If you want success in China be prepared for some heavy lifting
Small companies are constantly being encouraged to sell to China but bureaucracy often gets in the way
When Ricky Kothari was developing his product, an alternative to teabags, he had the chance to meet David Cameron. The prime minister at that time was impressed. “If you can sell tea to China, I’ll take you on my next trade mission,” he said. Mr Kothari, 38, took up the challenge and, three years later, 70 per cent of his sales come from China.
His business, Sticksology, is one of a growing number of British companies selling food and drink to the world’s most populous nation. The UK’s overall trading performance is weak, yet food and drink exports to China grew by more than 50 per cent last year, buoyed by afternoon tea products, up 63 per cent, as well as beer and pork.
Exporting to China has long been the politician’s mantra, but it’s easier said than done. According to Laurence Harris, 70, founder of Daioni Organic, a Welsh milk producer: “I’ve heard the same speech from [all the recent] Defra secretaries: [Owen] Paterson, [Liz] Truss, [Andrea] Leadsom. I haven’t heard it from Mr Gove yet, but I’ve no doubt he’s got it somewhere.
“As secretaries of state, I don’t think they’ve been well briefed on how difficult it is to get product into China, with the rules and regulations, payment terms, credit facilities, wastage, shipping and things like that.”
Daioni has done well in China. Mr Harris expects the company’s total revenues to rise to £3 million next year, including £500,000 in sales to China, but it has been a hard slog. “It’s a very bureaucratic system . . . you have to invest such a lot of time and effort into working out the system.”
The burden is particularly heavy when exporting food and drink. Elsa Fairbanks, director of the Food & Drink Exporters Association, said: “They’ve had so many food scandals that their priority is to deliver safe food to their citizens. That has meant that the health and safety steps become complicated. Perhaps because it’s fairly new to the Chinese, the legislation is taking time to settle down and become workable.”
Daioni sells organic milk, adding another layer of complexity. Originally, China accepted Soil Association accreditation; now it has its own certification bodies, which send inspectors to audit Mr Harris’s farm in Wales. He said: “We found a way through it, but it puts pressure on everyone at the UK end to get analyses, vets’ certificates and all this paperwork that has to accompany the product. There is no room for error.”
The regulations change frequently. One such forced Lizi’s Granola to quit China. Nigel Bryan, 72, one of its joint founders, said: “The bureaucracy got the better of me.”
Lizi’s Granola has revenues of about£10 million and exports to 40 countries. Six years ago, Mr Bryan attended a trade show in Shanghai and won a lot of business. There were complications even then: “The Chinese ports all seem to have different regulations. If you couldn’t get a container cleared at one port, you had to ship it to another one.”
Then the Chinese government tightened its food import regulations. Flax seeds, which are part of Lizi’s Granola, were classed as a medicine, requiring special permission. Mr Bryan said the could have adapted it for the Chinese market, but chose not to. “We produce our product to comply with EU regulations. We sell it all over the EU and the rest of the world and there is not a problem . . . to reorder it for an initially small Chinese market would not be commercially viable.”
If a product takes off in China, it can be overwhelming for a small business. Mr Kothari said: “You get a sense of the market after the first trade show. You get clients approaching you, distributors, supermarkets. So you have a lot thrown at you.” He and his business partner, Kim Li, 38, decided online was the best sales platform for them. It enabled them to include a video at the point of sale showing how to use their product, which serves as teabag and spoon.
There is a notorious problem within China around copycat products, which Ms Fairbanks said companies “need to be aware of”. Even large businesses such as Dyson have had problems with Chinese counterfeiters.
Mr Kothari said that partners in China had refused to take on his product until it was trademarked, because retailers now demand evidence of authenticity. “They need to see the certification that you have got your brand trademarked in China, so that they know it’s coming from an official source and it’s protected.”
Sticksology entered China by working with local distribution partners. Mr Kothari said: “We have encountered unscrupulous characters along the way.”
Mr Li said: “The first partner you work with is not going to be the partner you end up with, so it’s having that in mind and having some get-out clauses. So that if you do find a partner who is more passionate about your product, then you are able to switch relationships.”
Sticksology has bypassed local partners in some cases. Mr Kim, an old school friend of Mr Kothari, has been living in Shanghai for ten years and opened the Sticksology office there. He said: “We know long-distance relationships very rarely last. So it’s better for us to actually be there. Because we’re able to see what is going on on the ground.”
Understanding the culture is key to doing business
Guanxi, which roughly translates as relationships or connections, plays a huge role when doing business in China (Josephine Moulds writes).
Elsa Fairbanks of the Food and Drink Exporters’ Association said: “We call it the old boys’ network here, but it’s slightly different in China. It is fundamental to the way the Chinese always operated: supporting each other through networks and cooperation. So having the right networks is vital.”
Laurence Harris of Daioni, an organic milk farm in Pembrokeshire, says he encountered hurdles in ChinaATHENA PICTURE AGENCY
Ms Fairbanks said culture is an integral part of doing business in China. “It plays a role in any market but I would say it is one of the most important elements in the Chinese market, understanding the culture and building relationships.”
That is important for marketing but also for the basics of doing business. Ms Fairbanks said: “Working with your partners, making those first sales pitches and reading the responses. Because [the Chinese] are very aware of saving face and politeness, sometimes they just don’t say no and people can be left for some time not really knowing whether they’ve done a deal, or their potential customer just doesn’t want to offend them by saying they don’t want to buy the product. It can be quite frustrating sometimes.”
Laurence Harris of Daioni said he has encountered other cultural hurdles to overcome when dealing with Chinese partners. “There is this appreciation of the Chinese attitude to respect: whether it’s handing your business card over, to responding quickly to any emails; they expect a reply almost immediately, otherwise offence is taken.” He said Chinese partners also “like to speak to the bald-headed old man, as I am, rather than a minion”.
Mr Harris warned that the Chinese approach to forecasts is very different. “[Chinese] projections are slightly far-fetched.” He recalled the experience of a British microbrewery, which received an order for eight containers of beer at a trade show. The company closed their stand but the order never materialised. “Lots of young companies like ours can be blown away by it,” Mr Harris said.
Daioni has set up a business in Hong Kong with local investors, who own companies in China and so can bring their connections and money to the table.
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