Mackie's Crisps are a big hit with Chinese consumers
David Leven, Scottish Development International's head of Greater China, explains why building on our relationship with China can mean big opportunities for Scottish companies.
I’ve been working for Scotland in China now for 18 months and can’t emphasise enough how excited I am about the things I’ve seen and heard there.
Scotland’s trading relationship with China is stronger today that at any time in our history. And all indicators point to China becoming an even more important market for us in the future as Scotland continues to internationalise.
China’s investment in Scotland
China has this year become a top five source of investment to Scotland. Significant Chinese investment continues to flow into our energy sector and travel giant Ctrip has recently followed a £1.4 billion investment in Skyscanner with a project to create 200 new jobs in Edinburgh.
In the last year or so we’ve also seen huge growth in the number of Chinese visitors to Scotland and research and development partnerships being formed between our university sector and some major Chinese corporations, such as Huawei.
Pace of change
China’s scale is overwhelming at times. The pace of change is also incredible – annual growth rates are currently around 6.6%. Some sectors are growing much faster than this average and Chinese capability is now world-leading in some areas, for example in mobile technology.
China already has more high value start-up companies by value than the USA, and its universities are racing up the international league tables.
What’s the opportunity for Scotland’s sectors?
I find it incredible that China now has a larger workforce than the USA and Europe combined. And only around 11% of this workforce is classified as being ‘middle class’. This is set to rise sharply, meaning 100’s of millions of people driving huge new demand for travel, education, leisure, fitness, fashion, healthcare, food, drink and other premium goods and services.
The story of Scotland is very powerful in these markets and wherever possible we should use our global reputation for heritage, culture and environment to help with the sales process.
As China becomes more affluent and educated, its people are continuing to look for new ways to help deliver the ‘Chinese dream’.
Huge investment is being made and new forms of regulation are being put in place to help tackle air and environmental pollution. This represents a huge opportunity for Scotland’s companies that have successfully cleaned up after our industrial revolution and plotted a clear course towards a renewable energy driven and zero carbon future.
China also has a very rapidly ageing population, although has nothing like our NHS to deal with emerging healthcare challenges. Scotland’s life sciences companies can offer China much needed expertise in things like precision medicine, healthcare system development, medical technologies and digital healthcare solutions.
Scottish engineering is also in strong demand in China which is modernising its rapidly modernising its industrial sectors through massive investment in innovation and through the manufacture of huge numbers of new trains, planes and electric vehicles.
Overall I can see huge demand in China for a very wide range of Scottish goods and services. And other countries are showing us what’s possible. For example, Auckland and Glasgow are equidistant from Shanghai, although New Zealand sells five times as much product to China as we do.
So how can we get better access to these opportunities?
It’s easy to get lost and waste lots of time in China. My advice would be to pick a place within China to focus on, start there and be patient.
Don’t attempt to go to China – go to Shenzhen, Shanghai or Qingdao. And there will be some places in China that are easier than others and indeed some sectors where the local competition will be too strong. Here are my five top tips:
1. Do your research
- Research the market thoroughly. The 8000 Chinese students that study in Scotland’s world class universities are a great untapped resource in this regard.
- Understand how your product or service will be perceived in China
- Work out how to get it there cost effectively
- Find a way of protecting your IP at an early stage. Whilst the system of IP protection is maturing rapidly and only 1% of IP related legal cases in China involve overseas firms it is still a major consideration.
- Consider carefully how you will deal with Chinese labelling and licensing
Above all, to be successful in China you must go there. Then, go again and again.
Despite the market challenges, Mackie’s of Scotland has been experiencing rapid growth in China since it began trading there in 2014.
2. Understand China’s business culture
Close relationships and strong friendships are vitally important in China and the basis of any business transaction. Your first friend may not turn out to be your best friend however.
Be diligent and be prepared for China not being the easiest place to do business. There is a language and culture barrier, although we are lucky that English is becoming much more widespread and the UK and Scotland do enjoy a great reputation in China for quality and creativity.
The business environment and regulatory regime in China is also complex – some things are heavily influenced by government – and some things that probably should be, are not.
It’s also a constantly moving feast. Things move at China speed, and sometimes it’s difficult to know exactly what’s going on or what’s coming next.
3. Be open to trade and investment
China is open to overseas investment however and the general trend is for things to get easier. So be open to a discussion about a trade deal also becoming about investment in your company. This can help to unlock resources for the scaling of your business – which will be needed if things do take off at China scale and at China speed.
4. Choose the best route to market
A relatively risk free route to market can involve selling your product at your factory gate to a distributer. This is how many of our consumer products find their way to China. Pick your distributer carefully however and make sure you are happy with and in control of arrangements around pricing and branding.
B2C or even B2B ecommerce platforms also provide an important route to market. To be effective, these will require to be supplemented with resources in China to support marketing and brand development.
5. Consider setting up operations in China
A growing number of Scottish companies from a range of different sectors have already successfully set up an operation in China. It was a Scotsman that helped to found Hong Kong Shanghai Banking Corporation well over 100 years ago.
Scottish companies with operations in China today include larger players such as Wood Group, Aggrekko, Edrington and Standard Life Aberdeen, as well technology start up Sensewhere and equipment manufacturer Peak Scientific. Indeed, last year both Sensewhere and Peak Scientific won British Chamber of Commerce awards last year for their work in China.
Demand is out there, you could be too
Scottish Enterprise’s international arm Scottish Development International and its partners, such as the Department for International Trade and China-Britain Business Council, worked with over 300 Scottish companies last year to help make them ‘China ready.’ And we now stand ready to help you with your journey to China.
- Connect you with influential business leaders
- Provide one-to-one market advice
- Arrange support to visit the market
- Make introductions to our contacts at Department for International Trade and the China-Britain Business Council for additional support
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