5 things I learned about China as an intern at nexxworks
Five years ago, I chose sinology as my degree at the University of Ghent. That happened shortly after my father showed me a Forbes magazine praising China's economic growth and innovation. Now, as an intern at nexxworks studying China's technological development post- COVID, I had the chance to reach out to their network and interview CEOs, VPs, and attachés, resulting in a fascinating patchwork of experiences and opinions about business, innovation and sustainability in China.
These were my key insights:
The Chinese customer has changed
In the past China was mainly known as 'the factory of the world,' and European countries praised its cost efficiency, which created an overall emphasis on quantity rather than quality of production. However, the Chinese government has since focused on investing in qualitative production and policies, emphasizing more R&D in its Five-year plans. Additionally, the government has made significant efforts towards poverty reduction. They have still a long way to go, but that movement created a huge ‘new middle class’ (more than 500 million people) in China that demands qualitative, sustainable, and top-branded products. Chinese customers eagerly welcomed European companies to enter the market, creating a demand that cannot be ignored - after all, that's 1.4 billion people.
Big company versus small company in China
Big Belgian companies with a long-standing presence in China since the late '90s differ significantly from their smaller and younger counterparts attempting to enter the Chinese market. The former adapt to Chinese expectations and navigate the economic landscape with more ease due to their vast experience and budgets. After a difficult period during COVID, these big companies now seem to reinvest in their Chinese connections. In contrast, SMEs more often struggle to break into the market and quickly become isolated. Although these smaller businesses often recognize China's potential, they lack the knowledge and resources to succeed. Why and what can be done about it? Some very useful insights follow in the last section.
The big political elephant in the room
All the individuals who were interviewed agreed on one point: China's politics must not be ignored. Though China is often approached with fear and negativity in the West, it is interesting to note that China's politics serve as the societal glue that binds together government, companies, universities, and other sectors, but in a more profound way than in Europe. This bond enables the emergence of superclusters such as smart cities, digitalization hubs etc. While some industries decide against entering the Chinese market, other sectors should not be intimidated by China's societal system that actively involves the government. The advice given by experts working with or in China is to embrace this system and learn from it.
Sectors in China that are HOT
During the interviews, numerous sectors were mentioned, and it was fascinating to discover that China has invested in technology that has had a positive impact on every existing sector in the market. The heavy investment in AI, IoT, and 5G technologies in China has created a technological lead over Europe. By applying these technologies in multiple facets of the production process, the efficiency, speed, and accuracy of Chinese production seems to have grown. However, the challenge here is that China develops these technologies within its own internet ecosystem, which is separated from the rest of the world. This can be a significant obstacle for European companies looking to enter the Chinese market, especially since they are more familiar with the known, accessible, and often saturated American market. As much as China is an exciting market, it is important to note that China is not for everyone. However, those who are committed to China can reap great rewards.
China's emphasis on sustainable development is evident in every sector, as reflected in its 14th and 15th Five-year plans. These plans form the holy grail of Chinese development and provide a good insight into the country's upcoming goals and investments. China often exceeds its set goals in the Five-year plans, and the same is applicable for the sustainability guidelines. These guidelines not only diminish China’s carbon footprint, for example, but also include the idea of China’s sustainable development as a society. This commitment goes beyond charity initiatives and reflects a mindset shift that drives the development of its products and technologies on every level.
Chinese cleantech is a crucial industry for sustainable development that cannot be ignored by European experts. In fact, about 65% of the global manufacturing capacity of clean energy technologies resides in China. However, its implementation is primarily concentrated in the Eastern region of China and does not reach further regions as much. The Chinese government invests significant resources in R&D and innovation to address environmental issues. Biotech and Healthtech are also important sectors, with a wide range of industries involved, from crop quality control systems by drones to cancer drug technologies. The medical sector is receiving considerable attention, with resources for R&D and universities conducting research for companies. China's large population and goal of ‘lifting everyone out of poverty’ have driven investments in medical care accessibility, such as medical booths in cities with online consultations.
Advice to approach China
Multiple people gave advice on how to approach China based on their experiences in the past years. The main recommendation is to pay attention to the socio-cultural background of the Chinese business person and customer. The difference in approach, priorities and customs directly influences the ways of doing business and the behavior of Chinese customers. This seems to be a very obvious guideline, but the shared experience shows that European companies sometimes leap into the Chinese market as if it is just a fun adventure. Business with China is a very conscious choice that needs thorough preparation and enough support from the head office.
Despite the good preparation of many businesses in studying their partner, there are still many mishaps in collaborations with China. One of the reasons mentioned was that, even with a good knowledge of the Chinese partner, businesses are not always prepared for the governmental involvement with its rigid guidelines that need to be followed. Therefore, the Chinese political system needs to be taken into account and understood.
Networking is crucial for a business in China. Chinese business is about being present, to know people and to be known. Guanxi is a Chinese term that translates as ‘relationship’ but encompasses a way deeper and broader meaning that can be sensed in the way Chinese people approach business partnerships and collaborations. A representative in China is not enough, foreign business people need to invest in a ‘branch’ that will actively intertwine with the local ‘root system’.
An interesting insight for European companies wanting to enter the Chinese market today, is to take into consideration the younger generations of Chinese customers. The environment in which Chinese millennials and Gen Z grew up made them into very interesting customers with their own demands, expectations and product awareness (such as the level of sustainability of the product). As for where to settle in the region, some - though not all - believe that Hong Kong is a great starting point for companies that want to expand their business in China. That’s because it forms a very fascinating symbiosis of a Westernized market with Chinese roots. Hong Kong is part of the Greater Bay Area, which comprises 11 cities and 3 SEZs (Special Economic Zones) that are being built into a GBA megalopolis and which is already know as the ‘Chinese Silicon Valley’.
The main advice I would give people to enter China is to find a good local partner and make bold, yet calculated decisions. As Pascal Coppens, author and keynote speaker about China, explained to me “Think of it like a marriage: it takes lots of love, effort, acceptance, misunderstanding, frustrations, and disappointments. But if you keep working on it long enough it becomes an incredible journey of strength and joy. Maybe just don’t forget to sign the prenup.”
Anna-Paulina Vasilieva (Sinology MA student at Ghent University and intern at nexxworks)
Thanks to the nexxworks-team met Julie Vens – De Vos, Laurence Van Elegem and Pascal Coppens. With contribution from Annalin Van Biesen (Flanders Investment and Trade, Area Manager East Asia), Bart Horsten (Managing Director Horsten International BV), Bernard Dewit (Chairman of the Belgian-Chinese Chamber of Commerce), Eva Verstraelen (Economic Representative of Flanders Investment & Trade in Guangzhou, China), Filip Delalieux (Director of Innovation at Umicore), Frank Gebuers (Managing and R&D Director of Barco in Taipei, Taiwan), Franky Helmons (Business Development China and Asia at SWISS KRONO GROUP), Karel Eloot (Senior Partner, McKinsey & Company) , Johan Verstraete (Vice President Weaving Machines at Picanol Weaving Machines), Pieter Verstraete (Managing Director One-Stop China), Sven Agten (CEO Asia Pacific at RHEINZINK), Wim Polet (China Analyst at Chinability© Master Classes).