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I welcome colleagues back from the Easter recess to the Economy, Energy and Tourism Committee’s 12th meeting in 2010. Before I start our formal business, I point out that, as members will be aware, Katy Orr, our very efficient senior assistant clerk, has left the committee to go to pastures new in the Parliament. I put on record members’ appreciation for the tremendous work that Katy did for the committee, not least, and most recently, on the banking inquiry. She was a great support to the committee in the time that she was here. She will be missed and I am sure that she will give a great boost to the work of the Local Government and Communities Committee, where she now finds herself. I thank her very much for her work. We will get a new senior assistant clerk in due course, who will be introduced to members shortly.
I am a director at the China-Britain Business Council, with responsibility for the introduction of new products and services in the CBBC. I am based in Leeds as one of the CBBC’s regional directors, but I have worked in Scotland. I was manager of the CBBC’s office here from 1994 to 2001 and before that I set up and managed the forerunner of the CBBC in Scotland: the Chinese business advisory service, which was located at the University of Glasgow for three years between 1991 and 1994. I also worked at the University of Abertay Dundee, where I set up a Chinese studies pathway as a subsidiary subject in the degree programme at the Dundee business school.
I have a general comment about the CBBC. We are in the business of helping UK companies to do business with China. We provide a range of practical services to allow them to do that. We also work with other agencies in the UK to facilitate that through the delivery of research and by finding the information that companies need to set foot in the market.
I can give a couple of examples of companies that have used our launch pad service. Clyde Blowers, which is a company that is known in Scotland for doing a great deal of business in China and is often used as a case study, started its life in China as one of our launch pad companies. Launch pad is a business incubation service that gives companies a soft landing when they set up in China. Likewise, when Edinburgh Napier University first entered China, the situation was highly regulated and the university found it difficult to set up its own organisation, so it found accommodation in the CBBC’s business incubation operation in China.
We are told that China was the 15th largest export market in 2008 for Scottish goods, but it still only accounts for about 1.5 per cent of Scottish exports. Total exports to Asia represent 9 per cent of Scottish exports according to the Scottish Parliament information centre. In your estimation, what particular areas have taken off in exports? You mentioned Clyde Blowers. Are any other particular types of export attractive to the Chinese market at the moment? What might become attractive?
Perhaps I can begin by saying that when I first started in trade promotion in Scotland, only the larger companies felt that they had a chance in China because they were exporting sophisticated and highly engineered products that were not being manufactured to the same standard in China, even though China was building facilities that required such products. Nowadays, the market is more sophisticated. Most of those engineering products are being manufactured in-market now.
Have you dealt with investment services and banking in China?
Is that a barrier that has been erected deliberately, or is it just a method of working in China that makes it difficult for overseas companies to break into the market? Given that we are a country that has 300 years of expertise in long-term investment, our services would fit well with the needs of a huge emerging economy.
That is helpful. In Scotland we tend to have the big six in terms of the sectors that we promote through Scottish Enterprise and Scottish Development International. Wendy Liu mentioned PR and consumer goods. Giles Blackburn talked about looking at things on a case-by-case basis. Are there any obvious sectors in which there is a real opportunity for Scottish companies in China that we are not promoting at the moment? There will be individual companies that are missing out, but are there obvious sectors in which we have an advantage but which we are not prioritising at the moment, thereby missing a trick in China?
Thank you.
Perhaps I can explain. We are a company limited by guarantee, but our largest customer is UKTI, which accounts for about 50 per cent of our overall revenue. In a service level agreement with UKTI, we have taken on the so-called overseas market introduction service—OMIS—which is the charging platform whereby British companies can access resource in market to find an agent or distributor or hold an event in market to attract people. Those customers for OMIS are referred to us. Some of them come directly and we steer them towards OMIS as the most cost-effective way to access a service in market. Many of them are referred to us by the so-called international trade advisers who work for UKTI across the UK. They are targeted in relation to the value of OMIS in the regions. CBBC is also targeted. There is a congruence in our goals and targets. That is one side of an important portfolio in which we engage with companies to get them to commission work in market via a UK Government scheme or charging platform.
