Chinese companies make strides in the UK

Phillip Bosworth (right), export sales manager of Standen, a British farming equipment manufacturer, gives Zhou Xiaoming a tour of his company. [Photo by Cecily Liu/China Daily Europe]

Chinese companies are making great progress expanding into the UK despite obvious challenges, says Zhou Xiaoming, minister counselor with the economic and commercial office at the Chinese embassy in London.

These challenges relate to both Chinese companies' need to operate in a new environment against fierce competition from local and other international companies, and regulatory challenges such as the difficulty of obtaining visas for Chinese employees.

"There is already a lot of fast growing Chinese companies in the UK, but more potential exist," says Zhou, who assumed his current office in December 2009 and has witnessed the tremendous growth of Chinese companies in the UK for the past five years.

Using the Industrial and Commercial Bank of China as an example, Zhou says considering that ICBC is the largest bank globally by market value, the bank's activity in the UK is relatively small.

Likewise, some Chinese insurance companies are very large in China and globally, but their activities in the UK have just started to grow, Zhou says.

"I think this relates to the stage of development China is in, because in the past China is a net receiver of foreign investment, but it's only in recent time that China is seeing an increasing amount of outbound investment," he says.

When investing in the UK, getting used to the local legal and business environment is important, and one challenge Chinese companies often voice is obtaining the right visa for their workers, Zhou says.

As many Chinese companies wish to hire Chinese workers for ease of communication, they find it a big challenge to secure visas for their workers because the annual limit of non-EU workers entering the UK is 20,700, which makes the application process very competitive.

Another way to employ Chinese workers in the UK operation is by bringing in staff members from the company's China headquarters, through the inter-company transfer route.

But the ICT route can only be used to bring in staff members earning a base salary of 24,500 pounds ($39,000) or more, and only those earning more than 41,000 pounds can work in the UK as long term employees.

Zhou says he has helped Chinese companies to voice the visa challenge concerns with the British government already, although actual changes to policy are difficult to result.

"Many Chinese companies believe the visa issue is restricting their growth. I think their voice should be heard because Chinese investment creates a lot of employment opportunities for British local workers and it would be a shame if their growth is limited by visa restrictions," he says.

Zhou says Chinese companies are right in pointing out that some job functions facilitate communication between their headquarters and the UK subsidiary, so would be more suitably filled by Chinese workers.

In addition, in reality many Chinese companies actually do have British workers forming the majority of their work force, says Zhou, citing Bank of China and the telecommunications service company Huawei as examples.

Chinese investment in the UK grew significantly over the past few years in financial services, telecommunications and brands, Zhou says.

For example, Huawei in 2012 has promised to increase its workforce in the UK from the then 800 to 1,500 by 2017, with an additional investment of 1.2 billion pounds. It was a commitment greatly welcomed and supported by the British Prime Minister David Cameron.

Zhou also lauded Huawei's investment in the UK, particularly the research and development work the company has invested in.

In 2012, Huawei acquired the Centre for Integrated Photonics Ltd (CIP), a world-leading photonics research laboratory, which helped the company to boost its research strength. Huawei also cooperates with Imperial College London, a leading university, for research.

In financial services, the oldest bank to expand into the UK is Bank of China, originally opening an agency office in 1929 and upgrading the status to a branch in 1946.

Following Bank of China's footsteps, China's biggest banks have all established a presence in London, including Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of Communications and Shanghai Pudong Development Bank.

One major game changer is the granting of a branch license to ICBC this year, making the bank the first Chinese bank to receive a branch license since regulatory changes following the 2008 financial crisis have limited foreign banks' UK expansions to subsidiaries only.

Zhou says ICBC's branch license is a great achievement and he expects more Chinese banks' applications for branch licenses will be granted in the near future.

Different from subsidiaries, which are regulated in the same way as British local banks, branches of overseas banks have lending and financing capabilities proportional to their parent companies' balance sheets.

Meanwhile, in the technology, equipment and manufacturing sectors, many leading Chinese companies have established rapidly expanding sales in the UK market, says Zhou, naming Lenovo, Haier, NVC, and Mindray as examples.

The computer maker Lenovo has established sales of computers and other IT items in Europe after its acquisition of IBM's personal computer business in 2005, whilst the white goods giant Haier has established aggressive European expansion plans with product sales and research and development across Europe.

NVC Lighting Technology Corporation has an assembling factory in Birmingham, producing lights for wholesale customers. Medical equipment maker Mindray has also made tremendous progress in the UK, as its equipment is now used by many hospitals under the UK's National Health Service.

"Many Chinese manufacturing companies used to just sell products as OEM (original equipment manufacturing) providers, but now they are doing well to build a brand and selling their own branded products in the UK. NVC is a good example of this," Zhou says.

"These brands have the advantage of good quality and competitive prices, although they are not always the cheapest in the product range," he says.

In addition, Zhou points out that many Chinese manufacturing and brands companies are now expanding through acquisitions rather than organic gorwth.

In 2013 Dalian Wanda bought British yacht company Sunseeker. Bright Food acquired the British cereal maker Weetabix in 2012, and earlier this year Sanpower bought a majority stake in the department store chain House of Fraser.

In the manufacturing sector, Chinese company Zhuzhou CSR Times Electric acquired British company Dynex Semiconductor Ltd in 2008, and Shandong Yongtai Chemical Group became a majority owner of the British car body parts maker Covpress in 2013, just to name a few examples.

Zhou says he is particularly optimistic about the model of Chinese companies' UK expansion through acquisitions, explaining this process is like "buying time" because the strong technology strength and brand value that British companies have taken decades to develop will be gained through the acquisitions.

"Chinese investors can inject capital into the British companies they buy, helping them to further develop their technology and brands, but also help them to access the Chinese market or enlarge their scale of production through China's manufacturing capacity. It's a win-win cooperation," Zhou says.