Is China a threat to Britain's small businesses?

'We focused on our strengths of quality, consistency and reliability'

The emergence of China is an epoch-defining change in the global economy. This country of 1.3 billion people has in the last 10 years built enough roads to circle the equator 16 times. It already makes 90 per cent of the world's toys, 40 per cent of the world's socks and 80 per cent of the world's DVD players. Its economy has grown by around nine per cent every year for the past 25 years and is now worth more than US$2 trillion.

With statistics like these, it is perhaps no surprise that China is usually perceived as a threat to the UK's economy; a country of cheap imports and even cheaper labour against which UK companies cannot hope to compete.

As a few pioneering companies are demonstrating, however, for businesses that are prepared to look beyond the headlines, China's growth is actually an enormous opportunity, not a threat. And it is not just a market for the multinationals. Small and medium-sized businesses across every sector are finding a huge new market for their products and services.

Photolink, a creative services agency in Manchester, sees huge potential for developing its business in China, both helping Chinese-based companies market themselves internationally, and also helping UK or European businesses trade in China. It is planning to open an office in either Beijing or Shanghai by 2007. But Claire Robinson, the company's China Trade Director, says that the lack of information for smaller British businesses interested in trading in China means that many do not realise the opportunities that are available.

"It is estimated that by 2030 China will be the largest economy in the world and yet there is relatively little information about doing business there in the UK press. More information would encourage companies in the UK to think about China as a potential market," she says.

Photolink's first exposure to China was via a part-funded trade mission organised by the local chamber of commerce, often a good source of initial information. Another invaluable resource is the China team at UK Trade & Investment in London, the international trade arm of the Department of Trade and Industry. They can direct businesses to regional resources, such as international trade teams within chambers of commerce or Business Links. They can also liaise with the British Embassy and the various consulates in major cities throughout China, which are geared up for helping British companies of all sizes find local business partners and clients.

Jo Pearson, managing director of waste management and recycling company Pearsons of Thetford, is full of praise for the support he received from the British consul. He went to Shanghai for a plastics trade show, but when the show turned out to be of little use, he was left with an empty week to fill.

"The consulate was amazingly helpful. I had a meeting with the trade consul and within 24 hours he had arranged seven or eight meetings with local companies for later that week. We now get three or four e-mails a week from Chinese companies and can sell pretty much anything we get our hands on," says Pearson.

China now accounts for around 10 per cent of the company's £5m turnover, a figure which Pearson expects to rise to around 30 per cent in the next 12 months.

Lynn Shaw, head of the International Trade Centre at Manchester Chamber of Commerce, points out that opportunities are not confined to major cities such as Hong Kong, Shanghai or Beijing. She says that smaller businesses should consider looking at opportunities in the country's secondary cities, still enormous by Western standards, but where the market may be less crowded.

"There's so much interest in the larger cities, so many big companies jostling for position, that it can be hard to make an impression," she says.

And making that impression is a vital step. At Photolink, one of Robinson's priorities is to develop and consolidate relationships in China. It's not quite as mercenary as it may sound. Success in this massive market depends to a large extent on who you know. Not in a nepotistic sense, but simply because in Chinese culture, personal relationships are pivotal.

"We went on a trade mission to Hong Kong and Beijing in 2005 and we have put a lot of effort into developing our contacts, or guanxi as it is called there. Having good guanxi can be vital to your success in China," says Robinson.

It would be a mistake to think that China can offer a quick-fix for any businesses which are struggling in the UK, however. If anything, the time and resources needed to crack the Chinese market will quickly unravel a flawed strategy. As well as the different culture, language and business environment, Chinese bureaucracy, in particular, is often cited as a hindrance to doing business, with labyrinthine hierarchies and procedures of national, regional and local government to navigate. However, it is something that the Chinese Government is taking steps to address. Regulations are continually being relaxed, so joint ventures, for example, can now be wholly foreign-owned, whereas until recently they had to have a local Chinese partner.

Says Pearson: "It can take months to get the right paperwork or even find out the best procedure for doing what you want to do, but it is getting better. And when you look at the opportunities, there's no question it is worth the effort."

EJ Payne, a Stoke-based manufacturer of quality control products for the ceramics industry, has clearly developed excellent guanxi - or connections - over in China.

The company was facing a steady decline in its UK market, precisely due to the competition from low cost-base countries such as China, which was driving its traditional client base out of business. Rather than wring his hands and bemoan cheap imports however, technical director Adrian Allen (pictured) realised that the growing strength of the Chinese ceramics industry was an enormous opportunity.

Guangdong province is the centre of China's ceramics industry. Allen's research revealed that there were 10,000 ceramics companies in the province's city of Chaozhou alone. There were another 650 tile and sanitary ware specialists down the road in Foshan.

"We knew immediately that there must be a market there, it was just a question of getting our product proposition right," explains Allen.

With a product that was around 10 times the price of the locally made equivalent, competing on price was never an option. "We focused on other strengths, such as quality, consistency and reliability. We realised that although our product is much more expensive, it is of far higher quality, and as Chinese manufacturers are themselves looking to move up the quality-scale, that was a key attraction for them," he says.

The strategy clearly worked. From having no business in China five years ago, at least a quarter of EJ Payne's £1m turnover now derives from China and the company has opened an office in Guangzhou, the capital of Guangdong province.