UK failing to exploit booming China

Feb 19 2007 by Nic Paton Print This Article

American and British firms are among the Western businesses best placed to tap into the booming Chinese economy, but British managers still seem slow off the mark when it comes to spotting new opportunities.

A global study by consultancy Hay Group has found British captains of industry expect China to be worth 10 per cent of their global revenues in two years' time - the equivalent of 200 billion a year.

Yet while eight out of 10 UK directors see China as an opportunity to be exploited and more than a third view it as their greatest opportunity, a full 40 per cent of businesses still have no Chinese strategy, against a global average of 24 per cent.

A third of major British companies currently have operations in China and a further 16 per cent said they were planning to establish operations within the next five years, added Hay.

Britain, with its heritage in Hong Kong and elsewhere, had a real opportunity to open up Chinese market, predicted Hay.

Its poll ranked the UK as second only to the US in terms of its capacity to succeed in China, with 63 per cent of global executives rating the UK "well placed" to succeed in China.

By contrast, Italy was the most poorly rated country in terms of its capacity to be successful in China, ranked "poorly placed" by 36 per cent of executives with France ranked "poorly placed" by a quarter of the executives polled.

Deborah Allday, associate director at Hay Group, said: "China is quite simply the greatest market on earth.

"Our research shows that British business leaders expect to double their sales to China within three years.

"But with 40 per cent of British companies lacking a China strategy, whether they have the capability to make this happen remains to be seen," she added.

British businesses needed to be putting China at the top of their business agenda now, if they were not to lose out, she stressed.

UK business leaders expected Chinese competitors to steal just 5 per cent of their domestic market in the next three years (compared with a global average of 8 per cent) the equivalent of 76 billion a year.

This made China a net opportunity for Britain, it argued. More than two thirds of UK executives wanted their government to push for open trade with China, compared with 55 per cent executives globally.

When it came to the threat China posed to domestic markets, nearly a third of executives saw it as the greatest threat to their business.

But half of the business leaders polled also believed competition from China would never reduce profit margins and more than a third believed it would never successfully compete for low-value or high value outsourced services.

This, warned Allday, smacked of complacency. "There is a widespread belief amongst UK business leaders that China will only pose a threat to the most low value goods and services," she said.

"They are very much mistaken. Chinese companies are scaling the value chain with great speed. Companies should beware of leaving their home goal unprotected. UK business leaders underestimate Chinese business acumen and ambition at their peril," she added.

Cultural and language differences were considered the greatest barriers to entry into the Chinese market, alongside a lack of understanding of the market.

A quarter of business leaders wanted the UK government to boost British success in China by teaching Chinese language and culture in schools.

Almost two thirds of UK business leaders believed Western companies needed to develop whole new ways of operating in order to succeed in China, compared with 77 per cent of global executives.

As a result, close to half of UK firms were now looking to recruit Chinese MBA graduates.

Frank Hartle, director of Hay Group, said: "We are about to face a war for talent both in China and in domestic markets as companies scramble to recruit talented leaders and managers with an understanding of the Chinese market and business culture.

"Companies who fund MBA study for employees should demand China modules on their courses. And talented executives with a track record in China should understand the value of this rare skill set," he added.