Five years ago, I was in China promoting Scottish education. I was struck by the active role that the British embassy and its consular side play there. Does that remain important, or have you grown to the point where you are providing directly many of the services that the embassy provided?
That is an important question. When we took on the contract to deliver the overseas market introduction service, we effectively took on the work that is ordinarily done by the commercial section of a British embassy and consulate general on a business-to-business level. We do the business-to-business-related work. Typically, the China-Britain Business Council now provides all of the assistance to companies in China that want to meet other businesses. Where there is a Government angle—where there is a trade dispute or where a company’s entry into the market is critical to Government—embassy staff are better placed than we are to resolve or to facilitate matters. We do about 90 per cent of the work for OMIS; the embassy does about 10 per cent. That frees up embassy staff to do more market access and regulatory work and quite a lot of sector work. We still work closely with embassy staff, but we now do part of what is formally their work, on a business-to-business level.
That response is helpful. You mentioned energy. There are some interesting opportunities both on the oil and gas side and on the renewables side. Can you tell us a little about your engagement with both sectors, especially in relation to Scotland-based companies in the industries? Are you actively engaged with them on export opportunities in China?
How large in your thinking would that deficit bulk in terms of remedies to it? In other words, would you tend to go for those areas where we are already strong, such as financial services, or would you consider ways in which manufacturing exporting could be fitted into different niches or ways to complement exports from European states? What might your tactics be?
Do any of the smaller European nations such as Switzerland and the low countries, or certain regions of Germany, Italy or France, seem to have struck it rich by providing that type of niche product in China? Thinking about that might offer us some possible ways in.
The British Council is the main organisation in that regard. It runs exhibitions in China—
As for exploring opportunities in the third-tier cities, the CBBC organises an annual education mission to China. The most recent one went to Chongqing and Chengdu in the south-west of China, and focused on vocational education, which is a niche area in which Scotland is quite strong.
The impression that people have of Scotland is one aspect of trade. What is Scotland’s image in China and what impression do people in China have of Scottish business?
Do you mean culturally?
What is the biggest challenge for any Scottish company that wants to enter the Chinese market for the first time? Obviously, that could be sector dependent.
I am particularly interested in the matter because SDI has run incubators in the United States but I do not think that it has done so in other markets. When we see it next week, we will want to explore its experience of the US incubators over 10 years. Any further insight about the experience of the Danish model would be helpful in that wider context.
Yes. It is a question of finding ways of making the best use of those students. If we do the maths that people often talk about—if we think about the extent to which the students tell their family members and other people—we see that they will make a bigger impression than if we were to go to the expense of having a promotion. I agree that they are a tremendous resource.
I am the CBBC’s Scotland office manager. I have been with the CBBC for about two and a half years, looking after all aspects of the CBBC’s activities in Scotland. That includes working with Scottish Development International as well as running our own events and company consultancies and working with other partners. Before I joined the CBBC, I worked for UK Trade and Investment for five years, mostly in Guangzhou in southern China. Again, that involved trade and investment promotional work for UK companies.
The launch pad service is a useful and flexible service for companies to get into the market in China. It is even for public sector bodies—for example, SDI has used the service. As well as that unique service, we provide a lot of tailored market research for companies to help them identify opportunities and find Chinese partners, buyers or end-users. Each year we have about 20 research projects for companies in Scotland to identify opportunities and link those companies with Chinese partners.
If a company wants to open up a market in China, how does it become aware of your services and go about doing that? At our previous meeting, we heard from Thomas Tunnock, the famous biscuit company—you will no doubt know of its caramel wafers and teacakes. We heard that the company has not been able to identify ways of getting support to get into the Chinese market. How do you make companies such as Tunnock’s aware of your services and what you can offer them in breaking into the Chinese market?
