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Heading | FEATURE China | FEATURE

IT HAS BEEN a business cliché for some time that China is ‘the factory of the world’. For many that meant that China was simply the place that manufactured the goods westerners consumed. It was a place to cut costs and outsource production for the US and European markets. However, the country’s success as a manufacturer led to a decade long economic growth spurt, which, in turn, transformed it into a market in its own right. Today, China has a fast growing middle-class with a taste for western products and it has an increasing need to import the type of higher-value goods and services that aspiring ‘smart economies’ like Ireland pride themselves on creating. The new business cliché is that China has moved from being ‘the factory of the world’ to being ‘the market of the future’. This isn’t news to China-watchers.

“It was clear to me that there was an export market there when I set up my company in 2005,” says Deirdre Walsh, Managing Director of the consultancy firm China Green, which helps to guide Irish companies doing business in the region. “I’d been working for a large financial services firm in the country for four and a half years and I was amazed when I came back to Ireland to find that there wasn’t more business going on between the two countries. At the time, I thought the growth area was going to be exports, particularly in food and drink and the leisure and tourism area. Those are distinctive Irish products with a ready-made market. But, as it turns out, until about a year ago, Irish business (with China) ended up being mainly about companies outsourcing and cutting costs.”

SHIFTING THE BALANCE

Right now, the balance between exports and imports is shifting, and this is reflected in the most recent figures. From January to November 2009, Irish exports to China were €2.175

billion, with imports for the same period at €2.67 billion. The previous year’s exports were at €2.19 billion with imports at a much higher €3.8 billion. According to Gerry Wrynn of the Bilateral Trade Unit at the Department of Enterprise, Trade and Innovation, “One of the misperceptions is that the Chinese were exporters but not massive consumers. That’s certainly changing. Imports from China have levelled off, partly due to the recession, but also because we have reached a plateau in terms of the extent of the goods this country needs

Deirdre Walsh, Managing Director, China Green.

“We reALLy need

To MAKe oUr MArK

on THoSe SecTorS

noW Before THey

STArT doIng IT

THeMSeLveS.”

– deIrdre WALSH

from China. The export side of the equation is the really interesting bit. There has been good solid growth there year-on-year. Much of it is in electronics, computers, and pharmaceuticals, but food and drink are also doing very well. For example, the baby food scandal last year in China meant there was suddenly an opening for Irish produced baby food on the market. And you can add to that the fact that there are now around three or four hundred thousand Chinese middle-class who are developing an appetite for western goods.”

Up until last year, the Irish government was fostering growth in Asian markets through a decade-long ‘Asia Strategy’, and, as a result, Irish exports to China grew by 19 per cent between 2003 and 2009. The body charged with nurturing individual Irish companies with Asian ambitions was Enterprise Ireland. They went from having 45 companies with bases on the

ground in China in 2005 to 100 Irish businesses there at the time of writing. They themselves have four offices in the region. “We obviously recognise that there’s been a shift of power in terms of the emerging economies of Asia,” says David Byrne, Head of High Growth Markets at Enterprise Ireland. “Depending on how you count the numbers, China has pipped Japan as the second largest economy in the world. That is probably debatable but it certainly will be the second largest very soon. Their GDP is about 9 per cent and it will run at 8 or 9 per cent this year. They had their own stimulus package and they seem to have come out of their dip much earlier than anticipated. All of this means that China is clearly a very important market. Our own strategy involves moving up that value chain to the higher-value products. We’re clearly not going to be able to compete like-for-like at the low-end of manufacturing, so the Irish companies that flourish there are in education, financial services and medical devices – products with a high degree of design and complexity and with high value differentiators that can’t be easily replicated.” Byrne is keen to stress the commitment

required when staking a claim in the region. “It’s culturally very different,” he says. “And it does take quite a bit of effort. There are language challenges and the way of doing business is different. You have to build up relationships and there is a lot of bureaucracy. It’s a more complex market; a market for those with a clearly identified strategy and perhaps some experience of exporting elsewhere. None of our companies take it lightly.”

RELATIONSHIPS ARE KEY

Deirdre Walsh’s experience bears out Byrne’s caution. “In many ways it’s faster to do business in China,” she says, “but it takes longer to get a return on your investment. Everything is so much bigger and there is a lot of noise and competition in the market. So, if you’re developing a new niche or product you have to make your own noise and that means spending more money on marketing and distribution. Business people in China want to make money like anywhere else but you really do have to build relationships and get close to partners, employees and colleagues.”

But there is, broadly speaking, governmental support for Irish entrepreneurs who have Asian ambitions. After the relative success of the government’s Asia Strategy, Gerry Wrynn says

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