successful you can’t just rely on your hardware. Citing the likes of Nest and Beats, he adds success needs to be a mixture of Hardware, software and community.

“China is obviously a place with a big IP issue,” agrees Luke Minford, CEO of Rouse and a specialist in the area, but he believes part of the problem is communication. “Chinese people are very direct, and you have to be very direct about IP issues – address them early and upfront.”

“Go in thoughtfully, don’t rush in. The Chinese system is completely different – foreign companies don’t know how to use it and there’s no safety net if you get it wrong. There are more IP litigations between Chinese companies each year, than the rest of the world combined.”

When asked if doing all the due diligence checks are too costly for startups looking to go in to China Minford warns, “If your crown jewels are your IP, be very wary unless you’re willing to invest.” Although he adds it’s not as costly to register patents in China as in the UK, it still “shouldn’t be done on the fly.”

Structure, Relationships and Staff

Partnerships are common for companies looking to move into a new country. But does that apply to China too? “Don’t do anything complicated. Just go in direct and talk to people,” says Willian Chan of Grant Thorton, a Hong Kong Tax firm. “Like in any country, joint ventures are like a marriage, and can be expensive.”

Another warning comes from Rouse’s Luke Minford: “There are huge subsidies for Chinese companies seen to be doing hi-tech,” and Chinese companies will approach foreign startups with deals that will later be disguised as local Chinese-to-Chinese dealings - it’s only later on that the UK companies realise what’s going on.

Much of this falls under the subject of Guanxi, essentially the Chinese take on networking and relationships. The panel have varying opinions on the importance of Guanxi. Yanning Lim, founder of Deya Tech, explains that “Contracts are just the start of the relationship,” while Intralink’s Sutch counters by suggesting it’s “no more important than in the UK”, and to him things “aren’t that different”.

Some things do come down to opinion, but by the end of the talk, it does seem doing business in China should be approached in much the same way as any other new market. Do your research, do it properly, and don’t take anything for granted.


Dan Swinhoe is Staff Writer at IDG Connect


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Dan Swinhoe

Dan is a journalist at CSO Online. Previously he was Senior Staff Writer at IDG Connect.

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