We have to rely on our own devices to build up a database of companies that have expressed an interest in China, to build our network in order to get companies to pay attention to what we offer. That is a long process, which is started by holding public events, inviting people along and letting them know about further events. We also rely on our website. As an organisation as a whole—so not just in Scotland but in the rest of the UK—we realise that lots of companies might be or might wish to be doing things with China but are not on our radar, which can be frustrating for us sometimes.
Do you expect agencies such as SDI, the Scottish Council for Development and Industry and Scottish Chambers of Commerce to refer people to you, and does it happen?
Yes, it does but it depends. Because SDI is such a big network, we have good connections with some of the offices such as the headquarters in Glasgow. We also work quite closely with the Dundee office. Our office is located inside the Glasgow chamber of commerce, which neighbours Scottish Chambers of Commerce, so they know us quite well and they refer any inquiries on China to us. However, there is still a gap in information about the services that we can provide to companies.
I agree. Currently only the major players can get a foothold in the banking and financial markets. It is very difficult for medium and small companies because of the regulations and entry barriers.
I know from my experience that there are sectors in Scotland that are on the priority list. A current example is renewable green energy, on which many events and trade missions are held. There is a wind farm exhibition, and a roadshow is to be held that will promote Scotland’s strengths in green energy. I am also aware that in the life sciences sector, there is huge support even for small and medium-sized life sciences companies that are looking to find a market in China.
If there are obvious examples of where we are missing out, it would be helpful to get them in writing, so that we can say to SDI that it has its top six priority industries, but there are areas in China where we might be missing out and on which we might want to refocus.
I agree. It is about getting the match between what China wants and what Scotland can still offer. We can come back to you with some suggestions.
I am very interested in the models for delivering support for businesses that export abroad. Will you explain the model that the China-Britain Business Council follows? You are a company limited by guarantee. The services that you provide are chargeable. How does that work? How do companies first get involved with you? Do they become members first or do they become customers and then members? What is the process of engagement with exporters?
The committee wants to establish how the relationship between SDI and UK-wide bodies works in practice when it comes to export and trade. Would it be fair to conclude that the oil and gas sector is principally an SDI interest, rather than a CBBC interest, when it comes to the growing market in China for Scotland-based oil and gas service companies?
Yes.
Yes.
Yes. We mentioned in our written submission—in the appendix, I think—that we have been called upon to do some sector reports. That work has been carried out in support of existing initiatives and to give weight to or provide momentum for activities.
To my knowledge, all three of those countries—although I am not too sure about Italy right now—have a bigger value of exports to China than the UK. As I understand it, Germany has four or five times more exports to China than the UK, which reflects its strength as an exporting and engineering nation, but the UK is the largest investor in China from the European Union. Furthermore, the figures often do not take account of the value of the growing financial services sector and its engagement with China. The short answer is that we are behind some of our European competitors in terms of straight exports, but we are often preferred for setting up in China to serve the market.
You have hit the nail on the head by mentioning niches. First of all there are the products that are imported into and bought in China because they are made overseas. Secondly, safety-critical, health care and engineering efficiency products are often imported because China cannot produce them itself. In health care, for example, it might want to get the best product for particular patients. It is about niches and solutions to problems that Chinese manufacturers cannot solve. We might call them niches but in a market as large as China there are significant opportunities. It is about being canny with regard to where China is heading, how it is trying to position itself and what its immediate problems are.
I will have to think about that and come back to you. I have not mentioned some other sectors, such as the transport and automotive components sectors, in which the UK in general is providing products. Those sectors are part of a bigger supply chain.
I got to know quite a few Chinese students quite well while they were studying economics in Germany. They were from three different areas—Hong Kong, Taiwan and the People’s Republic of China—but they all stressed the strength of family connections. How would you evaluate that?
I will make a comment on that and then pass over to Wendy Liu.
