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Is the Chinese Superpower a Threat or an Opportunity?
22.3.2017

This blog post is an adaptation and translation of a column written by Bart Horsten for the Belgian economic newspaper De Tijd (4 March 2017). See the original article in Dutch here.

European companies often hold misconceptions that they still possess a technological advantage over their Chinese counterparts and that China is eagerly awaiting their arrival. The contrary is true, China has an advantage in many sectors, for example in cleantech industries and internet technology.

After 80-plus business trips to China I feel a privileged witness of the unimaginable changes that the country has undergone in the past two decades. Unfortunately, many Western companies, policy makers and media still firmly hold on to  the common prejudices and stereotypical opinions about ‘the Chinese’.

From my dealings with China I can clearly sense the country’s growing power – and sometimes even arrogance. While Chinese suppliers in the past would ’move heaven and earth’ as to please their European customers, now they often seem less committed and flexible than before. Ironically. many Western companies don’t search for Chinese customers anymore, in recent years the roles have been reversed.

There was a time when I travelled to China as a young consultant, and simply the fact that I was European was enough to convince a Chinese company to welcome me. A European businessman was supposed to bring money, technology or attractive brands. Today the situation is completely different: China is in the driver’s seat. Chinese entrepreneurs and investors will now look for partners, suppliers or acquisition targets in Western markets and it is they who have the money to invest.

Take or leave it…

Western companies are presented with a simple choice: find a way to make the most out of this situation  and seize the opportunity to grow alongside their Chinese partner, or ignore this new reality and lose the opportunity to another company. In the latter case, the Chinese business partner will unquestionably look for a company that is willing to play ball.

In my day-to-day business, I am frequently confronted with a great lack of knowledge and understanding about China at Western companies. Consequently, many foreign businessmen are afraid to do business in China. That fear is partially understandable, but it often keeps foreign businesses from launching their China venture, thus missing out on interesting business opportunities. Unfortunately, I also see many companies going to China unprepared and signing a contract with the first Chinese company they meet, without really knowing their partner or what they do. And then, if things go wrong, it’s of course easy to blame the Chinese…

All of this increases the negative perception about China, often without  good reason. In most cases I found that Chinese companies are usually acting in good faith. Western companies failing in China or being cheated by Chinese companies are typically the victims of scams simply because they didn’t prepare well or didn’t follow up the China project sufficiently. And lack of follow-up and miscommunication can lead to misunderstandings, misunderstandings lead to frustrations, frustrations lead to conflicts, finally resulting in an end of the cooperation. In many cases these situations could have prevented if a well-thought-out business model would have been chosen.

A matter of prestige

In recent years, I have been approached by Chinese companies and investors who are looking for acquisition targets in Europe. There is definitely a lot of interest from China, but looking at it from a Belgian perspective (my home country), it is fair to say that the actual deals are still quite limited. And furthermore, most Chinese companies are private companies (although there are surely links to the Chinese State) and they mainly have commercial interests.

In many cases it’s also a matter of prestige: if a Chinese company can complete an acquisition in Europe, it gives the company more credibility in its home country, even though the acquisition value is often fairly low when compared to the company’s corporate value. For example, look at the investments in Belgian football clubs: they offer prestige and commercial ‘benefits’, such as gambling opportunities and the trading of football players, but in reality the investment value for the Chinese investors is considered to be ‘peanuts’. When Chinese investors perform acquisitions in Europe, they are usually not so much interested in the European market itself, instead they are looking for technologies, products or brands that they can commercialize in China. That’s the market they know best, have the best connections in and that offers the biggest potential.

Don’t forget that Chinese entrepreneurs experience the same cultural differences and language barriers when they come to Europe as when Westerners travel to China. Chinese investors are aware of these challenges. For Chinese, doing business in Europe is perhaps even more difficult than for Europeans doing business in China. Therefore, when a Chinese investor takes over a European company, they usually leave the previous management in place or they hire Western management so as to facilitate a smooth transition.

 

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