British SMEs increasingly look to China

Uncertainties of Brexit are prompting more UK enterprises to see trade with the mainland as attractive

Recently published research for the Hong Kong Development Council finds that a sizeable 36 percent of UK small and medium-sized enterprises now consider trade with China far more attractive as a result of the Brexit referendum and the fact that little or no progress has been made in negotiations on the withdrawal process.

Uncertainty, the archenemy of international trade, has been further increased with the recent speech in Florence by UK Prime Minister Theresa May. Many were looking to her to instil a spirit of cooperation and friendship into the Brexit debate, which has so far seen nothing but stagnation and confusion.

But despite a few favorable mutterings, May's speech did not address the key concerns of the UK and indeed the European SME community. Chief among these concerns is continued access to and participation in the European Single Market.

The day after the Sept 22 speech, German Foreign Minister Sigmar Gabriel publicly remarked that the speech was "disappointing" and "offered no concrete details".

The lack of detail has also caused concern with French President Emmanuel Macron, who also called for more clarity and warned that talks could continue to stall.

As a result, young, ambitious entrepreneurs who often spearhead small and medium-sized enterprises in the UK are almost certainly going to look more closely at international expansion into Asia and China in particular.

This comes at a time when the robust and sustainable nature of the Chinese economy is now clear to all, and at a time when record numbers of Chinese companies are implementing international market penetration strategies.

The recent Hong Kong Development Council study also reports that SMEs in the UK not only regard Hong Kong as a key gateway to the mainland market, but Chinese mainland ports are now also considered equally attractive market entry routes. Notably, the report also finds that it is not just Shanghai and Shenzhen that are seen as attractive gateways to the Chinese mainland market, but that north China ports such as Tianjin and Dalian, as well as East China's coastal city of Qingdao, Shandong province, are now firmly on the list of typical SMEs in the UK.

The report also finds that, in addition to market entry via an increasing number of modern, efficient mainland ports, small and medium-sized enterprises in the UK are taking more interest in the Belt and Road Initiative and the increasing land trading routes across Chinese mainland and central Asia to the heart of Europe and even the UK.

This should come as no surprise, with the financial value of total Belt and Road planned investment estimated at $900 billion (759 billion euros; ￡668 billion) and projects across the full range of infrastructure and related industries, ranging from ports in Sri Lanka and Pakistan to high-speed railways in East Africa to gas pipelines in Central Asia.

The Hong Kong Development Council report also says the Chinese government's Made in China 2025 strategy, which aims to expedite the transition from China as a low cost, volume manufacturing economy to a world class, premium brand producing power, is also a positive factor behind the UK small and medium-sized enterprises' increased attention to and prioritization of the mainland market.

SMEs in the UK appear to accept that real business opportunities will result from Made in China 2025. For example, smaller UK management consultants appreciate the need for Chinese manufacturers to work with foreign experts to improve all aspects of their product quality, production efficiency and customer service. But even greater opportunities await UK SMEs via strategic alliances and joint ventures with the Chinese manufacturing sector, for example joint research and development activity as well as technology transfers.

More specifically, SMEs in the UK and their counterparts elsewhere in Europe are focused on the 10 key sectors where Made in China 2025 will concentrate most in developing world class Chinese companies: marine equipment, rail equipment, agricultural machinery and technology, aviation and aerospace, biopharmaceuticals and high-end medical equipment, integrated circuits and new generation IT, new energy and autonomous vehicles, new materials, power equipment and technology, and robotics.

The overall healthy state of the Chinese economy, with inflation remaining well below the government's 3 percent maximum at 1.8 percent and second-quarter growth reaching a better-than-expected 6.9 percent, has also been cited as a factor behind this greater focus on the China market by SMEs in the UK.

In spite of all this, the report also makes clear that it is very important for SMEs in the UK to pay great attention to detail when targeting and finally selecting Chinese business partners. British SMEs need to carry out proper, detailed due diligence and attempt to select partners whose corporate culture and long-term vision match their own. The report also highlights concern about the language barrier.

But SMEs in the UK, and SMEs in general, will be pleased with my latest research findings on the internationalization of Chinese companies. My findings suggest strongly that both long-term vision and a far more open-minded and cooperative culture increasingly permeate a wide variety of Chinese companies, which is perhaps why spoken and written English is more pervasive across the Chinese corporate sector. It is generally becoming very clear that SMEs in the UK will find potential Chinese business partners increasingly flexible and compatible, and able to adapt to a wider range of corporate cultures and international business environments.

According to the Hong Kong Development Council report, SMEs in the UK are also very aware of the growing middle class across the Chinese mainland and the consequent rise in purchasing power that is spreading beyond China's first-tier cities.

But in spite of this, according to my latest research across the UK SME sector, there remains a lack of geographical and cultural knowledge of China, especially the Chinese mainland, within the UK's SME sector. My research also indicates an overreliance on Hong Kong as the main market entry route to the mainland, even though others are growing in perceived importance.

SMEs in the UK are spot on with their increased attention to market opportunities across the Chinese mainland. Prime Minister May's recent speech has at best done little or nothing to dampen the enthusiasm of SMEs in the UK toward trading with China, and has quite probably added to the uncertainty and overall pessimism surrounding Brexit negotiations.

Increased Brexit uncertainty, with the UK's European Union withdrawal date of March 2019 drawing ever closer, could lead to a wave of support inside and outside the UK Parliament for a hard Brexit and no trade deal in place upon exiting.

As a result of the increasingly likely hard Brexit prospect, it is most prescient of the UK's SME sector to negotiate and secure suitable trade deals with Chinese mainland companies.

The author is a visiting professor at the University of International Business and Economics in Beijing and a senior lecturer at Southampton University. The views do not necessarily reflect those of China Daily.