In China, the point of origin of a product is important with regard to their responsiveness to it. If a consumer product or an engineering product is manufactured in Britain, it will be viewed as British. The ownership of a company will not be too much of a problem. However, the extent to which that company can act on the interest from China is an issue that has to do with the overall strategy of the company and whether the investor is of the hands-on or the hands-off type. In the companies with which we come into contact, we have noticed that there has been quite a bit of autonomy in the way in which they deal with those opportunities.
Scotland has an excellent reputation in education and training. Do you think that we are maximising the opportunities in that regard in China? What kind of relationship does the CBBC have with Scotland’s universities and colleges?
Most of the activities of universities and colleges are focused on the first-tier cities and some of the second-tier cities. China is a vast market, and there are cities and regions that most of the universities and colleges have not explored.
The early interest among institutions in Scotland and the UK was in student recruitment, which has generally been successful. Nowadays, the provision in China is improving. The question is, to what extent can institutions forge longer-term co-operative ties in the market and get revenue streams from that? Things are probably heading towards the development of new co-operative in-market relationships in China.
To some extent, the CBBC has to rely on its own channels to get the message out to people that activities are taking place and that opportunities might exist in some of the off-the-beaten-track cities in China. We would welcome the opportunity to promote those opportunities more broadly through co-operation with the public sector.
Very few Scottish education organisations took part in the vocational education missions that I mentioned. We might need to promote that sort of initiative more widely in Scotland.
Or more generally, if you wish.
Scotland’s image in China is at the “Braveheart” level. Chinese people see Scotland as part of the UK. However, many people are still confused about the concept of Scotland and England, so they refer to the whole of the UK as England. There may be a need for stronger promotion of the Scotland brand. That said, golf and whisky have helped a lot in promoting the Scotland brand, and the Scottish education system has quite a good reputation in China. Overall, there is an increasing awareness of Scotland.
The cultural differences between the two countries have been touched on. What specific things would the CBBC assist a Scottish company with if it wanted to export to China for the first time?
It obviously varies from case to case. When a company is trying to convey a particular brand of consumer good in China, there are all kinds of ways in which to translate a UK or Scottish name into Chinese characters. Part of our cultural training that relates to communication is in advising companies how they can best convey the attributes and advantages of a product into a name that resonates with the Chinese consumer or the Chinese buyer. That is an example on a branding level.
We sometimes run workshops or round tables to raise cultural awareness of China and of general business practices in China, but we also work directly with companies to deliver cultural training. In London, companies can join one of our regular cultural training sessions, which are a chargeable service. We also deliver a tailor-made cultural training service to companies. For example, we recently provided one such session to an engineering company that intends to send a group of engineers to China for the purposes of technology transfer with their Chinese partners. That will be their first visit to China and it will be not to Beijing or Shanghai but to an inland city, where we have a presence. We were in a good position to provide that training to let them know about the local characteristics as well as business characteristics. We can provide training at different levels: for one person, for a group of people or for the whole company.
I think that that was a comment rather than a question.
Yes.
Could we try to avoid comments, please?
I have two questions, both of which it might be easier for the witnesses to answer in supplementary written evidence.
The figure of 5,000 is annual, so the turnover is extraordinary.
Will you perhaps give the issue a little reflection offline and think about how that work might be done in a Scottish context? I know that the British Council and others have thought about that but have not developed their thinking. One question is how to do it in a culturally sensitive way. You are the right people to think about what in an extended welcome and return programme might be of interest without being seen as an imposition on people. As I said, any insight you have into that would be very helpful.
Certainly.
I would like clarification of a comment in your submission. In answer to question 9, which Wendy Alexander mentioned in relation to the Danish scheme, you state:
That is correct.
So it is entirely self-funding.
No. To follow what Wendy Liu said, the word for “Britain” is “yingguo”, and the word for “English” is “ying ge lan”. The overlap in people’s understanding of Britain—tying in England automatically—probably comes from the first character of those words. Would you agree, Wendy?
