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It has taken a mere 15 years – a blink of an eye – to see the paper tiger transform itself into the roaring dragon that is the new China. Innovation and manufacturing capacity has always been the mainstay of the country with its competitive edge in the world riding on the back of its low cost economy and vast labour force. But beware, because this dragon has real teeth, and the transformation in the technology offering, quality and inward investment has left other more established economies green with envy, with a flood of new businesses fighting to establish themselves on the Chinese mainland.

In 1988 I was lucky enough to be introduced to a very enthusiastic executive called Ian Jenkins who operated as a manufacturing advisor and expert for businesses setting up in the Far East. Over several large gin and tonics, the concept of assisting European-based companies to access manufacturing plants in China was born, which resulted eventually with us establishing Hoskyn Child’s sister company Hoskyn Child Asia – an inspirational name, methinks you will agree – based now in established offices in both Hong Kong and Shenzhen.

The subsequent learning curve in setting up the business has been, to say the least, interesting and the lessons learned equally fascinating. All the stories about “the problems of dealing with China” are all probably true and certainly, in the early years, made you and the client wonder exactly what we had got ourselves into. Simple things like crossing the border from Hong Kong to the Chinese mainland was fraught with lengthy bureaucracy and endless form filling, the record for one crossing in the early 90s was seven hours and when you’re a dim “Brit” fully suited and booted standing in 90 degree heat with 100% humidity, its not much fun!

The Chinese themselves are a very engaging people, with a surprisingly good sense of humour and razor sharp business acumen. Whilst usually short on height they really do play the long game when it comes to negotiating and the general rule is: put everything in writing and take copious notes – because just when you think you have an agreement, in reality they are still negotiating.

Quality and delivery used to be a huge issue and frequently quoted as good reasons not to place manufacturing in the Far East but that is definitely a thing of the past. New factories fairly bristle with the latest hi-tech equipment and even labour intensive projects are meticulously planned conforming to a multitude of checks and quality controls.

Back in the early days we can remember asking to see a particular factory’s quality certification – after a few moments of checking with the owner of the manufacturing plant, the interpreter replied that “they had a receipt for the certificate, but the quality inspector issuing the certificate would be unable to print us off a copy until his boss had gone out”. Nowadays all factories conform to the latest rigorous quality standards and the old practices of “backdoor” certification have all but disappeared.

Traditionally, a majority of the hi-tech manufacturing has been carried out in the south of China where the infrastructure was capable of supporting the huge levels of export goods leaving the country, however there has been a northerly “creep” of industry and technology over the last five years, in particular, and massive investment in transportation, rail links and road systems has opened up the country as a whole and allowed access to even lower price advantages to western clients.

For all of the talk of high-tech production facilities, low-tech basic manufacturing is still very much in existence and early last year Ian and I found ourselves at an iron foundry in northern China watching tons of white-hot metal being poured into sand floor mouldings only feet away from us. Top tip: never wear rubber soled shoes in an iron foundry! The government is supporting, new start-ups as well as existing companies both directly and through individual providences, with substantial grants being awarded to joint ventures between local and western businesses. Combine these grants with low cost loans for projects such as factory construction with land being gifted at zero cost to the project partner and the attraction to an aggressively expanding UK business seeking high volume, low margin manufactured product becomes very apparent.

Acting as a manufacturing intermediary has become a real fashion in China with all of the big accountancy firms and legal practices opening up offices in all of the big cities. By comparison Hoskyn Child Asia is now a minnow in a sea of highly paid professionals selling their corporate wares to a very vibrant marketplace – but beware – the locals do like to deal with people they know and reputations do count for something out there. HCA has taken over 15 years to build up a manufacturing client base of over 300 local manufacturing partners and professionals, and the majority of our work now concentrates on arranging joint ventures between local firms and western clients.

The locals are in many cases cash rich and are looking for more than just a client to manufacture product for. With manufacturing companies that have turnovers in between $200m and $1bn, the big push is investment from China and into the western marketplace with the once subservient producers seeking substantial financial stakes and shareholdings in their new found partners.

Joint venture partnerships however do not happen overnight. The preparation and research required prior to any approach or pairing taking place is very time consuming, but can prove to be highly rewarding. A recent HCA example of this would be a newly developed utility product that required both funding and production assistance. Following extensive research, Ian was able to identify six possible partners for the UK client. This was followed by a hectic round of visits and presentations which after several months resulted in a successful deal being struck:

• drawing and mould production costs covered by
  the manufacturer;

• 90 days credit terms, from goods landed in the
  UK – potential cashflow value £1.2m;

• a fully dedicated factory line and personnel facilities
  provided, $2m investment; and

• £1m equity stake taken by the manufacturer
  in the UK company in exchange of an exclusive
  five year manufacturing contract.

China definitely has many of the advantages that struggling European firms are seeking.

With the UK manufacturing base now rightly concentrating on low volume, high margin innovative home product solutions, but also seeking real joint venture partnerships with the Far Eastern volume manufacturers, the prospects are very good for all concerned.

HCA has received more and more requests from our Pacific rim partners to find investment opportunities via joint ventures with the west rather than us just seeking production facilities from them.

The skills the Chinese businessmen possess combined with an increasingly sophisticated approach draws great admiration from professionals and UK business alike, however please bear in mind that all dragons possess teeth and in the case of this roaring red dragon – it really can bite if you get it wrong!!
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Jonathan Wooller, chairman, Hoskyn Child International and
Hoskyn Child Asia, e-mail: wooller@hoskynchild.co.uk

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