Andrew Yuan (left) shows Prince Andrew, the Duke of York, around Hytera's new office near London. Provided to China Daily

What they lack in resources, they make up for with the will to succeed

A growing number of privately-owned Chinese businesses with global ambitions are following state-owned enterprises in expanding to Europe. However, unlike their state-owned counterparts, they are generally young and highly profit-driven, a corporate culture that often affords them the advantage of flexibility and innovation in foreign markets. As China's competitive edge in low-cost manufacturing shrinks, many of these companies are high-tech oriented that stress continuous product innovation and after-sale services.

"Privately-owned companies that have a competitive technology will become key drivers of China's economy," says Andrew Yuan, managing director of Hytera Communications UK Ltd.

In 2005 Hytera, a privately-owned Chinese company founded in Shenzhen in 1993 that specializes in designing and manufacturing professional mobile radio communications equipment, sent Yuan to Britain to set up a representative office.

"We were already an industry leader in China's domestic market in 2005, so we realized that it was time for us to expand internationally so we could continue to expand at a high speed," he says.

The following year Hytera set up subsidiaries in the US, India and Indonesia, and this year it was 76th on Forbes China's list of the country's top 100 public small businesses.

Today it is a well-known brand in Britain, having supplied telecommunications services to prominent customers, including the soccer games of the London Olympics this year and to prisons.

Yuan says Hytera's revenue in Britain this year is triple that of last year, which was double the figure the previous year, and he predicts that revenue will double next year.

Hytera's expansion into Britain is typical of many privately-owned Chinese businesses, motivated to expand overseas by commercial opportunities and Chinese government policy initiatives.

The Chinese government encouraged privately-owned businesses to expand internationally in its 12th Five-Year Plan (2011-15).

That plan also detailed policy initiatives to help high-tech businesses grow because they will help China shift from rapid growth supported by cheap exports to sustainable growth supported by advanced technology.

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One of China's most successful privately-owned businesses is the telecoms and computer network giant Huawei, which in September announced plans to invest 1.3 million pounds ($2 billion; 1.54 billion euros) in expanding its British operations.

Another well-known company is the Chinese heavy machinery maker Sany Heavy Industry, which opened a greenfield 100 million euro ($129 million) research and development plant near the German city of Cologne last year, saying it needed to reach the best global manufacturing and engineering talent to become a world-class company.

Meanwhile, many small and medium-sized enterprises are looking to expand abroad to gain an advantage in their respective fields.

That enthusiasm can be seen in events such as the first UK-China SME forum in September in which more than 30 Chinese SMEs came to Britain to hear advice from experts about opportunities in the country.

In one-to-one meetings with British SMEs, many young and enthusiastic Chinese entrepreneurs defied their limited English to engage in lively discussions with their counterparts in search of new opportunities.

One such business was Qingdao HBC Metal Precision Products Co, which specializes in high-tech processing services.

"Our technology is sufficient to supply Western customers, but we are still looking for a good international partner to provide the sales channel," said Jiang Tao, general manager of Qingdao HBC.

Jiang said she is also looking at helping British companies enter China using Qingdao HBC's sales channels.

The forum was organized by LinkToChina, a matchmaking project jointly set up last year by the British Chambers of Commerce and the China Council for the Promotion of International Trade.

Zhou Xiaoming, minister counselor to Britain, says the number of privately owned Chinese businesses investing in Britain has already exceeded the number of state-owned enterprises, although their aggregate investment is smaller.

State-owned enterprises also have many employees with international experience because they went overseas earlier, a prime example being Bank of China, which opened its first representative office in London 83 years ago.

"Many privately-owned Chinese businesses are more flexible in foreign markets than state-owned enterprises, but their disadvantage is often a lack of funding and international experience," Zhou says.

Indeed, many businesses face these challenges, including Ghrepower, a Chinese manufacturer of small and medium-sized wind turbines. It invested heavily to set up a joint venture in Wales two years ago, but the subsidiary has yet to reach break-even point.

"Wind power is a sector with heavy sunk costs, so obviously we have a disadvantage compared to state-owned enterprises that have large-scale funding to support their international expansion," says Joseph Deng, director of Ghrepower UK Ltd.

Generally wind turbines have a lifespan of 20 years, meaning customers will often place more trust in rival companies that have been in Britain longer.

"To overcome this challenge, we came up with a policy to become a joint investor in our customers' wind farms, which reduces their risk," Deng says, explaining that flexibility is an advantage that keeps Ghrepower competitive.

Such flexibility helps privately owned Chinese businesses stand apart from their state-owned peers, says Guy Dru Drury of the Confederation of British Industry, a trade association with 240,000 members, some of which are British subsidiaries of foreign companies.

"As the decision-making process is far simpler for a private business compared to a state-owned enterprise, they are able to act quickly and therefore are more flexible," Drury says.

They also possess a singular "determination to succeed", he says.

"Private businesses have little if any access to cheap finance and therefore have to both make and take risks. The capital is likely to have been raised among family and friends or business partners so there is also a cultural pressure to be successful in the eyes of their peers."

The expansion of Chinese businesses to Britain also benefits local consumers by giving them greater choices and lower prices, he says.

Indeed, Chinese products sold in Britain are often more competitively priced, an advantage increasingly being supplemented by competitive technology.

For example, Hytera's reputation in the industry was given a considerable fillip this year after it helped the British retailer River Island overcome a challenging technical problem with its radio communications system.

Since moving into a new distribution center in 2010, River Island had suffered severe interference with its audio signals because two groups were using the same frequency, a problem Hytera's equipment helped River Island overcome.

For Yuan, such cases prove that to compete, Chinese technology businesses needed to rely on more than price.

"As China's manufacturing costs rise, cheap manufacturing can go to Vietnam, Malaysia, or Nepal. Therefore we must compete on our technology."

Looking back to 2005 when Hytera first entered Britain, Yuan says his team has come a long way through trial and error. When the subsidiary was first set up it had a small office in Burton-on-Trent, a small town in the English Midlands.

To cope with a growing need for office and storage space, Yuan moved Hytera to larger office space in Milton Keynes, a high-tech town northwest of London, in 2006. Rapid growth demanded another move this April, to Slough, a borough west of London close to Heathrow Airport.

"Being close to Heathrow Airport makes logistics arrangements a lot easier for us," Yuan says. "At the same time, being close to London helps us greatly in recruiting highly skilled workers."

To commemorate this milestone achievement, Prince Andrew, the Duke of York, attended the opening of Hytera's new office as guest of honor.

"To be able to invite Prince Andrew to our new office launch shows the recognition the UK government has for Hytera," Yuan says, adding that he feels thankful for the help that the British government's inward investment agency has given Hytera over the years.

Despite the success, Yuan says the road to internationalization by China's privately-run high-tech businesses is only beginning and that many challenges lie ahead.

"One of the challenges they should think about is how to make the best use of the R&D specialty and employees' skills of the local market they are in. Another is to accurately report the needs of the local market back to the R&D team in China."

An even more pressing challenge is how to overcome misconceptions about the quality of Chinese products, and get them more accepted into mainstream markets.

"The only way for Chinese businesses to become truly global is to enter the mainstream markets of developed economies. As the British government is already using our products, we can now go to any market and say that our products are of good quality.

"It is only this level of recognition that can help us to easily replicate the same business model in other markets in the world and be successful."

cecily.liu@chinadaily.com.cn

(China Daily 11/02/2012 page12)