I thank Wendy and Giles for giving us a helpful background to what is an important potential market for Scotland. We will continue with the inquiry a little later, with representatives of the consular corps in Scotland.
To give us a flavour of what you offer, will you give examples of specific or general assistance that you have given to Scottish companies that are seeking to develop in China? How do companies go about using your services?
The problem with investment, banking and financial services is that the sector is highly regulated in China. So, although it shows a great deal of promise, it has been quite difficult for companies to get involved and get revenue streams from it. Until this point, to my knowledge, most companies have set up a presence in China to position themselves in anticipation of opportunities, but the market is not open enough for people to take advantage of it.
You are quite right. Our services would fit well, but that is part of a general positioning by China to bring its domestic industries up to a point at which they can compete with foreign entrants. There are varying degrees of that trend across a wide range of industry sectors in China. It is less about a fit or even having the right knowledge and expertise, and more about the development of China’s domestic capabilities. That is an extremely sensitive issue in China for economic policy and strategy.
I enjoyed reading your submission, which raised some interesting and valid points, one of which I would like to explore further. You were asked whether the public sector was getting it right as regards resourcing. It was quite interesting that you said that some companies may fall foul of not being in a priority sector—in other words, they do not get the support that they need even though there is a demand in China for their goods and services. Will you expand on that a little?
The China-Britain Business Council is often asked what opportunities there are for British companies in China and which sectors present the greatest opportunities. We can come up with the usual suspects, but very often we can say with hand on heart that most sectors offer some kind of opportunity in China because of the enormity of growth there, the rise of the middle class and the spending power of ordinary consumers. Rather than screen out a company from the beginning because it does not fit into a particular sector, we try to respond by taking a close look at its business case to see whether there is an opportunity for it and by offering the services that Wendy Liu has mentioned.
Most of the priority sectors set by SDI are covered quite widely—energy, financial services, life sciences, education and food and drink—but there are some specific niche markets, too.
I am interested in the distinction that you make. If a company takes the step of becoming a member, what additional engagement does that provide for them? Do you seek actively to recruit new companies as members, or is that a logical step that companies choose to take once they have become actively involved in the Chinese market?
It would be nice if it were a logical step, but things do not work like that—it depends on what the company wants. The main attraction for companies to join CBBC is that they become part of a broader network of people who are on a similar journey and to whom they can talk. That network includes other service providers such as lawyers and taxation experts and has a large footprint in China. We have 11 offices there, each of which has a network of relations with local government; companies that join CBBC have access to those networks. Often companies set up in one city in China and find that, after a while, they need to expand their network. China is a place where third-party, indirect introductions are key. We can play an important role in enabling people to develop their business in China, after they have used some of our earlier services.
We work case by case, with specific companies. We have run some China promotional and awareness events. Last year or in 2008, we held a climate change seminar in Edinburgh with SDI, as part of the China now programme. SDI has a big team covering the energy sector and has more resources than we have.
You have been speaking about supporting SDI’s work on renewables, rather than leading that work. That is a fair characterisation of the position, is it?
How does the United Kingdom compare with other countries of a similar population size with regard to its exporting activity in China? Is there a paradigm country that you have your eyes on as your lead competitor from Europe? I want to consider the big-league countries first—Italy, France and Germany—and go on from there.
I agree. Family is an easy entry point if you know the person. We talk about the guanxi form of relationship. If companies here have some sort of relationship with friends in China, it will be easier for them to enter the Chinese market. However, there is a risk that people will rely on that sort of relationship too much. Eventually, companies should go for professional assistance or advice rather than rely on their relationships. On the other hand, when we are giving cultural training to companies that are already established in China and are dealing with Chinese companies, we tell them that they should be aware that the family is the most important value for Chinese people and that showing an interest in and getting to know people’s families will help them to build a guanxi and a business relationship.
