Cooperation or Competition

Review: BTM Conference 2014

Cooperation or Competition

Business Relationships between China and Europe

The 2014 Bringing Technology to Market (BTM) Conference on October 17 and 18 took an in-depth look at the evolving relationships and synergies between Europe and China.

The high-level event brought together leading CEOs, seasoned business executives, and foremost academics. One rigorous day of speeches, presentations, and discussions depicted a trading relationship with great untapped potential between two of the world’s largest business partners.

Dynamic trends in foreign direct investment (FDI)

European investment in China has a mixed record of success and failure. For many investors, however, the market’s possible rewards continue to justify the inherent risks. Data show that European firms investing in China can expect profits well above the worldwide average. Moving forward, however, analysts expressed guarded optimism: Economic overcapacity and political uncertainties in China are prompting business leaders to exercise greater caution and postpone any major future decisions.

China’s FDI experience in the West has followed a similar, bumpy trajectory. Experts were quick to point out, however, that China’s failure rates in the West are not that different from those experienced by Japan 25 years ago. In the meantime, China’s government-owned and private companies continue to flex their muscle abroad with greater confidence. The country’s collective knowledge and confidence grows with each successful acquisition.

Greenfield investment v. acquisition

Chinese and European companies alike face a fundamental choice between building new ventures from the ground up and buying existing businesses. Decades of experience on both sides point to a very different set of recommended approaches.

For European companies seeking a foothold in China, greenfield investment offers clear advantages. China’s current economic policy puts an extraordinary emphasis on driving prosperity for its citizens. Policymakers there have become more accessible as the Chinese government seeks to achieve a greater degree of transparency. As a result, the country supports investors across a wide range of areas, from factory design and construction to bureaucracy liaison.

By contrast, Chinese companies entering Europe achieve better results by acquiring local firms. Europe’s established processes, technologies, and high level of development offer Chinese firms a rapid path to knowledge transfer and return on investment.

Being good enough in the mid-market

European companies are finding it more difficult–and less profitable–to build market share with a traditional premium focus. With growth rates of 35 percent, China’s mid-market increasingly represents the sweet spot for a number of industries–from heating and lighting equipment to construction materials. Other Asian countries are also getting into the action, as firms from Japan, Korea, and Taiwan localize their products to gain a share of China’s mid-market.

Management style and communication

Managers working abroad are achieving greater success by balancing their own native management styles with local requirements and cultural norms. For German and Chinese expatriate managers alike, this represents a daily struggle. German managers have discovered the benefits of being more flexible, for example, as they interact with Chinese colleagues who are rooted in local political structures and Confucian ideals. By understanding China as an experiment and work in progress, German managers can better develop the skills and insights necessary to navigate the country’s more fluid ecosystem. Chinese managers, on the other hand, benefit from learning to accommodate the German preference for efficient process, direct communication, and well-defined structure.

The need for speed

Chinese customers have traditionally appreciated German quality and engineering. Yet recent opinion surveys show a value shift in this area. When it comes to maintenance and service, Chinese managers say that native, local companies often outperform German competitors. Receiving rapidresponse, on-site service repairs on a “good-enough” machine, for example, has greater value in China than owning a perfectly engineered machine. Conference experts said German firms that ignore this growing trend do so at their own peril.

Trust or bust

In both China and Europe, complex, cross-cultural business relationships are ultimately built on trust. By uniting people across a diverse set of business values, trust is a powerful motivator and selling factor. Managers are in the best position to build this critical bridge. To better map and align crosscultural thinking in the future, both Chinese and European companies will need leaders with global mindsets and transcultural roots.

Investing in the future

Conference experts ended the event on a note of cautious optimism. China’s slower future growth indicators and anticipated public policy changes present Western companies with open opportunities, but also open questions. Slower growth rates and economic uncertainty in Europe pose similar uncertainty for Chinese companies investing in the Continent’s regional markets.