Many of our high-value-added enterprises are foreign owned—Diageo is not at all Scottish these days. Does the foreign ownership of a Scottish enterprise have an effect on the responsiveness of companies to opportunities abroad? From our examination of the small businesses that we have been examining in the luxury goods area and the niche consumer goods area, I have a sense of how rapidly they can react to opportunities—notably, it goes back to the old shortbread and soup traffic and so on—whereas a big international company is more concerned with its corporate interests than with a particular branch plant in Scotland that is seen simply as one of its product feeds.
Wendy Liu mentioned the untapped opportunities in China. How can education institutions find out where those opportunities are? What support exists to help them do that?
Yes, we took evidence from it.
What can this committee recommend the Government does to help get that message out?
About the education sector?
More generally, it is about mapping where the expertise is on particular markets or things and ensuring that the companies are fully engaged. Whatever happens, the persuasion to get a company interested in a market and the interactions that can clinch the decision to make an exploratory visit need to take place here, on the ground, in Scotland. Ways in which organisations can help the public sector to reach its targets, get people into markets and deliver services are welcomed by organisations such as the CBBC, which is looking for opportunities for fuller engagement with companies in the early stages of their thinking about whether they should enter markets.
Yes.
Do you work in tandem with the likes of Scottish Enterprise, the SCDI and other bodies to help businesses deal with those cultural aspects, or do you just deal with that yourself?
I know that, in co-operation with SDI, we have delivered master classes in Scotland about cultural issues.
Surveys of UK companies, including Scottish companies, suggest that communication issues rate very highly as a business challenge, as do concerns about intellectual property. Bureaucracy is still an issue. I guess that one of the biggest challenges is the overall cost of market entry because of the amount of resource a company needs to commit to get the wheels rolling. For a small company, visits to market and attending to the detail of building up the relationship can be quite a big commitment, so a dedicated China person might be needed to manage that process at the beginning. When companies come to the CBBC, we always remind them that achieving market penetration will require quite a bit of commitment, which might take them off other activities.
My final point relates to my first question and picks up on what Ms Liu said in an earlier answer. When asked about the impression of Scotland, she answered by saying that people in China do not understand the difference between Scotland and England and that they refer to the UK as England. During the time I spent studying in Europe, I found that that was common. From what you said, it is still the case in China. I agree that promoting Scotland, be it as an independent nation or as part of the current devolved situation in the UK, is a massive issue. There is an issue about promoting Scotland as a different area from the whole of the UK, which is often referred to as England.
On your first point, I have independently looked at the performance of companies that have gone into our launchpad service, which started in about 1994. It actually started before the Danish trade commission scheme, which was no doubt started by the Danes independently, and which operates not just in China but in a variety of countries. I noticed that there was an interesting model out there that was doing what CBBC was doing, in other markets. I subsequently found an interesting academic paper that uses the Danish export incubator to make some findings and comments. I can forward that to you. It is a recent paper; it was published in 2008.
I will send you what I have about it.
I was referring to the launchpad scheme. In my background reading about business incubation, I found that a high percentage of schemes are publicly funded, either wholly or in part. The CBBC has launchpad, but the opportunity that it provides is charged out to companies at a commercial rate because we have to hire the space in China to accommodate the people who work as launchpad managers. It struck me that there may be opportunities to select companies that it is felt have an opportunity in the market, and that the public sector could think about subsidising some of their presence using launchpad. That is where I was coming from.
So you are looking at a body such as SDI providing direct support to a company that uses the launchpad scheme rather than a subsidy to the CBBC to support the scheme in general.
Do you currently receive any support from UKTI for the launchpad premises? Do any businesses in other parts of the UK receive such support from public sector agencies?
No.
The launchpad side of the CBBC’s operations is entirely self-funding.
May I ask one purely factual question?
Briefly, please.
I believe that there is no word for “British” in Japanese. Is that also the case in China?
Yes.
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